Washington's recession over? Not so fast.

Oh, to be an economist today, when watchers meticulously dissect your every word and expression in an attempt to figure out if the recession is really over.

Washington’s chief economist and revenue forecaster, Chang Mook Sohn, is the subject of such scrutiny. But there’s no need for extensive decoding, Sohn’s message is clear.

He predicts Washington’s recovery will be much slower than the nation, and much slower than past recoveries. There are three fundamental reasons for that view:

-- the state’s economic foundation, manufacturing, has shrunk by 30 percent during the last decade;

-- the Seattle region has lost 100,000 jobs since December 2000; and, no sector is likely to offset these job losses quickly.

Washington’s economy isn’t what it once was. That’s not a surprise, particularly as the state continues to struggle with the fourth highest unemployment in the nation.

But many folks are buoyed by recent national financial news, relieved by pronouncements that the recession is over. Some even interpret it as an opportunity for new state spending.

Not so fast.

A national recovery will help, as will a continuing Asian recovery and low interest rates. But the impact of these factors is unlikely to compensate for job losses in manufacturing and continuing weakness in the Seattle economy.

Simple facts: Boeing employment in Washington is projected to be 57,000 by the end of 2004. It was double that in 1998. And Boeing has been clear that it has to contain employment to stay competitive.

Between November 2001 and September 2003, the Seattle region lost 39,600 jobs (on top of the 56,400 lost between November 2000 and December 2001), while the rest of the state gained 34,500 jobs.

Seattle can pull along the rest of state economy, but the rest of the state cannot pull along Seattle.

It must also be of concern that the stimulus effect of low interest rates is expected to fade with time. That means strong receipts from the real estate excise tax, which have significantly masked the sharp decrease in receipts from other sources like the Business & Occupation tax, are likely to fall off.

As we look to the future, the lack of identifiable sectors likely to provide significant job growth is perhaps the most daunting challenge. Large employment increases in sectors like agriculture, forest products and aerospace are unlikely.

So where does that leave Washington? Clearly the state must get serious about ongoing efforts to rebuild its economic base.

The steady revenue growth Washington experienced for several decades prior to the recent recession will not continue, and projections for the next two-year budget cycle already indicate a hole in the $1 to $1.5 billion range and in the $3 billion range for the two years after that.

Given such intense fiscal pressure and projections for slow revenue growth, the state cannot commit to new, ongoing spending. Instead, Washington must stay focused on the Priorities of Government budget process initiated under the strong leadership of Gov. Gary Locke.

This means continuing to clarify priorities, allocating resources accordingly, and scrutinizing all spending, not just the incremental additions and subtractions that have historically been the focus of the state’s budget development process.

Washington must focus on fostering an environment where employers can create jobs. Given that no one sector is likely to dramatically increase employment in the short term, this effort must focus on all sectors, on small to large employers.

Lawmakers face many hurdles. Two in particular are the overall cost of doing business in Washington relative to other states and the state’s deteriorating transportation infrastructure.

Employers here shoulder 54 percent of the state and local tax burden, a higher proportion than in most states. Given the current environment, it’s unlikely the weight of that burden will shift.

However, the state can address some of the skyrocketing costs levied on employers, more specifically workers compensation costs, the costs associated with a litigious and unpredictable liability system. While neither is considered a “tax,” both significantly add to the cost of doing business here, as does Washington’s unpredictable regulatory system.

Much work can be done to bring fairness, equity and predictability to these systems. It’s up to the Legislature to act.

Second, transportation. The nickel gas tax instituted last year starts to tackle the enormous backlog of projects, but it doesn’t solve all our problems.

One in four jobs in our state depends on trade. Employers must be able to move people and goods in and out of the ports and through the region efficiently. But transportation in the region remains Washington’s Achilles heel.

Unless replaced, the Alaska Way Viaduct and the 520 floating bridge will fail. State and regional leaders must act before that happens. Regional transportation planners must have the tools needed to develop a package voters will approve, and they must do it soon.

Washington has a long way to go to pull itself out of the recession. Our ability to maintain fiscal discipline and support job creation will determine when and if economic recovery materializes.

Steve Mullin is the interim executive director of the Washington Roundtable, a public policy organization comprised of 40 CEOs of major private sector employers throughout Washington state.

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