the City Cafe
Statewide local sales tax is down over ten percent. The 2009 June distribution of sales tax, reflecting April sales, is down 13.5% from June of 2008. What does this mean? This 13.5% drop accounts for around a $4 million dollar less in sales tax revenue that cities and towns received last year. However, the good news is this is up from the 18 percent drop last month…hopefully indicating that we are starting that U turn toward black numbers.
A couple of reasons for the continued decline:
- Utah construction employment down -23% from the previous year (April data)
- Utah unemployment claims for Utah are up 183.6%
- The consumer sentiment index is improving, now up to 70…but still far below the height during the index number during the late 90’s early 21st century (high 90’s to 100+)
You can review the complete list of indicators tracked by ULCT economist Doug Macdonald here: State economic indicators for Utah Cities.
Governor Schwarzenegger and the California Assembly continue to face some incredibly difficult policy decisions in their attempt to balance the California budget — amidst a $20+ billion shortfall. The LA Times describes the debate between within the Assembly and with the Governor last week as, “the Dance of Death, the Kabuki or the Summer Follies.“ Whatever it is called it is clear their are no easy answers.
So how did California find itself in such an enormous hole? Much of it has to do with the structure of California public finance, a faulty structure that at some point was going to be exposed as inadequate at generating sufficient revenue to sustain services. Here are a few of the problems:
- Two-thirds rule: California is one of only three states that requires a 2/3 majority vote in each legislative body to approve the budget.
- Ballot-box budgeting: The initiative process in California has allowed citizens to mandate funding for a variety of single-interest issues
- Prop 13: Restrictions with the property tax has increased California’s dependence on more volatile revenue sources.
Here are a couple of interesting recent articles related to California’s incredible budget shortfall…
- California Budget Overview (LA Times)
- To fix the budget, first fix the state (LA Times)
- Why does California’s budget matter? (LA Times)
- What will be the ripple effect if the 8th largest economy in the world stops paying their bills?
- Little sign of California budget compromise (Business Journal)
Also if you want to empathize with California policymakers try to balance the CA budget with his intereactive tool…State Budget Balancer. I balanced the budget with $12 billion in increased taxes (Gas tax, alcohol tax, commercial property, oil severance, broading the sales tax base) and with $12.8 billion in cuts. Although I am pretty sure no elected officials would be elected with this budget…but that might be the reality for many CA politicians anyway.
Important national econimic indicators due out this week:
- Tuesday — Housing Price Index for April (expected -0.3%)
- Wednesday — New home sales for May (expected 360,000, up 8,000)
- Thursday — Personal consumption for the 1st quarter (expected +1.5%)
- Friday — Personal spending for May (expected 0.3%, up 0.4% from April)
Tuesday — Wholesale inventories for April, expected -1.1%
Wednesday — Trade balance for April, expected -29.0 billion
Thursday — Advance retail sales for May, expected +0.5%
Friday — Import Price Index for May, expected +1.4%
May distribution (March sales) of the 1% local option sales tax is down -18.6% from April 2009. Which is down more than we had expected, ULCT forecasted sales to be down closer to -12.5%. It looks like June distribution (April sales) will not be good news either, we aren’t sure how bad this might be probably down anywhere from -6.0% to -15.0%…hopefully closer to 6.0%.
The latest salient economic indicator stop light chart for May can be found here: May 2009 Indicators
The topic of the day for the NY Times Room for Debate blog is: “Goodbye to the Local Car Dealer. Now What?” The blog includes the comments from four perspectives:
- Maryann Kellyer, financial analyst — Argues that era of car buyers wanting to shop close at home where they know the car salesman and/or owner is gone.
- Randi Payton, CEO of On Wheels, Inc. — Argues that the shutting down of one dealership is devastating to local communities, creating a loss of jobs and reducing the tax base.
- Michael Smitka, professor of economics at Washington and Lee University — Discusses the changing landscape of the auto industry competition.
- Pauls Toutonghi, English teacher at Lewis and Clark — Writes about his dad, a former car salesman, and his perspective on US manufactured cars being the backbone of America.
Goodbye to the Local Car Dealer. Now What?
A quick review of the indicators released last week. All of the indicators are showing signs of improving, and most above the rate projected by many economists. However, new home sales for April is still largely flat. Additionally, the median home values in April increased slightly from March to $209,700 (but is still down 15% from 2008). Here are the national indicators released last week:
- Existing home sales for April up 2.9% (Expected +2.0%
- Durable goods for April, up 1.9% (Expected +0.4%)
- New home sales for April, 0.3% (Expected +1.1%)
- Personal consumption for the 1st quarter, up 1.5% (expected up 2.0%)
The economy is already getting some good news this week. Yesterday the Conference Board released the May consumer confidence indicator — which appears to have rebounded to it’s highest mark since September of 2008. According to the Conference Board consumer confidence nationwide is at 54.9, which is still historically low, but is much higher than the 42.8 that economists projected for May.
Lynn Franco, director of The Conference Board Consumer Research Center, said in a statement.
“While confidence is still weak by historic standards, as far as consumers are concerned, the worst is now behind us.”
You can read an article about the consumer confidence indicator soaring here: MSNBC
There are still important economic indicators to be released this week that we will be watching for:
- Wednesday — Existing home sales for April (Expected +2.0%
- Thursday — Durable goods for April (Expected +0.4%)
- Thursday — New home sales for April (Expected +1.1%)
- Friday — Personal consumption for the 1st quarter (expected up 2.0%)
Mostly good news, or at least better news from last week’s national economic indicators. Here is a quick summary.
- Housing market index for May up to 16 (expected up 2 to 16)
- Housing starts for April 458,000…not so good news (expected 520,000)
- Building permits for April 494,000 (expected 530,000)
- Leading indicators for April up 1.0%…good news (expected +0.8%)
- Initial jobless claims down 12,000 (expected to be down 12,000)
California’s astonishing $21 billion deficit is generating a lot of national news. Especially this morning after California voters rejected a variety of measures aimed to help fix this budget deficit. You can read the Wall Street Journal article here: California Voters Reject Budget Measures
However, California certainly isn’t the only state that is struggling to balance their budget during this national recession. According to the Center on Budget and Policy Priorities 16 states have now enacted tax increases and 17 states currently have proposed tax increases to help balance the budget. These taxes range from cigarette tax (Rhode Island residents are paying $3.46 in state taxes per pack), sales tax (California’s 1% increase), and personal and corporate income tax.
In comparison to neighboring states Utah’s economy is slightly better — but clearly also feeling the pain of the recession. Here is a quick review of how Utah’s unemployment, foreclosures, and budget deficit compares to our neighboring states:
Budget Deficit:
- Utah — $720 million
- Idaho — $411 million
- Colorado — $1 billion
- Nevada — $1.2 billion
- Arizona — $3 billion
- Wyoming — none
Foreclosures (4th quarter):
- Utah — 1.79%
- Idaho — 2.06%
- Colorado — 2.16%
- Nevada — 6.58%
- Arizona — 4.64%
- Wyoming — 0.72%
Unemployment rates (March 2009):
- Utah — 5.2%
- Idaho — 7.0%
- Colorado — 7.5%
- Nevada — 10.4%
- Arizona — 7.4%
- Wyoming — 4.5%
Check here for a map of this data for the entire nation: Where Does Your State Rank (CNNMoney)
