It’s true that the state and national economy are finally recovering, but consumers aren’t spending and unemployment keeps edging upward.  That odd situation, dubbed a “revenue-less recovery,” today led the state Economic and Revenue Forecast Council to slash another $760 million from the expected tax revenue for the next two-year period.

State budget Director Victor Moore says the grim development means the Legislature and Governor Gregoire now have a budget hole of $2.6 billion to fill, just months after fixing a $9 billion spending gap.  He and other Democrats on the forecast panel immediately raised the prospect of at least some tax hikes to accompany a new round of spending cuts.  Republicans warned against that, saying it would hit businesses and consumers when they’re already hurting. House Revenue Chairman Ross Hunter said any tax package should be adopted in Olympia, since routing it through the November ballot would delay the fix by nearly a year.

Moore said the budget gap is “numbing” in sheer scope, and added, “Everything is on the table (including taxes) — I just now need a bigger table.”  He said the $2.6 billion gap is $100 million worse than the governor’s office had expected.

Arun Raha, chief economist and director of the council, said it’s odd to see such dismal numbers when the economy is indeed turning around. “The good news is that the economy is finally recovering. The bad news is that the revenue growth is not,” he told the council, coining the phrase “revenue-less recovery.” He said consumers are shaken by the “gut-wrenching crisis” the country has been through, leading them to sit on their money or pay down debt, rather than spend it on taxable items.  That should turn around next summer when employment picks up, he said.

The governor will release her new budget plans in a few weeks. Lawmakers will then hammer out the budget-and-revenue package after getting a final revenue update on Feb. 18.  The legislative session begins Jan. 11.