Dr.Chang Mook Sohn
Office of Forecast Council
711 South Capitol Way, Suite 300
P.O. Box 40912
Olympia, WA  98504-0912
(360) 753-2061

General Fund–State collections were stronger than expected in the February 11 – March 10 collection period, with receipts $13.0 million above the estimate for the month.  Revenue Act taxes (state retail sales, business and occupation, use, public utility and tobacco product taxes) and real estate excise tax receipts were the primary source of this month’s positive variance.  Lottery General Fund transfers were also greater than expected this month, but sales remain below the estimate.  Cumulatively, in the four months since the November forecast, General Fund receipts are $14.2 million above the November forecast.

The higher than expected revenue is not too much of a surprise.  Economic news has been very positive.  Both actual performance and the near term outlook is better than assumed at the time of the November forecast.  The U.S. economy ended 1998 with a bang, as real GDP increased at a 6.1 percent annual rate, the strongest quarterly increase since 1996.  The strong growth at the end of 1998 is expected to continue in early 1999 with both the national and state outlook brighter than in November.  With the economic fundamentals healthy, revenue should continue to grow, probably a little slower than in recent months but likely a little above what was expected in November.

Revenue Act collections were $8.7 million above the forecast in the February 11 – March 10 collection period.  Collections this period primarily reflect January activity of monthly taxpayers.  Collections were again strong with receipts (adjusted for legislative changes) 6.9 percent above the year-ago level.  This is only a little slower than last month’s 7.6 percent increase.  For the first seven months of fiscal 1999, Revenue Act has increased 6.6 percent, well ahead of U.S. retail sales.  Strong economic fundamentals, a high level of consumer and business confidence, increasing net worth and rapidly expanding production in the aerospace sector have all contributed to the strong growth in sales and business and occupation tax collections.

Preliminary data on taxes paid shows widespread strength in the latest collection period, primarily reflecting January business activity.  Most sectors were strong, with high single digit increases.  The retailing sector was up nearly 10 percent based on preliminary data, lead by double-digit increases in the auto and building materials sectors.  Outside retailing, tax payments reported by the construction and manufacturing sectors were very strong, with payments up more than 15 percent.  The only observed weakness was in the service sector, due primarily to the reduction of the business and occupation service tax rate.

Other General fund taxes collected by the Department of Revenue were $0.1 million below the estimate for the month.  Stronger than expected real estate excise and property tax payments were more than offset by weaker than expected timber excise, estate, and liquor tax revenue.  For the four months since the November forecast, Non Revenue Act taxes are $3.4 million above the forecast, with higher than expected real estate excise and cigarette tax payments more than offsetting weaker than expected timber, estate and property tax collections.

Real estate excise activity has weakened in recent months, which is not surprising after three years of remarkable growth (near 20 percent).  January 1999 closings, reflecting tax payments to the state in February, were down 1.9 percent from a year-ago, the first monthly decline since May of 1997.  There were again signs of weakness in the central Puget Sound area with activity in King down 11.4 percent, although activity was up at double-digit rates in both Snohomish and Pierce County.

Other agencies’ General Fund collections were $4.4 million above the forecast in February.  The Department of Licensing General Fund collections were $0.6 million higher than the estimate for the month, while the Lottery’s General Fund deposits were $3.8 million above expectations.  Lottery sales are still weak, although they have picked up significantly since the end of November.