HdL presents an up-to-date view on California’s Retail Economy based on current 1st Quarter 2021 data.



Consensus Forecast 7.1.21

Click HERE to watch a recording of the live forecast that was presented July 1st, 2021 by HdL Client Services Director, Bobby Young and Principal, Bret Plumlee.

Click HERE to view the presentation slides. 




 Welcome everyone, so glad you all are able to join us this morning for HdL's latest California Statewide Sales Tax Forecast Webinar.

 Before we get started, I just want to let everyone know that this presentation will be recorded and the slide deck will be available on our website, hdlcompanies.com

So, feel free to check back on our website if you want to review the live presentation again or see the actual documents in the slides that were going to be going through today. 

Also, as far as questions and answers, we will be reviewing any questions at the very end that have been submitted, feel free to use the Q&A live chat box that is in the top right-hand portion here on Microsoft teams.

Also, for those of you who recently have successfully completed your fiscal year 21/22 annual budget cycle and have a an officially Council approved budget, Congratulations, it's a monumental task. 

Every year takes a lot of communication, a lot of coordination and a lot of hard work, and it should absolutely be celebrated cause here we are right at the beginning of that fiscal year, July 1st.

 As we have the last few quarters, both myself, Bob Young, Client Services Director here at HDL Sales tax in California and Brett Plumlee, principle here at HDL Sales Tax California will both be going through the forecast. 

We will talk through all of the sectors and what we experienced and have been experiencing as well as  what we see coming up. 

As a reminder, for those of you maybe not as familiar with HDL companies, are clients include cities, counties and special districts, and certainly, transportation agencies there on the special district side.

 We are blessed to have a 99% client retention rate.

 So thankful for all of you.

 All of you as clients that we get to service and as a part of the services that we provide will be talking a lot about obviously sales tax and transactions use tax today and those trends.

 But just a reminder we also have a property tax, A company economic development, cannabis management and specifically, tax and fee administration for certain revenue streams like business license, TOT, short term rentals revenue, utility users tax in franchise fees tax, so kind of a wide range.

We try to serve as many as possible and produce as much efficiency.

 So, keep us in mind if any of these other services come up in conversation and you would like a little bit more information, please reach out to us.

 We'd be happy to provide you more information as needed. 

So, let's start talking about the forecast and we should kind of remind ourselves of everything that's transpired this last year, especially at the federal level and what Congress specifically has done.

 Here on the screen, you'll see just four of the very large stimulus and relief packages that Congress has approved throughout the last year that have really been not specifically showing up in our data, but we know that it's there.

 On this next slide you can see that trickledown effect and again and just a reminder of how that federal stimulus money has been pushed out to us as consumers, but then also back into inevitably, our sales tax revenue generation. 

So, whether it be initially, we saw a $600 a week unemployment payment that were offered.

 Later extended but reduced to about $400 a week. 

Can't lose sight of that. 

We saw $1200 per person, $500 per child direct cash payments that helped the overall economy but us as consumers.

 Mortgage forbearance for homeowners for six months and even extended longer as needed.

 Also, as a subset of that, we saw a rental relief provided which helped keep money in people's pockets.

By way of the last couple of stimulus packages, we saw an additional $600 per person.

Then, most recently through the ARPA program, we saw $1400 per person direct payments. 

Now those came with some income limits and started to phase out at different points. 

But again, very important reminder of how much we have actually seen come down into our economy. 

Also, as a reminder, we. will be looking at first quarter 2020 data very quickly here, but just a reminder of the calendar year and how that compared to calendar year 2019.

 Regionally, throughout the state you can see those at the very top, San Joaquin, far north area, and the Sacramento region had a very positive change compared to the pre pandemic calendar year of 2019. 

 Whereas, the central coast of  California is an entire region and the Bay Area that experienced the biggest losses.

 So just kind of a reminder that the overall result statewide haven't necessarily been the same or had the same experience. 

Even as a note there under Southern California specifically, we have definitely seen within our data dramatic difference between the counties of Los Angeles and Orange County compared to Riverside and San Bernadino. 

So, it is very interesting and for us, fascinating when we see the data and how it's different throughout the entire state.

 So let's get into the results here.

 Starting in the middle of the screen, the last black box if you will, “The first quarter 2021” period. 

Just think when you think first quarter it is the January, February, March time period on the latest sales tax results that we have.

 You'll see a positive nine and a half percent gain. 

Definitely showing our continued enthusiasm and optimism overall with the results. 

And then you even as you look there to the right, you'll see our forecast or representing 2Q and very dramatic percentages. 

And I think starting here in 1Q21, it's important to then look to the left.

 Far left, you'll see year ago, 1Q20 was actually, down 4%.

 That's the time period of, January, February, March…and right in the middle of March is when the “shelter in place” directive was set in and we saw dramatic decrease out of all of our businesses. 

Such as business closures, kind of a tightening of spending and everything else.

 Now, that's what we're going to start comparing to. 

So, then when we look at it and see that 9.5% gain, while very positive, it is somewhat starting to be exaggerated because of what was going on a year ago. 

That then will carry obviously these next 3 quarters as you're looking at the green bar areas in our forecast.

 A dramatic 30% gain expected as a part of 2Q that'll be the April, May, and June time period. A month that just ended in real time

 You can look back a year ago down 16%.

So, inevitably when we come out to talk all of our clients and start talking about comparisons, it won't surprise us too much if we do start seeing some very dramatic percentage changes.

 As with most of the slides coming up, you're going to see down below, in the line graph, the grayed out area there which represents the last five quarters, or the black percentages that you see up above. 

And then the dotted line represents our forecast.

Overall, on a statewide basis, even which the seasonality effect that we get, what you can see as we start to move forward into fiscal year 2122 and will see it later in presentation is… we have experienced now a fairly strong recovery and that's why we wanted to talk about the reminder of the federal stimulus money. 

How much that's pumped back into our economy, not just sustain us but as you'll see in some major categories, we've experienced continued growth through the pandemic period.

 So, very positive results overall. 

Here, just kind of getting into some of the details if you will. 

That very top line as you go across both the black and the green bars there, that's what you just saw in the previous slide. 

So, down below the green line is the same as before. 

The brown line and those percentages up above represent just local place of sale.

 You can see how dramatically those were impacted. 

If you're looking across the percentages there on the left of the screen, local place of sale, local brick and mortars were definitely impacted very, very hard.

Then the gap in between these two really represents the growth and continued expansion out of and allocations from the county and statewide use tax pools.

 So, as you then shift across, as businesses start to reopen, we're going to see growth.

 Specifically, at a local place of sale and probably a little bit of a diminished growth.

 Less than what we have seen over the last few quarters, especially from the pools. 

And there is also a shifting dynamic that is happening which we're going to address later in the presentation that also is going to move those numbers. 

 It just kind goes to show that we do anticipate local brick and mortar growing a little bit faster and helping keep these positive results going. 

At this point I am going to go ahead and shift it over to Brett to jump in and talk about autos. 

Thank you, Bobby, appreciate that.

 So as Bobby is giving you an overview statewide of all the industry groups combined, we're now going to drill down and start talking about the various major industry group starting with autos and transportation. 

Regarding autos and transportation, We've been talking to you for five quarters now since COVID began and Bobby mentioned the basically 1/6 of the first quarter of 20, the two weeks in March of 2020, when Covid first struck, that this industry has done primarily better than what we had forecasted every single quarter. 

This is including the quarter that we're talking to you about now, the 1Q21.

 So, on this slide we're talking about registrations on the left. 

We have the big increases in the quarter.

 And on the right, the biggest decreases.

 So, what's happening with autos? 

What we have is Both luxury SUV and pickups gained market share in California based on new vehicle registrations through the first quarter of the year.

 We have seen a phenomenon where used car prices are higher than original sticker prices and this is due to really a lack of supply and rising new motor vehicle prices.

So, the demand is really significant now for used cars as well. 

The luxury brands that you can see there on the left are doing well. 

They are more expensive and as a result, the sales tax associated is going up significantly. 

Non luxury brands that you see on the right are down pretty significantly in the quarter, offsetting the overall increases.

 California new vehicle registrations were down in the first quarter of 21 but the local sales tax revenue, which I'm going to talk about in the next slide is up 24% in the first quarter.

 what are some of the reasons why? 

Mainly, supply is heavily restricted and that's leading to an upward pressure on the prices.

In summary, more expensive brands are hot plus supply restraints are forcing higher prices. 

And this is resulting in the large growth that we're seeing in that first quarter 21 in local tax receipts. 

So, in the next one we're going to talk about the industry group as a whole.

And first quarter 21 actual results show more than 20% increase over the first quarter of 20 and we have projected a 5% increase.

So, it was significantly higher than the projection and very good news, especially for your agencies. 

Those agencies that have a high amount of autos and transportation high percentage. 

Our forecast anticipates continued strong results from this group finishing fiscal year 2021 up 14.5% and growth slowing in fiscal year 2122. 

Then following that with a flat year as demand settles down and the market resets.

Our long-term forecast that we have out to fiscal year 2526 is projecting 3% annual growth.

So, still solid growth as we move forward in this industry.

 The next one is building and construction and this industry group, along with food and drugs, that I'll talk about in a moment, stabilized the quickest during covid.

They really got back to fiscal year 18/19 levels early on back in 19/20 and first quarter 21 has continued that pattern. 

The actual results were 12% higher than first quarter of 20 and we had projected a 4.5% increase. 

For the group, the gains are largely from building materials that we've been talking with you about and home improvement stores commodity prices have soared.

Lumber prices are up over 400%. 

They now have recently come down somewhat pretty significantly, but still up much higher than they were pre COVID. 

Both major home improvement retailers have reported increased contractor activity, and this is compared to do it yourself spending. 

However, expect demand to remain strong as the project backlogs get completed.

Spending continues to be focused around the do-it-yourself projects that we have been talking about all five quarters now during covid.

Nesting impacts are evident and that has been heightened by the pandemics impact.

Contractor activity has also remained in line with expectations. 

Residential permit values have remained elevated.

They are up over 20% through April 2020 as California continues to battle with the short supply of housing units.

This segment is expected to have continued growth through fiscal year 2122. 

We are expecting some pull back on the extended horizon. 

Prices will stabilize. 

Households will complete projects that they've been putting off. 

We are projecting long term growth out to fiscal year 2526 annually of 5% which is good news for this industry. 

Fiscal year 2122, we have built in a 5.4% increase into the forecast.

 The next one is food and drugs. 

I mentioned stability in this industry. 

We've been talking about that with you four quarters in a row during covid and again the results in the first quarter are showing that this is particular industry is pretty stable and pretty flat in the first quarter of 21. 

We had projected. a 1%. 

We had anticipated flattening out and the actual results were down a little bit about 7%.

 This group has provide resiliency and as a result we have seen that small dip, that point 7% from the prior year and we have softened or outlook now compared to where we were last quarter for this particular sector as we go forward.

First quarter 21 the business type convenience stores and then cannabis related businesses were up.

This was offset by grocery stores that were down that offset the overall gains. 

Fiscal year 2122, we had projected at one point 7% growth and long term, we are projecting continued stability but 2% growth all the way out to fiscal year 2526.

 And then fuel and service stations, this industry along with the restaurants and hotels, which I'll talk about in a moment, have really been hit the hardest all four quarters and now five quarters during covid significantly negatively impacted.

We had forecast a 5% drop in the first quarter of 21 in fuel and service stations.

Our forecast was very close to what actually came in.

The receipts were down 5.8%.

 And the quarter that we're now entering into, third quarter, the last quarter that was just completed 2nd quarter 21, everything is pointing to upward pressure on sales tax in this industry. 

The vaccination rollout has been successful.

 We're seeing gradual recovery in the global economy.

 Oil barrel prices are up significantly, and project it into the mid $70.00 range.

 They are actually there right now.

 But by the end of this summer 2021, that we just entered, prices at the pump are higher now than they were at the peak level, 4th quarter 19 which is prior to Covid.

 The average price of a gallon of gasoline now is $4.15 and that compares to $4.03 at the end of 4th  quarter 19.

 So upward pressure on demand.

Demand for fuel is significantly up throughout Europe and in California.

 The travel industry, as you see, airline travel picking up significantly with the vaccinations being rolled out, and this also has a positive push o. sales tax. 

Jet fuel is included in this sector. 

Jet fuel is up the price at the same level, little bit lower than it was pre covid, but almost all the way back up to pre covid levels.

 So, upward pressure ongoing and 2% is the forecast all the way out to fiscal year 2526. 

And then the restaurants and hotels sector…this first quarter 21 results were actually a little bit worse than what we had projected. 

We had continued to project a downward pressure all four quarters and off the fifth quarter in a row since covid began. 

We projected 11% in the actual result statewide down was almost 16%. 

This is primarily attributable to casual dining, the biggest percentage business type in this sector, continue to be restricted in the first period, the first quarter of 21. 

And that being said, this segment is poised for really significant bounce back as capacity restrictions, They were lifted June 15th and you are now seeing evidence of that, with restaurants being crowded and the social distancing being lifted inside of the restaurant.

No masks are required and the tables are beginning to be filled back up again, the expected summer surge related to the pent up demand, everyone wanting to get back out and combining this with an increase in menu prices, should lift the taxable receipts in the near term.

 What we are finding, and we're talking to employers and they're having difficulty hiring employees. 

That's been a struggle with some restaurants and that's limiting their operations.

 And Bobby talked about the various federal stimulus dollars that are out there, and we can expect a bump from American rescue plans, $28 billion earmarked for restaurants.

 We're still somewhat cautious about campus and office parks reopening in the impact that those facilities will have on the overall sector. 

At this point the timing is unknown. 

And as I mentioned in airline travel and the impact that has on fuel and service stations, domestic travel picking back up and recovering has a positive impact on this sector as well. 

Fiscal year 2122 we are anticipating a statewide increase of 26.1%.

So, a really healthy rebound, especially in the second quarter of 21. 

 Bobby talked about this rebound happening, especially in comparison to second quarter 20, when we had the Covid restrictions, the shelter in place and everything shut down.

So, 2122 up significantly and then stability in the industry annual increases projected 4% all the way out to fiscal year 2526. As we do, just a reminder, we fine tune our forecast to your individual agency that this is statewide information forecast that we are giving you today.

And now I hand it back over to Bobby talk about general consumer goods.

 Great, thank you Brett.

 So, another category that was largely impacted by the pandemic with the shelter in place and the store closures, you can see here general consumer goods, right in the middle of the line graph, in the shaded area, how deep those cuts really ran.

They definitely gives us perspective nowto be able to see that with these most recent quarters in the activity.

 Unlike what you heard Brett talk about with fuel service stations and restaurants, what we saw out of 1Q21 for general consumer goods, you see it right in the middle of the screen and the percentage increase for 1Q2, a 10% gain. 

And again now we're comparing to the 1Q20 period that was so dramatically impact at 11% drop.

Whether it be here in 1Q21 and there's always this seasonal affect.

 This is a category that is largely impacted or swings, if you will, because of the normal fourth quarter holiday shopping period, you can see the 1Q drop off is fairly normal. 

We were not surprised by that. 

But the 10% gain over the prior year definitely gives us hope and optimism for what the summers to come.

 Again, much like what you heard out of fuel and service stations and restaurants, we are anticipating solid growth all the way through the end of the calendar year and then even continuing into what will be inevitably the calendar year 2022.

 So, lots of hope here as businesses continue to reopen.

Consumers buying online was a necessity whereas now, the option to go back in and have a normal shopping experience, maybe go back to our malls, some summer tourism and thereby spending during the second quarter, third quarter, even the holiday period.

 You'll see there for 4Q21, we're projecting 11% gain.

On the next slide, we will just kind of breakdown because this is a very large category with a lot of different businesses and business types.

 Here on the screen, comparing the first quarter period over the last three years.

 So, 1Q2019 in the green.

 1Q20 again, the most impacted if you will or the starting of the impacts from the pandemic there in yellow.

 And now most recently with 1Q21 in the blue.

 Department stores fell off and some in the industry and even those as far as economic development, you might say, department stores, are going to continue to be impacted.

We will continue to watch that very closely.

But right next to it, the largest sector overall within general consumer goods, discount department stores.

 Think large box retailers here who only have been experiencing growth in the first quarter over the last three years to two year comparison periods.

So, that's a trend that is probably not going to fall off as that volume shopping which most in our communities are used to.

 You can't really do that online and that really accentuated the growth during the pandemic.

 Other categories, smaller in scale, electronic appliance stores are not yet coming back.

It will probably take to the summer period as malls reopen and get back in person.

 Those will come around.

Family apparel has experienced a bit more of a rebound, stink discount or not, the department store apparel here is showing some good signs of coming back here in the 1Q period.

 Home furnishings, the trickle over affect, if you will, from the building results that we have been experiencing such as homeowners having equity and being able to put that back into their house.

Here to the home furnishing side, showing positive growth here in the 1Q period especially stores again that are very wide and dynamic as they reopen.

We will anticipate those two to continue to see growth.

 So, just kind of given some overall dynamics. 

Also, here on this slide want to give specific credit to the source, US Bureau of Economic Analyst and UCLA Anderson forecast. 

This was something that we had noticed as we attended their forecast. 

It gives some perspective.

 Again, this is all on a statewide basis.

 All consumer spending.

The top line there focused on services and normally, nontaxable services.

 You can see how dramatically that spending had dropped off and UCLAs forecast for services to rebound.

 Where is that going to come from? And you see that down below.

 It does play into our forecast when we talk about autos and building and on general consumer goods,  you could see that increase that has happened and did happen during the pandemic trailing back off just a little bit and getting down into maybe more of a historical growth trend.

 This was one that really caught our eye so we wanted to go ahead and provide it to you guys as well and again, credit to UCLA Anderson Forecast for putting this together.

 So, let's talk about two other major groups that are experiencing a little bit of a 0 sum gain, but a dynamic shift in between.

 You'll see here the top line, the green line “State and County wide Use tax Pools” and the growth obviously that they've been experiencing.

 Think online sales activity coming from out of state there.

 And then business and industry.

 A category for us that is also very dynamic and includes a lot of different sectors.

 But as we'll be talking about here very shortly, also includes fulfillment centers where the local Bradley Barnes gets allocated to the jurisdiction where a physical fulfillment center is located.

Some of the reference points here if you will, on the green line, the use tax pools, there has normally been the seasonal drop off when we hit 1Q especially compared to the 4th quarter normal holiday shopping period. 

So again, it doesn't take us by too much surprise there that that top line has decreased compared to the  dramatic rise that you've seen over the last few quarters specifically.

Keep in mind that we had a B147 and new regulations on out of state online retailers. 

That new tax revenue got funneled back into your local jurisdictions by way of the county wide use tax pools.

So that has really accentuated that green line up these last few quarters.

 The point that we're going to be talking about here is the 1Q21 period did see maybe a little bit more of a drop off than what has been the historical norm.

But BNI as a category didn't experience quite the same drop off here in the 1Q period and it specifically related to some retailers starting to change their reporting compared to historical periods and now shifting revenues away from the countywide use text pools, into local distributions.

So, let's go ahead and focus on these next couple of slides and maybe just given reminders of how sales and use tax gets allocated.

 Here specifically, let's talk  sales tax and as many of us know, it applies when goods are located in California at the time of the sale.

 Tax dollars get allocated locally and you can see then that the stock includes goods that are held in a California warehouse or a fulfillment center or as most of us know, in the retail store themselves when we go in and buy it.

 So that's all sales tax.

Then as we compare that to the Use Tax component here, you'll really be thinking out of-state retailers.

 Shipping goods from out of state into California.

 Here the use tax applies when title of the goods passes to the purchaser at a point outside of California.

 So goods again, normally just shipped in if we have retailers who are located outside of California.

 So, taking that down one level into more specifically, here on the left you'll see sales tax… really think place of sale where the sale order was placed or negotiated or the goods exchanged over the counter.

 Local Bradley Burns gets allocated directly to the local jurisdiction or where the transaction takes place.

 Third bullet point there on the left, probably one of the more important ones, even at a state retailer does not have a permanent place of business then the local tax will be distributed where the inventory is located at the time of sale.

So that's kind of a big one that will be talking about here.

Use tax there on the right, think place of use or goods that are coming from out of state again.

 Wherever the county in which those goods were shipped, that becomes the county wide use tax pool that the local dollars go into and then get distributed out on a pro rata basis to every city within that county.

 So, use text is generally allocated via the use text pool.

 The big shift and this gives the visual if you will, We have had retailers that are not in store, You'll see the very top there, “online  or out a state” retailers that don't technically own their fulfillment centers or warehouses here in California.

 You can see how that trickles down directly.

All of that sales tax revenue gets allocated to the county wide use tax pool wherever those goods were shipped.

 The big change that we have, if you will, is going to be that we have retailers now who have taken ownership of those fulfillment centers, so they are no longer owned by a third party, and their local taxes actually going to split.

You can see how it now comes.

 Some of those goods, which you can see on your left, “Location of goods at Time of sale”, some of those goods are still going to be coming from out of state, not stored in California.

 And by way of this flow chart, you could still see that that local tax dollar will still go into the county wide use tax pool.

 But the bigger changes we now have some of that revenue that will be following the goods.

 Some of those goods being stored in a California fulfillment center.

 And as you could see, that will trickle down the local tax and will get allocated directly to the jurisdiction where the fulfillment center is located.

 We have had retailers in the past who have operated under each one of these and for different reasons.

 Business reasons of their own.

 What we saw this quarter was a bigger shift in the revenue from the county wide use text pools to the local jurisdictions.

 On the next slide when we're talking about specifically business and industry again, a category that includes fulfillment centers, which is on the next slide but will stay here for a sec,  you'll see 1Q21 period growing by 19%.

 Very dramatic, especially as you look to the left and see the most recent performance for the group through the pandemic.

 Very strong gains and it's because of that reporting shift and money coming out of the pools and it being shifted over to the local fulfillment center or the local jurisdiction where the fulfillment centers are located.

 That's going to then move these percentages and you could see over the next three quarters coming up  very solid positive results expected like 18%, 19% because of this reporting change.

Once we get past this 4th quarter period of the change, we then started to compare to prior year and you can see as we go out and really talking about Internet sales as a subset. of this, we do anticipate solid growth 4% and 5% going out.

 Some consumers have changed their habits and so online sales not expected to drop off dramatically and thereby not really impacting the business industry category.

So, let’s go to the next slide where we focus specifically on these percentage changes for fulfillment centers

As a category overall subset of business and industry, you can see the most recent percentages and some notes there on the right side.

 Just that reminder, AB147 and the collection of the requirements and the collection of new tax revenue from out of state online retailers and specifically marketplace facilitators, you'll see right when it went into effect, especially the marketplace facilitator aspect we saw 42% growth out of 4Q2019, 65%, and then as the pandemic hit, we saw fulfillment center generation increased dramatically over 100%, almost 150% there in 2Q, 106% in 3Q, and  still strong growth out of 4Q, 48%.

 But now with this reporting change we see it jump up 163%.

And again anticipating that to continue these next 3/4 to finish off the reporting change and the comparison. 

Others major categories and just some trends that we've noticed within some other business types within BNI, the top line there, “medical and biotech” should not surprise any of us when we're talking about the pandemic in whether it be PP and E equipment, everything related to support through the pandemic you could see how much medical biotech has jumped.

 It probably will continue as we as we move forward these next couple of quarters on that industry.

 The three others include “light industrial, heavy industrial, and office equipment.”

 You can kind of see comparison to 2018 and 2019.

 These were not really strong growth periods before the pandemic for these sectors and even through the pandemic have failed off just a little bit.

Most likely we'll see the rebound come with the PPP loans and a maybe a little bit more positive outlook on the economy.

We'll see more businesses investing in equipment starting to pop up.

A couple of these categories we will see a return to office from remote workers. 

We will Probably see office equipment take a nice little bump up. 

So, just a few there that were watching.

But one very dramatic one, down at the bottom in the lavender color, warehouse farm construction equipment, you can see there's a little bit of a seasonal effect that tends to peak out during 3Q, and 4Q.

That business investment no doubt really showing up here in the 4Q.

Investing in things like tractors and heavy equipment that we really saw that jump up.

It is a good sign overall even though we're coming up on a summer period, maybe a little bit more drought related and going to be challenging for those for the farm industry. 

We did see positive results there in 4Q and even in 1Q compared to the prior year.

 So, let's talk about the pools because this is the other half of that reporting shift. 

Again in the 4Q2019 there with the startup marketplace facilitator requirements you see a strong 25% growth for that new tax revenue and continuing all the way through and increasing through the pandemic periods.

Then getting back down a little bit lower, but still super strong out of 4th quarter 2020. 

Now with the reporting change reflected as a part of 1Q, we still saw a solid 18% growth out of our county pools. 

There were many things dumping in there that depends on your specific county which will be happy to go over with you during our meetings but still strong growth overall out of online retailers and others contributing into the county pools.

 And I think on the next slide is where we have our forecast here.

Again, because of that reporting change, obviously there on the top left, you'll see percentages that are dramatic, like we just saw on the prior slide even as you then look and glance to the right on the percentages, you'll see still really strong expected growth going outward.

 We do have to go through this reporting change period, but not anticipating specifically online sales to decrease.

 Goods are getting more expensive and that kind of applies overall to sales tax revenue generation but increased cost of goods will also increase sales tax revenue.

 So as we pay more will more will be generated.

 So, good still good positive outlook from the county pools overall.

 So, now as we still have that statewide look, but shifting it for the majority of you who are on  maybe a more traditional fiscal year outlook,  July to June period, you can see how we compared to the prior years and it's probably more tangible in the percentages where you'll see statewide, really fiscal year 1920 where you will see the only decrease impacts that were felt by the pandemic.

And as we look at the end that we actually just finished yesterday, at the end of fiscal year 2021, you can see we are anticipating a positive 8.5% statewide and continuing. 

 Hopefully we've we've given you a lot of depth with regards to categories like fuel and service stations, restaurants, growth in online spending, continuing the rebound of brick and mortar, and general consumer goods.

 So, it's clear 2022 should remain fairly solid in 9.5% growth.

 Our outlook overall as we go from there is probably maybe then a little bit more of traditional annualized growth if you will.

 Somewhere between 3 and 4%. 

Not yet really willing to anticipate a recession or slowdown in those out years.

 Obviously, will be tracking and trending what's going on with the Fed and interest rates and how that might then transpire into consumer spending affected one way or another but for now, we're kind of figuring as we come and fully reopen, there will be some stabilization period given the dramatic changes and everything that we've experienced this last year. 

So, next slide is comparison, again little higher level here, just comparing the total for year period, the fiscal years that we've already experienced of 1819 and 1920 and then our forecasted periods of 2021, 2022. 

You could see the pools especially because of AB147 and no drop off, just continued growth all the way through especially compared to the 18/19 period.

 There are some other categories where we've seen that same dynamic.

 So, here will kind of bounce around just a little bit.

Down below “business and industry” again with fulfillment centers as a subset there. 

You could see continued growth in comparison, way above 1819.

“Autos and transportation”, as Brett has mentioned, has been a fascinating category for us to watch. 

Peeled off for fiscal year 1920 but has rebounded very strongly and likely to continue here in the short run.

“Building and Construction”, also a little bit lower on the list but strong growth when comparing to the pre pandemic period.

 Then those categories like “general consumer goods”, you can see getting back to where we were in 1819 by the end of fiscal year 2122.

 So still about a year to go there.

 And then restaurants about midway through and fuel and service stations down below, even as Brett had mentioned, even by fiscal year 2122, not fully rebounded yet.

 Kind of take a little bit longer past this period to get to back to where we were in 1819 via our forecast.

 So some final thoughts and takeaways, If you will.

Obviously, we all know that the pandemic period and shelter in place directive impacted the entire state, differently depending on your region but everybody was impacted. 

Federal government has pump trillions of dollars into our economy to the benefit of both us as consumers, but also your local government because results definitely have not been as bad as what we were projecting even a year ago in the middle of the pandemic.

 We were not very uncertain what would be held but we have seen more positive results. Inland and Suburban areas have fared a little bit better and then the metropolitan areas, especially LA / Orange County, here in Southern California or the Bay Area there in Northern California.

 This shifting of local Bradley Byrne's revenue from the pools to local jurisdictions.

A specific note here that it will also inevitably impact how problem 72 allocations are determined by way of the pro rata factor, and then distributed. 

As well as the quarter cent local transportation funding, the quarter cent of the base sales tax rate and how those revenues will be allocated out. 

They will shift with this shift of local Bradley Burns.

So, it is something that we're going to continue to watch and inform all of our clients of and really be able to build into future forecast as we go forward from here. 

The overall outlook has remained fairly positive and a little bit more optimistic, especially if you recall a year ago, we had more of a pessimistic feeling to ourselves.

 So, we do sit here a little bit more with smiles now, which is probably a little bit more our speed and comfortability, so hopefully again with your local budget process and some of the forecast that we provided you, hopefully that more optimistic outlook was able to help, weather the process and make it a little easier. 

Always having its challenges as we know.



Question: Can the recording be sent to attendees? 

Please continue to watch our website hdlcompanies.com because will be posting a copy of this recorded presentation and the slides that we just went through on our website. So feel free to keep looking there. I would say probably about the next week. Probably by mid next week it should be made available. 


Question: I recall that former Governor Brown band sales tax rebate agreements between businesses and local municipalities about four to five years ago. Our understanding is that there are loopholes around the law. Is there any discussion of legislative efforts to address the legal loopholes? 

As I recall, it wasn't a complete ban on sales tax rebate agreements. It was actually just a requirement that if your agency is going to sign a sales tax rebate agreement that it become public, which many of the rebate agreements prior to that didn’t need to be made available before meetings or before negotiation and as negotiations were taking place and even as a subset of that requirement.

If revenue is going to be changed from one local jurisdiction directly to another then that other jurisdiction needs to be notified so I don't think that the law explicitly banned them.

But is their legislative efforts to address the legal loopholes? 

It has been a continuation of a thought and some jurisdictions wanting to make those changes.

I can tell you, as we've continued to watch it from a legislative process, it hasn't gained whole lot of steam, a whole lot of efforts. 

And there's lobbyists on both sides, but there will no doubt be continued efforts.

It really comes down to our state legislature and what their willingness to address the potential change or what their appetite is for that. 

But for all of our clients we continue to watch all legislative bills and will be updating you as we see progress if any is made on that front. 


Question: Is there any forecast on the increase or decrease of discretionary income statewide? 

We take that into account in terms of doing our overall forecast. We do our forecast at the state level and then we fine tune it for each of the seven major industry groups in the pool.

But we do take information like discretionary income, the impact of the federal stimulus dollars, the job employment, global macroeconomic issues are definitely taken into account in our overall forecast.

Yeah, and  so it is indirectly included, I think why we've been so surprised over these last few quarters and why we wanted to kind of remind everybody of the amount of federal stimulus is we weren't quite sure what consumers would do with that money. 

We weren't so optimistic to think that they would have spent it all. And there by I see these increases in online sales and especially out of autos.

So, it's tough to really count on that and  build it in.

And for most of us and especially former government employees even yourselves as government employees over the finances…

OK, let's lean on the side of being conservative until we actually some data.

I think that's really our point here is to let everybody know we've seen the data where you can see the results, the growth, or the beginnings of the rebound at 3Q and 4Q and now at 1Q continuing to note that yeah, it's in there.

But we can't show it dramatically and so tangibly, but it is definitely in there.

Also , on that front as we talked about the federal stimulus money money… 

You know later in the year out of the greater economics and the educational economic community, if they look back on this period and say we've gone through a very sharp V shaped recovery, I don't think it'll be as much of a surprise for any of us in especially as we've gone through and see the trend. 

And then the growth you go…. Yeah, that sounds about right overall from a statewide perspective we saw a one year dip where we actually saw three to four year dip out of the Great Recession area period.

So much different and probably feels a little bit more like a strong V shape recovery.


 Question: Where do we see cities in regards to an overall recovery at this point in time?

Covid impacted the economy negatively especially in those cities that have a significant tourism impact. 

They were hit really hard, but it's also been recovery that is happening more quickly than what we had originally anticipated.

So,  we're forecasting statewide know we do have a statewide increase forecast in fiscal year 2122 which is little bit more than 8%, that is a pretty decent financial picture.

And then it's going to be fine-tuned to your individual agency when we do that forecast, what is the particular industry that is most important? 

What's the biggest percentage of your overall budget that's generated in each of the major industry groups?

We analyze it that way and fine tune your individual forecasts.


 Question: Reference Amazon and Amazon Fulfillment center and an Amazon last mile facility.

It's a major discussion point. Keep in mind as we talk about Amazon, they are a single taxpayer and will need to talk about them in a non confidential sense. 

No dollar amounts given. Really trying to be sensitive, although we know that yes, there reporting changes are a part of the shift that is happening. 


Question: Does a last mile delivery center qualify as a fulfillment center? 

Really keep in mind here what's going to dictate the local tax dollars being allocated will be the place of the goods at the time of sale.

So, for your last mile delivery center, if that center is probably maybe a little bit more in the 100,000 square foot range, It's probably a facility where goods come in overnight and get put on the truck and there right out the door.

Those goods have already been bought and they were located somewhere else, whether it be out of state or whether it be at a larger fulfillment center.

Probably your last mile facility, depending on maybe most notably size, may not generate local tax dollars, or the local Bradley burns allocation.

So,  it is a dynamic we're going to continue to watch. 

We do have quite a bit of data and reference points so will continue to monitor it. We're happy to have conversations with our clients individually in the meetings especially if you're hearing about a new potential distribution center/ fulfillment center.

We're happy to kind of walk through all of those possibilities with you within our normal quarterly meetings or even emails in specific situations rather than here.


Question: Could you provide an example of what the impact is on the pools, If your neighboring city has an Amazon fulfillment center or another Internet fulfillment center that's going to end up generating more local Bradley Burns tax distributions? 

Happy to have those conversations with you individually because it will be very countywide specific, not quite the same, maybe even in Southern California versus Northern California and which cities are in which counties.

 Although, when we talk about a shift in reporting if more local tax revenue goes specifically to a jurisdiction, Inevitably, they will likely get more of the county wide use text pool on a percentage, because remember, it's every quarter It's calculated on a pro rata basis.

So,  as they possibly get a little bit more of the pool other cities within the county will get a little less, and that's the dynamic.

While easy to explain at this level it is very agencies dependent and very agency specific.

So, we're happy to within our quarterly meetings coming up be happy to walk through all the changes with you and talk through what you may need to help see the this change. 


Question: Has Amazon's tax structure shift been reflected in any of the latest data?

It is reflected as part of what you saw in the first quarter 2021 period with the major industry groups.

There were some other changes that are funneled in there.

Obviously, there's dramatic growth in different sectors, but Amazon's reporting change has now started here in 1Q21 and to our knowledge they will also be working with CDTFA 4th quarter 2020 that may also receive some changes on a retroactive basis, so more to come on kind of the retro changes for the past period.


Question: Our Prop172 and transportation funds shifts due to cities with distribution centers enjoying a greater pro rata share of the pools?

Yes, so Prop172 and transportation funding use the local Bradley burns allocations as the baseline for how those funding sources get allocated, wherever retailers are allocating the local Bradley Burns and they also allocate the local transportation funding when it comes to Prop172 and the bucket of money there.

What ends up happening is every calendar year or whatever the results are, and however much is generated in the 58 different counties throughout the state, That whole calendar years worth of activity is what dictates how much gets allocated in a future feature period.

Again we're happy to within the body of our meetings talk through it with you. 

But some jurisdictions get more local tax distribution, kind of peeling away from other counties by way of the county wide use taxable, we do anticipate the Prop72 will also start to shift in future periods and by way of the timing, probably won't see those changes actually impact Prop172 until fiscal year 2023. There will be a timing delay that again we're having to take more time in our meetings to talk with you, but It impacts won't be as immediate as what we've just seen out of Bradley Burns.


Question: Could you give us a little insight into how future monetary fiscal policy at the Fed level may impact sales tax, revenue and consumer spending?

This one is a very interesting as we kind of think through the process right.

 If we're talking about monetary policy, the potential for the Fed treasury to increase interest rates is probably the most tangible change that could be considered right?

 With that, we if we run scenario through were likely to see then cost of goods get a little bit more expensive. 

Obviously home loans, mortgage rates go up there by decreasing slightly the activity that's been happening and the growth out of property values and that then trickles into for many consumers, their home equity loans, the home equity available that no doubt they've been tapping into.

 With a low interest rate environment that we've been experiencing over the last three years, four years, A lot of that equity is started to be tapped into and then spent and help us on the sales tax revenue generation side.

 So, as interest rates increase, consumers may be squeezed a little bit to figure out how much money do they have? and where is it going to be spent?

 The interesting point as a subset of that then becomes… OK, do goods get more expensive?

 You heard Brett talk about restaurants and the cost per plate going up, it means more potential sales tax generation available.

Costs of cars are going up and if anything it's likely the. kind of that underlying, as Brett talked about the auto industry pricing going up, if the same number of cars get bought, it means a higher sales tax generation.

 So, I say that because it's still a little 5050, right?

 If the feds do increase interest rates, but they do it slowly, there may be some advantages overall to the economy and keep sales tax stabilized.

 if they go up too far too fast, I think we can all then anticipate it's going to hurt the economy. 

Consumers will pull back a little bit, not what we were thinking a year ago with the pandemic, but sales tax revenue then growth may slow down a little bit.

Hopefully that adds some context because it is well, maybe a little simple question. It has a very complex and multifaceted answers to that.


Question: How should inflation be framed within this increase in demand?

The  greater economics of cost of goods getting more expensive and the inflationary impacts on the taxable good sales price, It's tough to tell right now, especially post pandemic, because we've seen the Fed pump in all of this money into our economy,

 I don't think that there's a clear picture on inflation or what the results will be when we're thinking or looking back at data to know how it's going to transpire.

So, probably more to come there as a lot of that money starts to be directed probably a little bit more on to infrastructure as we're hearing right now at the federal level and more specific use is not directed back to consumers.

 Consumers go back to work.

 Less remote work, more in office work.

 How's that going to start to change the demand side overall.


Question: Do you foresee a weakening of the economy in the next couple of years if pressure on long term rates continue, an factors such as ending of eviction and foreclosure memorandums and ending extended benefits hit the economy?

Tough to tell because if you just landed on that with what was framed there in the question you think… Yeah, there's probably going to be some downward pressure except for the restaurant side, where it's very difficult right now to find help.

There's people that want to eat out and there are restaurants who just don't have the service available. 

As some of those benefits decrease, probably the normal human aspects will be people go back to work and they'll get a job now with increased levels of minimum pay. 

It might be more advantageous to generate an income again by way of a job. Thereby. still spend that money, maybe even the same amount as the benefits as they were receiving.

So,  to tell right now because it's such a dynamic period coming off of the tremendous amount of federal money that had been approved and pushed out.



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