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Originally published Thursday, November 17, 2011 at 8:53 PM

Yet another grim state revenue forecast

The state's chief economist said Thursday that the state has taken in $12 million less than expected since September, and that revenues are projected to drop by $122 million over the next two years.

The Associated Press

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OLYMPIA — The state's chief economist said Thursday that the state has taken in $12 million less than expected since September, and that revenues are projected to drop by $122 million over the next two years.

However, the governor's budget office says that's expected to be roughly offset by money saved from a drop in caseloads — the number of people using state services, such as health care for the poor.

The net effect is the $2 billion hole in the budget remains about the same.

In his latest revenue forecast, Arun Raha said that despite the relatively small change from September's forecast, concern remains. Problems in Europe could make the problem much worse, he said.

"Revenues depend on the economy, and the economy is a moving target," he said. "Much of the risk in Washington's economy is based on events outside the region," he said, specifically noting that steps taken by the new government in Italy will be crucial.

"It's too big to bail out," he said.

He said that if Italy's financial problems aren't resolved, there will be a domino effect that will ultimately affect Washington state. "A European banking crisis will become a U.S. banking crisis," he said. "A U.S. banking crisis will push the U.S. back into recession."

Raha said that if European troubles continue, "our baseline forecast will be invalidated."

While there is a 50 percent chance that Thursday's forecast from the state's Economic and Revenue Forecast Council will hold true, Raha said, there is a 40 percent chance that a much worse outcome could occur.

The council's pessimistic outlook would have the state taking in nearly $2 billion less than early projections over the next two years.

Additionally, Raha said that political gridlock in Washington, D.C., "has led to a steady erosion of consumer and business confidence, which is so important."

Raha cited a few positive areas in Washington's economy: Microsoft and Boeing are hiring again, and the state's exports have increased. However, he said the construction sector is still weak, and state and local governments are shrinking.

State lawmakers return to the Capitol on Nov. 28 to consider approximately $2 billion in cuts to state programs for the budget through 2013. Gov. Chris Gregoire is expected to release her budget proposal on Monday suggesting cuts, as well as a revenue package.

State Sen. Ed Murray, D-Seattle, said that "everything is on the table."

"It's going to be a combination of cuts and revenue," he said.

On Thursday, the state saw a bit of good news on the jobs front. Numbers released for October show the rate has dropped to 9 percent — the lowest since March 2009. The October rate compares with a revised figure of 9.2 percent for September and 9.4 percent in October of last year in the state. The national jobless rate also is 9 percent.

With 4,600 jobs added in October in Washington, the officials at the Employment Security Department say the state has added jobs in 12 of the past 13 months.

Improving the jobs outlook is crucial for the state's recovery, said Rep. Ed Orcutt, a Republican from Kalama who sits on the forecast council.

"We have to get people back to work," he said.

Seattle Times staff reporter Andrew Garber contributed

to this story.

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