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Jun 18

Sales Tax Distribution Report & Advice

Posted on June 18, 2017 at 6:05 PM by Paige Worsham

                                           
                           June 2017

                      April 2017 Collections - June 2017 Distributions
                                             Linda S. Millsaps


It appears that April 2017 was a good month for county sales taxes. Current estimates from NCDOR indicate a total June 2017 distribution of $284.7 million to North Carolina cities and counties. This is an increase of almost $50 million over the previous month. It is also an improvement of $25.2 million over this same time last year, and $47.0 million more than two years ago.

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And once again, when Articles 43 and 46 are excluded (as these are not utilized in all 100 counties), the pattern remains essentially the same.


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What makes this particularly positive is that this reverses an earlier trend of state sales tax growth far exceeding local growth. State April over April numbers suggest 4.63% growth, as opposed to 9.71% for local governments.

It should be noted, however, that this level of increase is not in line with several state level economic indicators for the month of April.

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As the Federal Reserve graph above shows, the unemployment rate continued to decline to 4.7% in April, which is an improvement from 4.9% statewide in March and 5.0% one year ago. Similarly, personal income increased 0.43% over the previous quarter, and 2.44% over the previous year. While these are positive numbers, they are not robust.

                                               Construction Numbers

More concerning is the substantial reduction in North Carolina building permits and new home starts. Building permits in April were down 41.62% from March, and 23.03% from the same time last year. Of the eleven recognized metro areas (MSAs), only one – Hickory – showed any month over month increase at all. Nine of those same eleven MSAs actually recorded double digit declines over the previous month. Similarly, new home starts were down 37.05% compared to the previous month, and 23.32% from the same time last year.

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This building slowdown is also reflected in the employment numbers, as North Carolina shed more than 7,000 construction jobs in the last two months. Of course, we should still remember that the spring has been very positive in both these areas, so this could be part of an adjustment.

While the national construction numbers declined as well, the reduction was not as significant as here in North Carolina. Building permits and home starts have been particularly important indicators in our state over the years, as we often count on construction to jump start and extend periods of economic growth. On the upside, however, home values have increased in every MSA in the state in the last year. And generally speaking commercial rentals have also improved. Both of which could positively impact property values and property tax revenues if the trend continues.

As you will recall from last month’s analysis, consumer confidence has been a significant economic driver. However, those same consumers seem to have finally started to moderate their confidence and expectations. While the Conference Board’s Consumer Confidence Index remains strong, it actually fell 1.5 points in May. Economists generally credit this to continued strong employment and income prospects moderated by more limited expectations around a federal stimulus and tax reform.

Looking forward, economists continue to be a little skittish about future growth, while business leaders are more bullish. In the Carolinas Survey of Business Activity, business leaders indicated that conditions moderated some in May (as compared to April), but that they remain particularly positive when looking at the six-month horizon. Alternatively, economists, like NC State’s Mike Walden, suggest that while there is no reason for alarm, “both private and public decision makers should approach the future with caution.” The reason for his concern is a substantial decline in the NCSU Index of NC Leading Economic Indicators. The index was driven down by month over month and year over year declines in the areas of building permits, hours, and earnings.

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In closing, the county level advice remains substantially similar to the previous month. Areas with a large number of high skill workers and professionals will continue to see the largest economic benefits. Counties with a labor pool dominated by high school graduates could continue to struggle despite low unemployment. As the labor market continues to tighten, more educated but discouraged workers will return to work, which will soak up many of the available employment opportunities. Recent changes in the construction and housing markets, if they persist, could have an impact on local economies and county budgets. While the future remains positive, and current sales tax numbers are high, moderation continues to be the advice for 2017-18 county revenues.


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