At some point the state’s economy will boom again. When it does, government tax collections will take off in ways the economic forecasts were not able to predict.
I don’t say this out of hope. I say this because it is what has always happened after each recession. Pent-up demand and increased confidence by consumers leads to increases in purchases, especially homes. Increased home sales triggers more home construction and rings up bigger sales at home improvement stores.
When it pops, it really pops.
As with everything else relating to this Great Recession, though, what happened before is not much help in forecasting what will happen next. This recession was deeper and longer than any since the Great Depression of the 1930s. Consumer confidence fell twice as far as it had in either the 1981-82 or the 1993-94 recessions, according to figures compiled by the state’s Economic and Revenue Forecast Council.
In 1993-94, collections from the state’s primary taxes never actually fell into negative territory — that is, less in one year than they were when the decline began. In the deeper 1981-82 recession, tax collections declined by close to 5 percent but climbed back to the pre-recession level within 21/2 years.
But in the Great Recession, revenue fell 15 percent and has taken 51/2 years to get back to where it was. And while government tax revenue is finally growing again, it is growing at much slower rates than in the months following those previous recessions.
I know many taxpayers don’t really care whether government gets more money out of them. But the amount of money available to state and local governments isn’t really my point here. Instead, revenue collections are a good measure of what is happening in the economy as a whole, and that affects everyone.
As such, I’ve been watching for that post-recession revenue surge and thought the first evidence might have shown up late last month. That was when Pierce Transit said stronger-than-projected tax collections would allow the agency to cancel another round of deep service cuts.
Cynics (OK, me) were suspicious that the agency, which had been pleading poverty through two unsuccessful tax-hike elections, had been hiding the ball. What is more likely is that Pierce Transit — like many government entities — had been using conservative forecasts after living through the impacts of this recession.
Other local governments have seen some uptick in tax collections as well. And then, when the state this week reported a pretty sizeable increase for July — 6.2 percent higher than forecast just two months earlier — I wondered, could this be it?
Not so fast, advised Eric Swenson, a senior economist for the Forecast Council. Several factors mostly unrelated to the overall economy contributed to that $72.6 million one-month increase. First, forecasters had expected that a one-time tax refund of $22.5 million would go out in July rather than later in the summer. Second, a few very large commercial real estate transactions closed, and another sizeable portfolio of property simply changed hands in a corporate restructuring.
Take those out and the increase falls from the unexpected-and-significant range back into the well-within-forecast range.
Not that there isn’t positive news. State employment growth was strong, inflation remains low, the housing construction outlook is relatively positive, housing prices are climbing but still well below pre-recession levels (which is good for affordability).
But no growth spurt is in sight. One reason might be the lingering psychological effects of the Great Recession. Swenson said local governments continue to be overly cautious in predicting revenue growth. When he tells local forecasters that assuming only 2.5 percent annual growth in tax revenue is too low, “they say, ‘we don’t care,’” Swenson joked.
And many consumers either can’t spend or won’t spend.
“People can’t because they can’t get loans or they won’t because they got burned so badly,” he said.
Bottom line? “The forecast is for slow growth,” Swenson said.
It’s not the first time an economist has burst my bubble.Peter Callaghan: 253-597-8657 peter.callaghan@ thenewstribune.com @CallaghanPeter