Coronavirus Has Wounded Washington State’s Economy. This Is How We Heal It.

A new report lays out five policies that the Washington State Legislature can pass to address our economic woes. Only one rebuilds an economy for everyone.

This week, Washington state lawmakers gathered in Olympia to determine how the state will recover from the coronavirus pandemic. The decisions they make in this legislative session will shape the health of our economy for the next decade. It all comes down to this question: will our leaders invest in the economy, or will they slash spending in a knee-jerk attempt to balance the budget?

The choice between investments and cuts will affect virtually every facet of Washington state’s economy. When eviction bans are lifted, will families be thrown on the street with a black mark on their credit histories? Will neighborhood businesses survive the last few months of lockdowns, allowing our economy to roar back to life later this year, or will they shutter forever? Will the state’s economy continue the record expansion that we saw before the pandemic, or will it contract in a painful, years-long recession?

A new report from the Washington State Budget & Policy Center should help to make that decision easier. Using Regional Economic Models, Inc. (REMI) data, the report compares five different strategies for the Washington State Legislature to address the economic downturn caused by the coronavirus pandemic. Only one of those strategies results in a stronger economy.

The five policy choices laid out in the report are as follows:

• Generating $3 billion in state revenue for community investment
• A ten percent cut to funding for higher education
• A five percent cut to the Department of Social Health Services
• Requiring state employees to take 13 unpaid furlough days in the next year
• A five percent cut to public K-12 schools

WSBPC then projected how each of the policies would play out for the state economy in three key areas: Job creation, economic growth, and consumer spending. The only option that generates positive growth in any of those areas is the $3 billion investment in communities.

Increasing state investments by $3 billion “would create nearly 66,000 public- and private-sector jobs in Washington state.” The $3 billion investment would boost Washington’s Gross Domestic Product “by almost $6 billion per year,” and it would “increase consumer spending by nearly $4 billion per year,” which means more people spending more money at small businesses.

All of the cuts would weaken the economy, kill job growth, and decrease spending at small businesses. A 10 percent cut to higher education funding, for example, would eliminate over 17,000 private sector and 20,000 public sector jobs. Slashing social services by just 5 percent would result in a $1.4 billion hit to the state GDP. And forcing state employees to take 13 unpaid furlough days, a policy that on paper might seem small to some, would rob local small businesses of $700 million in annual consumer spending.

How can this be? As I’ve noted before, the wealthiest Americans and the biggest corporations don’t drive our economy — you do. Your consumer spending is the true job creator and driver of economic growth. Slashing state budgets results in layoffs and smaller paychecks for state employees and contractors — and those workers then won’t have money to spend in their communities. Without their consumer demand, businesses will lay off or slash hours for their workers, creating a negative feedback loop that will contract the economy even further in an economic death spiral that would weaken our economy for years to come.

But if Washington state raises new revenue by accessing Washington’s tremendous store of untapped wealth — remember, Washington state has the most upside-down tax code in the nation, meaning the richest people pay the least in taxes while the poorest pay the most — and then invests that money in people and businesses, we will create a positive feedback loop that will supercharge our economy. Businesses will finally be able to soar past the economic turbulence they’ve suffered through in the last year, creating jobs and filling those empty storefronts that have sprung up on our streets during the pandemic. The economy will be stronger, more inclusive, and healthier than it was before the pandemic.

Our state is on the brink of economic disaster. If our leaders choose knee-jerk cuts to balance the budget, as they did after the Great Recession of 2008, this recession will linger for years. But if they invest in Washington’s true source of prosperity — our people — we can build a better Washington for everyone.