Batt Trims Tax-Receipt Projections $7.5 Million Deficit Possible As Economic Expansion Slows

Idaho’s slowing economic expansion prompted the Batt administration on Monday to modestly trim its outlook for state tax receipts in the coming budget year.

The administration’s reassessment scaled back the revenue growth rate a tenth of a percentage point to 7.4 percent from the original estimate last January.

That put total anticipated receipts at just over $1.34 billion compared to nearly $1.35 billion eight months ago and creates the prospect for a $7.5 million deficit in the new budget.

And tax collections during July, the first month of the current budget year, tended to bear out the administration’s economic caution. Total receipts fell $800,000 below the projection, largely due to continued softness in the sales tax.

“Weakness in the housing and motor vehicle sectors have been the pattern in recent months,” chief economist Michael Ferguson said. “Lower interest rates should begin to strengthen activity in these volatile sales categories.”

But Gov. Phil Batt seemed to be preparing the public this spring for a tightening of the state economy when he predicted that some financial adjustments would have to be made when lawmakers return this winter to ensure the state stays in the black.

The bulk of the contraction in the overall revenue estimate was prompted by revenues for the past budget year falling $5.6 million short of expectations.

Sales taxes, a key indicator of consumer confidence, fell nearly $6 million short last year and are now expected to fall about $15 million short of the January forecast.

But the biggest decline will be in the individual income tax, which reflects the strength of the state’s job base. It came up over $20 million short of the projection in the last budget year and administration economists expect it to fall $25 million short of their January forecast now.

Labor force cutbacks last fall and winter by major employers such as Hewlett-Packard and the Idaho National Engineering Laboratory are the major culprits.

But offsetting those two key revenue sources, which account for three-quarters of Idaho’s general tax receipts, should be a continuing surge in corporate taxes, the administration said.

The estimate for corporate tax collections was hiked by $37 million from the January projection to just over $160 million after running almost $19 million above the forecast in the last budget year.

And July’s receipts were slightly higher than expected under the upwardly revised estimate, reflecting the national economic improvement and the fact that Idaho’s major corporations are significantly linked to the fortunes of the country overall.