Light at the end of the tunnel: Washington economists are projecting a $96 million increase in the state’s revenue.

Coupled with news that state government will save $330 million in lower caseload costs and that House Republicans will support closing a banking tax loophole, it could mean lawmakers can avoid calling a special election to ask voters to boost the state sales tax a half-cent for the next three years. It also makes it more likely that the Legislature will wrap up within its 60-day limit.

“We’re finally seeing movement in the right direction” after the Great Recession knocked billions from the state’s treasury, said Senate budget Chairman Ed Murray.

Tough budget decisions still remain, though.  Budget and revenue leaders on the Revenue Forecast Council said that, in round numbers, lawmakers face a billion-dollar problem — a budget gap of $500 million and the need to salt away reserves of $500 million.

“We’re still pretty deep in the hole,” said House budget Chairman Ross Hunter, while acknowledging that the new revenue and caseload forecast numbers make it easier.  Both he and Murray declined to say whether majority Democrats will be able to balance the budget without a public tax vote.  Gov. Chris Gregoire had proposed a half-cent sales tax hike, bringing in about $500 million for each of the next three years.

Chief economist Steve Lerch characterized the revenue update as a relatively small change in a $30 billion, two-year budget. He said the state continues to outpace the national economic recovery a little, led by gains in aerospace (up 11,500 jobs since May of 2010), software, agriculture and export trade.  The construction sector remains flat, but employment is no longer falling.

The state economy will “muddle through” during the next year, with “a high degree of downside risk,” including the weakness in Europe and gridlock in D.C., Lerch said.

Murray said it now appears likely that lawmakers will be able to adjourn on time, March 8. Hunter said House Democrats will unveil their budget plans next week and Murray said the Senate will roll out its plan the following week.  Murray is building the Senate plan in consultation with minority Republicans.

Gov. Gregoire welcomed the news, noting that Olympia may be able to handle the budget gap (without the tax referendum), but added:

“We’re not out of the woods yet, and solving the budget problem remains a significant and daunting task.”