Notes from today’s ERFC meeting: exports down, cannabis and REET activity, budget outlook accuracy

By: Emily Makings
11:27 am
September 5, 2019

Today’s Economic and Revenue Forecast Council (ERFC) meeting included a report from the budget outlook workgroup on the outlook’s accuracy and a presentation from ERFC executive director Steve Lerch on the economic outlook.

The economic review (beginning on page 19 of the pdf) notes that the preliminary economic forecast for Washington is “very similar” to the June forecast and that downside risks continue to include “uncertainty regarding trade policy.”

Indeed, slide 9 of the presentation (below or on page 29 of the pdf) shows the year-over-year change in Washington exports over time. From the second quarter of 2018 to the second quarter of 2019, Washington exports dropped by 27.6 percent. That’s the biggest decline since the first quarter of 2000. Additionally, exports of transportation equipment, agricultural products, and the all-other category all declined. As Lerch said, it was a “really terrible quarter.”

On the last page of the pdf, the ERFC included a table showing Washington exports by industry for the past several years, including the change from the second quarter of 2018 to 2019.  For that period, exports of transportation equipment were down 41.9 percent, exports of agricultural products were down 22.4 percent, and all other exports (collectively) were down 5.6 percent. (Some industries increased exports; for example, exports of non-electrical machinery were up 14.3 percent.)

Slides 23 and 24 (page 36 of the pdf) look at cannabis revenue collections and real estate excise tax (REET) activity. Cannabis revenues are coming in higher than forecast, and they remain volatile (see my earlier blog post on the difficulties of forecasting marijuana tax revenues).

Lerch also noted that REET activity has been “leveling off.” Large commercial sales spiked in July and “could spike again to beat REET rate increase that takes effect January 1, 2020.” (Under ESSB 5998, which was enacted earlier this year, the REET rate will increase for properties sold for more than $1.56 million. See our description of the changes on pages 4–5 here.)

Finally, every five years the budget outlook workgroup must review the reliability and accuracy of its outlook methodology. The resulting report was presented at the ERFC meeting (beginning on page 7 of the pdf). The outlook has been pretty accurate in estimating the maintenance level for the ensuing biennium:

  • The outlook for the 2014 supplemental underestimated the 2015–17 maintenance level by 1.5 percent.
  • The outlook for the 2016 supplemental overestimated the 2017–19 maintenance level by 0.2 percent.
  • The outlook for the 2018 supplemental hit the 2019–21 maintenance level on the nose (staff joked that they would probably never get an estimate exactly right again).
Categories: Budget , Categories , Economy , Tax Policy.