ATTACHMENT 1. Sales Tax Revenue Forecast

Transcription

1 ATTACHMENT 1 Sales Tax Revenue Forecast RIVERSIDE COUNTY TRANSPORTATION COMMISSION, DECEMBER 2014

2 This publica on was prepared by: Beacon Economics, LLC BEACON ECONOMICS Christopher Thornberg Jordan G. Levine Founding Partner Economist & Director of Economic Research And by: Brian Vanderplas Senior Research Associate For further informa on about Beacon Economics, please contact: Victoria Pike Bond Director of Communica ons Or visit our website at Reproduction of this document or any portion therein is prohibited without the expressed written permission of Beacon Economics. Copyright 2014 by Beacon Economics LLC.

3 Contents Report Overview Na onal and State Economies Taxable Sales and Sales Tax Summary

4 Report Overview Beacon Economics, LLC has undertaken a forecast of key revenue streams for the Riverside County Transporta on Commission (RCTC) over the next thirty years. While our forecast uses standard me-series econometric techniques based on historical correla ons and future trends, our method of forecas ng follows a layered approach. Na onal policy changes and external shocks are built into a U.S. model with a variety of indicators, including GDP, produc on, demographics, interest rates, government spending, taxes, savings, income growth, and real estate. A California model is then developed that incorporates macro trends at the na onal level with trends in the local labor market, including demographics, real estate, and business ac vity indicators. Taking into account these state and na onal factors, Beacon Economics has set up a regional model for Riverside County that uses the macro trends along with a variety of specific regional data including figures on sales tax revenues that were provided by RCTC to create a local forecast that provides a broad outlook for the region on employment by industry, the unemployment rate, consumer spending and income trends, popula on and components of change, residen al real estate and construc on, and nonresiden al real estate and construc on. Thus, in our regional assessment, we highlight the major drivers on the na onal level, con nue with developments in the State of California, and zoom in on Riverside County s economy to provide a forecast of the ac vity and revenues that can be expected by RCTC out to fiscal year Riverside County Transporta on Commission Revenue Forecast Revenue Stream Actual Forecast FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Nominal Taxable Sales ($ 000s) 31,147,000,000 33,177,109,375 35,192,842,773 37,967,138,672 41,240,745,117 44,559,730,469 48,172,680,664 Growth(%) Measure A Tax 155,255, ,885, ,964, ,835, ,203, ,798, ,863,403 Growth(%) LTF Tax 76,375,798 82,942,773 87,982,107 94,917, ,101, ,399, ,431,702 Growth(%) Real Taxable Sales ($ 000s) 23,378,851,470 24,506,525,998 25,556,310,786 27,093,086,255 28,850,134,115 30,577,694,708 32,431,384,229 Growth(%) Measure A Tax 116,894, ,037, ,781, ,465, ,250, ,888, ,156,924 Growth(%) LTF Tax 58,447,129 61,001,302 63,890,777 67,732,715 72,125,336 76,444,236 81,078,462 Growth(%) Source: Forecast by Beacon Economics RCTC Revenue Forecast 1 December 2014

5 National and State Economies In our most recent quarterly edi on of Beaconomics, which can be accessed for free at we provide an in-depth analysis of the current na onal and state trends. Below is a brief summary of what we see happening for the U.S. and California economies. The remainder of this report will explain the underlying drivers behind our forecast conclusions. United States Economy During the third quarter of 2014, the U.S. economy grew at a 3.5% annual rate, down from the previous quarter s 4.6% growth, but s ll a solid increase and higher than the post-recession average growth of 2.3%. The global economy has exhibited weak growth as of late, with Europe having yet to pull out of its recession. China s growth has slowed and its real estate markets have showed signs of distress. But unlike the previous global downturn, the U.S. is no longer at the core of the problem and, rather, is a source of strength in the interna onal economy. Nearly every part of the U.S. economy is showing real signs of slow but steady improvement, from housing to public spending to credit. The only por on of the economy that is ac ng as a drain on the na on is the export sector, however, that is due to weakness in the global economy. Beacon Economics is forecas ng that the U.S. economy will keep growing this year, but at slightly below 3%, a bit slower than last year. Next year, expect the U.S. economy to grow at a pace modestly over 3%, with the following year improving even more. As for major poten al risks, they remain largely external although, there is nothing currently on the interna onal front that could seriously derail the na on s economy. S ll, the global economy remains the swing item. Absent such improbable occurrences, though, the U.S. economy will con nue to expand for the foreseeable future. California Economy As the Great Recession fades from California s rear-view mirror, it is becoming increasingly impera ve to focus on the structural challenges that the state faces over the long run. Among the obstacles the state faces are improving educa onal a ainment, funding the state s pension obliga- ons, infrastructure investments, reducing the cost of housing, and reforming our tax system to mi gate the effects of future economic downturns. As of September 2014, nonfarm employment in the Golden State jumped ahead of its pre-recession peak by more than 80,000 posi ons. While some sectors have performed be er than others, every major industry in the state s economy has shown progress since hi ng bo om in Jobs are being created across the spectrum of wage categories. California has enjoyed solid job growth in lowwage categories like Leisure and Hospitality, Administra ve Support, and Retail Trade. However, the state s labor market has also created a sizeable number of new Healthcare, Professional, and Informa on jobs which tend toward the higher end of the wage spectrum. RCTC Revenue Forecast 2 December 2014

6 Many leading indicators for future job growth remain in posi ve territory as well. Business and consumer spending, as measured by taxable sales, are up by more than 4.5% through the first half of Business investment con nues to move forward in California with more than $5.4 billion in new venture capital deployed so far this year. Beacon Economics is currently forecas ng that the California economy will con nue to lead the na onal recovery, with growth picking up in 2015 and 2016 before se ling into more normal growth rates therea er. Taxable Sales and Sales Tax Beacon Economics taxable sales forecast for Riverside County is based on the underlying fundamentals behind consumer and business spending in the area namely, popula on and income trends in both the larger regional economy and in the County of Riverside itself. Based on the trends in the na onal, state, and local economies, our forecast projects taxable sales growth in the 6% to 8% range over the next five fiscal years. Therea er, we expect taxable sales to return to trend growth of between 5% to 6% per year out to fiscal year We expect infla on to remain in line with historical trends and are currently projec ng real growth in the 5% to 6% range over the next five fiscal years, and then cooling down to 3% to 4% for the remainder of the forecast. Taxable Sales ($ Billions) 2.0e e e Taxable Sales Forecast Riverside County, FY to Taxable Sales Growth (%) Taxable Sales Growth Forecast Riverside County, FY to Actual Source: Forecast by Beacon Economics Forecast Actual Source: Forecast by Beacon Economics Forecast Popula on in the County Con nues to Expand Riverside County s popula on grew by 1.1% from 2013 to 2014, a marginally faster rate of increase compared to the statewide popula on growth of 0.9% over the same period. Having more residents live in the County will ul mately boost spending in the region, in turn suppor ng revenue growth over the next five fiscal years. The popula on growth from 2013 to 2014 was a slight accelera on over the 1.0% growth rate seen from 2012 to 2013, but was under the 2.9% average annual growth rate over the last ten years. The County of Riverside s popula on has, on average, grown faster than that of the State overall over the decades and we expect these trends to con nue. RCTC Revenue Forecast 3 December 2014

7 Employees (000s, SA) 1,260 1,240 1,220 1,200 1,180 1,160 1,140 Inland Empire Labor Market Oct-09 to Oct-14 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13 Oct-14 Nonfarm Employment Unemployment Rate Source: California Employment Development Department Unemployment Rate (%, SA) Population (000s) 2,400 2,200 2,000 1,800 1,600 1,400 1,200 1,000 Riverside County Population 1990 to Source: California Department of Finance Inland Empire Labor Markets Gain Trac on Total nonfarm employment in the Inland Empire increased by 2.2% from October 2013 to October 2014, slightly faster than the 2.1% annual increase in statewide nonfarm payrolls and ahead of the na on overall. The unemployment rate in the Inland Empire has fallen 1.8 percentage points over the last year to 8.0%, which is somewhat higher than the current statewide average of 7.3%. These improvements in the local labor market will help support income growth and spending power in the years to come. As of October 2014, the Inland Empire had recouped 126,400 of the 149,200 jobs lost from the peak in July of 2007 to the trough in February of Although nonfarm employment is currently at 1.8% below its prerecession peak, the region has clearly come a long way since the Great Recession. Job growth was spread across a broad range of sectors, with only the Construc on and Financial Ac vi es sectors experiencing declines over the last year. Leading the way was the Professional and Business Services sector, which increased payrolls by more than 7,200 over the last year. Inland Empire Employment Growth Industry Oct-13 Oct-14 Change Growth (%) Total Nonfarm 1,239,400 1,267,200 27, Professional/Business 134, ,275 7, Educa on/health 184, ,558 5, Retail Trade 165, ,643 4, Government 225, ,138 3, Transport,Warehouse,U l. 79,736 83,572 3, Leisure and Hospitality 139, ,107 3, Wholesale Trade 56,310 58,728 2, Manufacturing 87,110 88,581 1, Informa on 11,294 11, NR/Mining 1,199 1, Financial Ac vi es 42,741 41,506-1, Construc on 71,227 69,791-1, Other Services 41,071 38,325-2, Source: California Employment Development Department RCTC Revenue Forecast 4 December 2014

8 Riverside County Spending Maintaining Momentum With improving labor market condi ons and a gradually improving local economy, spending within the County has already bounced back nicely from the recession. According to informa on from the State Board of Equaliza on, taxable sales in the County of Riverside as of the second quarter of 2014 were already 5.8% above the pre-recession peak set in the second quarter of More over, in the first half of 2014, taxable sales in Riverside County have con nued to move forward, having increased by 5.8% compared to the first half of 2013 spending levels. As of the second quarter of 2014, the region has seen gains across virtually every category of spending from autos to restaurants to hotels. Only the business and Industry category saw year-over-year declines. Riverside County Sales Tax Receipts by Category Category Q2-13 Q2-14 Growth (%) Total 75,594,602 80,780, Autos and Transporta on 11,839,343 13,168, Building and Construc on 7,403,024 8,082, Food and Drugs 4,238,344 4,543, Fuel and Service Sta ons 9,791,480 10,355, General Consumer Goods 16,908,268 17,851, Restaurants and Hotels 8,188,280 8,642, Business and Industry 10,042,565 9,975, Source: HdL Companies Infla on Remains Tame The personal consump on expenditure deflator, the Federal Reserve s primary indicator for infla on, rose by just 1.5% from the third quarter of 2013 to the third quarter of Even though monetary policy remains accommoda ve in the short term, the risk of infla on remains low given the current slack in the na onal labor market. Our long term outlook assumes that infla on will be in the 1.5% to 2.0% range in the la er years of our forecast. RCTC Revenue Forecast 5 December 2014

9 Summary Overall, the economy in Riverside County and throughout the Inland Empire con nues to improve as the region s labor market maintains upward momentum, the popula on con nues to grow, spending levels have bounced back from recession lows, and infla on is expected to remain low. Each of these factors should help to bolster taxable sales and subsequent RCTC revenues in the coming years as outlined in this report. With the worst definitely behind us, Riverside County has come a long way since the Great Recession and the local economy is poised for posi ve growth in the years to come. Riverside County Transporta on Commission Revenue Forecast Revenue Stream Actual Forecast FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Nominal Taxable Sales ($ 000s) 31,147,000,000 33,177,109,375 35,192,842,773 37,967,138,672 41,240,745,117 44,559,730,469 48,172,680,664 Growth(%) Measure A Tax 155,255, ,885, ,964, ,835, ,203, ,798, ,863,403 Growth(%) LTF Tax 76,375,798 82,942,773 87,982,107 94,917, ,101, ,399, ,431,702 Growth(%) Real Taxable Sales ($ 000s) 23,378,851,470 24,506,525,998 25,556,310,786 27,093,086,255 28,850,134,115 30,577,694,708 32,431,384,229 Growth(%) Measure A Tax 116,894, ,037, ,781, ,465, ,250, ,888, ,156,924 Growth(%) LTF Tax 58,447,129 61,001,302 63,890,777 67,732,715 72,125,336 76,444,236 81,078,462 Growth(%) Source: Forecast by Beacon Economics RCTC Revenue Forecast 6 December 2014

10 About Beacon Economics About Beacon Economics Beacon Economics, LLC is a leading provider of economic research, forecas ng, industry analysis, and data services. By delivering independent, rigorous analysis we give our clients the knowledge they need to make the right strategic decisions about investment, growth, revenue, and policy. Learn more at Services Economic, Revenue, & Occupa onal Forecas ng Economic Impact Analysis Regional Economic Analysis Economic Policy Analysis Real Estate Market Analysis Industry and Market Analysis EB-5 Economic Analysis Public Speaking Expert Tes mony Contacts Sherif Hanna Managing Partner (424) Sherif@BeaconEcon.com Victoria Pike Bond Director of Communica ons (415) Victoria@BeaconEcon.com Rick Smith Director of Business Development (858) Rick@BeaconEcon.com RCTC Revenue Forecast 7 December 2014