The state announced its latest revenue forecast today for the rest of the 2011-13 biennium. Good news: Revenue collections are predicted to be about $45 million more than expected at last September's gloomy forecast . And the actual windfall is about $96 million, thanks to a $51 million savings in the way the state taxes unclaimed property.

After the legislature passed a $32 billion 2011-13 budget last year, cutting about $4.6 billion to deal with last year's shortfall, they got some bad news: In September, the state announced a $1.4 billion revenue shortfall. That sent them back to the cutting board; in November, Gov. Chris Gregoire recommended $2 billion in cuts to maintain a cushion.

Since then, however, the size of that hole has been reduced. In December, the legislature passed about $450 million in cuts and savings; and earlier this week , the state got a $340 million windfall in decreased state service caseloads. Add those numbers to today's $96 million and the current budget problem is about $500 million.

And state senate ways and means chair Sen. Ed Murray (D-43, Seattle) has already identified about $200 million this year by reducing the sales tax break for cars purchased from auto dealers ($94.3 million); eliminating a business and occupation tax exemption for big banks on first mortgages ($18 million); and increasing some preferential B&O tax rates ($71 million). That could lower the problem to about $300 million. Murray also pointed out this morning that the payroll tax extension deal at the federal level could save the state about $50 million. So, that's about a $250 million problem.[pullquote]“This welcome news may allow the Legislature to find a solution to our budget in Olympia."—Gov. Chris Gregoire[/pullquote]

However, Gov. Chris Gregoire still wants the state to have a cushion of about $500-600 million, which means the real amount legislators need to make up is closer to $800 million . That's harsh, but it's not $2 billion as Gregoire had proposed.

Now, the respective house and senate ways and means committees—headed up by Rep. Ross Hunter (D-48, Medina) in the house and Sen. Murray  in the senate---will get to work, polling their caucuses and working with their GOP counterparts, Rep. Gary Alexander (R-20, Olympia) in the house and Sen. Joe Zarelli (R-18, Ridgefield) in the senate, to fill the gap.

The biggest question on the table is whether or not they will still feel compelled to send Gov. Gregoire's  temporary sales tax increase proposal for about $500 million a year to voters to "buy back" some of the anticipated cuts. Both the Democrats and Republicans agreed, for example, that Gregoire's call to cut $340 million for K-12 education (and then buy it back with the sales tax) was an unacceptable cut in the first place. Hunter called the cut unconstitutional (the state supreme court agreed, though didn't immediately forbid it) while the Republicans have been saying they would not put something as basic as education up for a public vote. Zarelli repeated that argument today.

“The real value of today’s revenue forecast is that it determines the size of the budget ‘box'," Zarelli said. "When we put things in the box, the core priorities of government need to go first to keep them from being shackled to any tax plan that the majority might put out to voters. I’ll be working to keep K-12 education and higher education and services to our most vulnerable residents whole ."

And Murray, in a joint statement with his Democratic compatriot, senate majority leader Sen. Lisa Brown (D-3, Spokane), said: "Today’s forecast is the first good news in quite some time. It affords us the flexibility to avoid making the more punishing cuts proposed by the governor in November."

Indeed, with enough money in hand now to stave off Gregoire's harshest K-12 cut, the sales tax Hail Mary may not be seen as necessary. However, Murray had grabbed the sales tax idea in an earlier proposal this session (the one for the estimated $200 million noted above) as a way to also buy back cuts and then transition the temporary sales tax into a capital gains tax for about $600 million a year on average, earmarked for K-12.

I asked him this morning if he was still wedded to that idea, and he said simply, "Discussions are underway. It will take a week to sort out."

The Republicans, who have been cool to the sales tax idea all along, used today's news to discourage it.

Rep. Ed Orcutt (R-18, Kalama), Alexander's assistant on ways and means, issued the following statement this morning: "Our caseloads are trending down as we’re seeing those who qualify move out of state services and onto federal programs. This relief, coupled with a slight uptick on the tax collections side, is good news in the short term and for budget writers here in Olympia. Hopefully, they may now think twice before trying to increase taxes on struggling families and employers."

And even Gov. Gregoire, who'd spent the fall and winter (including in her recent state of the state speech) making passionate pleas for the sales tax, issued a statement this morning that put it on the back burner.

“This welcome news may allow the Legislature to find a solution to our budget in Olympia," she said this morning, adding: "With it I ask the Legislature to send me a budget that prioritizes our kids in early learning, K-12, and higher education. We’re not out of the woods yet."