Economic Forecast For State Loses Some Vigor Slower Sales Tax Revenues Forces State To Revise Estimates

Despite a bulge in tax collections this spring that provided the state with a multimillion-dollar cash cushion, the Batt administration is conceding that the outlook for the Idaho economy is not as robust as it was just eight months ago.

In its latest monthly economic update for the budget year that began July 1, the Division of Financial Management scaled back its projection for increased tax collections from the 5.5 percent predicted last January to 4.9 percent.

That would still be a solid performance compared with the dark days of the mid-1980s and the near-depression that gripped the state then. And it represents a rebound from the last budget year’s anemic 3 percent growth rate caused by the dramatic decline in corporate tax payments after the bottom fell out of the computer chip market.

But except for the previous year, it also would mark the weakest overall revenue-raising performance since Idaho began its economic recovery in 1987.

Chief economist Michael Ferguson cited lower than expected revenue increases from both major taxes - personal income and sales - for the scaled-back forecast.

“Clearly, the sales tax has been the biggest disappointment in the revenue stream,” Ferguson said. “The slowing in the rate of growth in the economy has slowed construction, especially on the residential side. And when you have weak construction, it tends to flow into other durables.”

In addition, continued weakness in the timber and high technology sectors have scaled back the government’s estimate for personal income during the current budget year, lowering expectations from the personal income tax.

Under the administration’s revised estimate, sales tax receipts, which account for a third of all general revenue, should increase 4.5 percent, down from the 5.7 percent estimate in January. Personal income tax collections, which make up half the general revenue, should increase 5.8 percent compared with 6.7 percent forecast eight months ago.

The tax system generated nearly $18 million more than the administration predicted during the last budget year, providing not only the year-ending surplus but also a larger base on which to project future growth.

But the more conservative view of the state’s economic future all but offset that advantage, producing a revenue estimate only $10.6 million higher than state lawmakers based their budget decisions on last winter.

During those deliberations, financially edgy budget writers feared revenue growth would be substantially lower than even the revised administration outlook. As a result, they stiffed state workers on the governor’s proposed 2 percent pay hike and scrimped on several other programs to bring the 1997-1998 state budget in about $11 million below expected revenues.

Those savings combined with the slight increase in anticipated revenue and what is left from the previous budget year’s surplus leaves lawmakers with some $33 million in unobligated tax receipts when they convene next January to write the 1998-1999 state budget.

One of the biggest items facing them will be paying operators of the proposed private prison to house 1,250 inmates beginning sometime in 1999 if the project goes as now planned. That bill could approach $20 million a year.