California Consensus Forecast - 3Q21 Data

Jan 05, 2022

HdL presents an up-to-date view on California’s Retail Economy based on current 3rd Quarter 2021 data. Watch the recording, follow along with the transcript, download the presentation, and read the FAQ.


Q. How is the pool calculation calculated and distributed?  


A. It's based on point of sale cash, as a percentage of the total point of sale cash, within your county, and that's done each quarter. So, it's 1/4 at a time. You always want to look at how well your cash is doing in comparison to the cash within the county.


Q. In the long-term forecast, when you look at the out years, why is there an increase in 24/25 all the way through 26/27? A little bit higher than fiscal year 23/24.


A. There's three industry groups that have a slightly higher projection in those out years: building and construction, restaurants and hotels, and food and service. We have slightly higher growth in those out years. Those last three fiscal years and that's what is attributable for that slight difference between 23/24 and then all the way out. And Bobby mentioned, you know there's a number of factors that go into our overall statewide forecast.


Q. What are the projections for California population loss or growth? How does that impact sales tax projections?


A. That's more of a macro factor. We do definitely take into account significant long-term changes that we may be anticipating. I would say in terms of population growth, our forecast at this point, it's just really steady ongoing typical growth that we've seen in the past. We don't have any anomalies that we've factored into long-term in terms of the projections related to sales tax and population loss or growth.

It's a tough one for us to even try to quantify as well. Even if we see population numbers decrease, but the cost of goods increases, we’re still going to see either the same or an increased amount of sales tax overall generated. So, we haven't had experience with past analyzation of data to really say, “Oh, here's how sales tax ebbs and flows with population.”

Now, obviously over the last 70 plus years here in California, we've only seen population increase, but I think most recently I think there's other dynamics that play into that will help offset any changes in population. One is, I don't believe that we're going to have a dramatic drop in our population overall. However, locally in certain communities as businesses come and go, that may be the case. But we'll take your local sales tax projection and will customize it for it to include that that dynamic. 

However, we still live in a beautiful state with beautiful weather and especially during the winter months. If anybody got a chance to watch the Rose Parade, the San Gabriel Hills down here in Southern California, we're just showing off, tempting everybody to come back to California.

But what we've seen out of not just the increase in prices, but more especially the increase in the stock market and the effect that it has, especially on our maybe our 1% communities, our very high-end earners, or high-end spenders, that the increases in the stock market actually have a more tangible effect than, say, population back on sales tax. And it that's pretty fascinating for us to watch. So, I would say there’s the likelihood of mitigating factors with the question of a reduction or you know, decrease in population overall.


Q. What is the projected CPI increase factored into the overall project?


A. So, for us, CPI, while we include it into our thinking, it's not so one to one. We do analyze for the expected increase in cost of goods, but we also mitigate it. CPI most recently got reported and I believe it was at 7 or 8% somewhere around there. So, then we go, “Okay, we can't just expect sales tax go up by that amount and so we do mitigate that a little bit by expecting consumers will peel back a little bit if the cost of goods goes up.

That, I think, is where you'll see us still have a positive outlook and this question was asked earlier. You know, seeing such positive expectations for even 22/23. Still 3.6% growth…is that cost of goods is going to go up. At some point, we anticipate that consumers will peel back a little bit as much as they buy. I think that has a lot to do with say a variant or a little bit of more of slowing in 23/24. Eventually, that all catches up, but more specifically we don't have CPI tide back into our sales tax amounts generated because we do consider other things in that in that picture for the forecast.



Welcome everybody, so glad you're able to join us for HdL’s latest California Sales Tax Trends and Forecast webinar. Before we get started, just to let everyone know, the presentation will be recorded and available alongside the slide deck on our website, very soon. All registered participants will receive an email once it gets posted.

We'll have a Q&A session at the end of the presentation.

By way of formal introduction, I am Bobby Young, Director of Client Services here at HdL Sales Tax and I'm joined today along with Brett Plumlee. We both work on the Sales Tax team and enjoy meeting with clients and going through the sales tax analysis with you all, the revenue that comes into your local agencies, especially at this vital time through the pandemic and being able to navigate it. But as we come out, what's to come? It's going to be very important and we're really looking forward to meeting with all this next quarter especially.

Just a reminder for anybody that may not be as familiar with HdL, we are proud to have been serving local communities for over 37 years. We are 100% employee owned which we take a lot of pride in. We really try to focus heavily on superior service that allows us to increase revenues for our clients and local communities while efficiently decreasing costs. We are thankful to have over 500 clients that we serve right now, and we are blessed to have a 99% overall client retention rate, which we value heavily and appreciate you as clients.


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Let's go ahead and jump right in. We do have the third quarter 2021 statewide results here. You'll see at the very bottom here, there is an overall positive 18%. This is phenomenal news for the third quarter. Think the calendar year third quarter, July, August and September time period. At the end of the summer months the economy was roaring, along with the stock market going up and we saw all these expected results.

These have been positive results that we had been forecasting. There's going to be a couple of categories that exceeded our expectations. We had forecasted about a 15.5% positive increase or growth over last year for the third quarter and what we saw was 18%. Specifically, there's three categories as we go through our meetings with you this quarter that we're really going to be focused on pretty heavily – autos/transportation which is right at the very top with positive 16%. It's been phenomenal to see consumers and their interest in autos. Bret is going to be talking about that more specifically here in the webinar.

As you as you look down a little bit, you'll see fuel and service stations at 54% increase. We also saw more people back on the road and increased gas prices helping there. The one that's caught us by surprise and was so welcomed for many of our communities and even us as consumers was to be able to go and dine out. We saw restaurants and hotels with a phenomenal 48% recovery. This was a category that had been expecting a very long recovery timeline, so we saw some good results this quarter. The other thing that we've been doing is focusing on different regions in California. There are some regions that were not as heavily impacted by the pandemic, and certainly those that were much more so.

What we saw this quarter was very, very balanced. Whether it's Southern California, the Bay Area at about 15% in line with both the San Joaquin and Sacramento regions here, all the way out to the Sierras. As you can see, great results statewide which were again so very welcome and a continuation of what we had been seeing through reopening and the reemergence of consumers back into the marketplace and especially brick and mortar locations.


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Breaking that down a little bit, right in the middle of the screen, at the very top is where you'll see third quarter 2021 positive 18%. The complexities within this slide are really to give some perspective historically, where we've been coming from on a percentage basis. You'll see really the depths of the pandemic, 2Q20 down almost 16% statewide. This is when everything was closed. A lot of us were sheltered in place and buying things mainly online. Come third quarter-fourth quarter, we saw what ended up being a very welcomed response as we just saw flat results.

Then as we turn the calendar page back at the beginning of 2021, we started to see the positive gains in recovery and so that has continued here in the third quarter. Then as we looked here to just past, these are our forecasted quarters that we have coming up. It really starts to tell the story of what we've been reading, taking in, and then trying to apply back to sales tax.

We are anticipating a very solid fourth quarter period. So, that would be the October, November, December time period we just lived through with holiday sales. Even though you'll hear us talk throughout about supply chain issues and overall consumer increase in prices, we are still anticipating on many fronts to see positive results. You'll hear that through the webinar. But about almost a 15% forecasted for 4Q21. Then, as we turn the calendar is where you'll start to see us be a little bit more cautiously optimistic about the future. Obviously, there are some headwinds which we’ll touch on those again at the very end of what we're forecasting.

 Overall, for what many of you are looking at for fiscal year 21-22, which is right in front of us on the screen, right in the middle. These first two quarters may end up solidifying the overall results for the fiscal year. Where even 1Q, 2Q might start to really slow down and pull back a little bit compared to recent activity. But these first two quarters are probably going to set the tone for the overall fiscal year. The line below here, is just to give us a historical frame of reference where we were before the pandemic and how we trenched through that and the depths that we had. And now, where we're at and where we believe we're heading.  And as you can see, these outer quarters, getting a little bit flatter, and I think we could all kind of feel comfortable in that in that area.


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So, that was the statewide overall with everything included. Here, we really focused on local place of sale. When we're thinking local place of sale, think brick and mortar stores on the general consumer side. Think restaurants, gas stations, those types of things that really took a hit through the pandemic.  I've kind of highlighted it over here on the red for local place of sale of how much they decreased and even that part of it continued. 

Statewide we saw results that were fairly flat which has a lot to do with pools. Think online sales activity that we've spoken so much about in helping out the state. But now here, we are really focused on the calendar year 2021 and you can see all of the positive results that we've been experiencing and what we're forecasting for the fourth quarter 2021 period. So again, hopefully this just gives some frame of reference or some perspective on how we break down and look at different pieces of the sales tax revenue. I am going to turn it over to Brett and he'll be talking about a couple of categories. More specifically autos, building, and I believe fuel.


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We're going to start, as Bobby mentioned, going through all the major industry groups starting with autos and transportation.

Here is what is happening in the 3Q21 with autos and transportation in this particular sector. This story is volume is down, while sales tax is up. The national prices continue to grow to record levels. New car prices are up 10% and used car prices are up 26%. We've been talking about this throughout the pandemic. They actually set record levels in terms of increases in the middle of the pandemic last year and are continuing to grow. We are seeing continued strong demand for luxury purchases and we've talked about for some time now that in past quarters supply has been constrained, especially with the chip shortages. But it now appears to be slowing in terms of the data that we've analyzed, at least in the first month of 4Q21.

It's going to take some time to get back to normal levels and we may never see the previous levels of inventory. Dealers are now shifting, or at least potentially shifting their business model to allow consumers to pre-order the vehicle and pick it up later. So, that's going to likely allow less need for inventory on the lots.


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In terms of National Auto sales, what we can see here in the chart, is that the volumes were constant until the pandemic hit in that 1Q20, then they dropped dramatically. That was then followed by a quick recovery, and the volume started picking back up. Then the industry experienced shortages in terms of the supply of chips and that coincided with demand which was slowing which as well pushed the volumes back down in the middle of 2021. But why are these headwinds not being reflected in our sales tax data?


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The real story is in the prices. Nationally, prices have increased more than 17% in the third quarter and look to remain high for some period. From this data, the prices are increasing very significantly and that is having much more of an impact than the decline in the consumption. Keep in mind that while the prices are high, the dealer incentives are pretty much nonexistent at this point in time. The dealers just don't have the budget or negotiate on prices, and that goes for both new motor vehicles and used motor vehicles. They can sell it at whatever price they are listing at this point in time.


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In terms of overall growth, we had projected flat in this quarter at 2% growth and the actual results were much better than anticipated at 15.6%. That mostly is due to the price increase that I'm talking about here. When you look at this particular sector, the autos and transportation auto sales and leases make up 78% of the total and the tax receipts have trended similar pre-pandemic levels fairly flat. Supply constraints are now being overshadowed by these dramatic price increases and continued strong demand for inventory that's available.mWe are expecting the tax receipts to remain elevated while supply chain issues and demands keep prices high all the way through 2022. 

Bobby had talked about fiscal year 21-22. That's the fiscal year that you're most interested in right now as you're preparing your mid-year reviews. And for autos and transportation, 7.7% growth for 21-22 and then a gradual, slower growth rate after that. We are projecting long term growth to flatten out closer to pre-pandemic levels at 3% annual growth all the way out to fiscal year 26/27.


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Now, building and construction. This particular sector has continued to do well. We talked about it during the pandemic. It actually recovered much more quickly than all of the other industry groups of that, along with food and drugs, which I'll talk about in a moment, and the projection was 15% increase in this quarter. It finished a little bit lower than that at 8.2%. That percentage is mainly attributable to lumber prices slumped pretty significantly the first two months of this particular quarter, 3Q21. Then they shot up again in September, mainly due to commodity availability issues.

Following the second quarter sharp rise that we have been talking about in terms of permit values, the third quarter reported a flattening out or a significant drop. But when we look year to year, we're still seeing comparable to 3Q20 in terms of flattening overall permit values.

Housing starts have been postponed until material prices dropped substantially and when that happens, the volume is going to then start to increase and that will replace the high prices of homes. An interesting observation that we're seeing is office space development is starting to grow again. That's been a surprise since during the pandemic there was a halt in the demand for this particular space. Overall, what we're projecting in forecast for 21-22 is 5.4% growth and then closer to pre-pandemic levels. 5% growth annually all the way out to fiscal year 2627.


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Food and drugs. I mentioned this is another sector that has been very stable, and that sector includes grocery stores and drug stores and cannabis related businesses. All which have done really well during the pandemic. We see very steady growth. We projected 2% growth in this quarter and the actual results were fairly flat at just under 1%, .8% for the quarter. Cannabis receipts have now plateaued at the rate of $12 to $14 million a quarter which is really after years of substantial growth.

We are projecting continued ongoing steady growth in this sector, then starting to slow because people, as Bobby mentioned, are eating out again and they want to be out at sit down restaurants. That's having an impact on grocery stores which we're starting to see flattening out and dropping, and so 2% annual growth has continued to be projected all the way out to fiscal year 2627.


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Now fuel and service stations. As we anticipated, we had another really solid quarter. Bobby talked about good news which was really all throughout the economy and all the major industry groups that we're talking about today. This is one of the ones that he highlighted at the beginning of his presentation. We had almost 75% growth in the second quarter, and that was followed by 54% in this quarter, which was better than our actual projection of 40%. All signs in the sector are pointing to upward pressure on the sales tax received.

The demand for fuel is much higher than it was a year ago. The average price of a gallon of gas has now exceeded the record level that was set back in October 2012 at the $4.75 a gallon, which is pretty incredible and really, it's continuing to ratchet up a little bit since that $4.75. Diesel and jet fuel prices and airline travel are all up and more people are hitting the road in terms of going to the office, shopping, taking their kids to school, taking vacations, and you see that increased congestion. It is really back to pre-pandemic levels on the road at this point. All factors are pointed to upward pressure in the next three quarters as well.

 So, in 4Q21 Bobby said we're going to have a really positive quarter which is very likely because we're comparing to 4Q20 and the economy is going to continue to go full steam ahead. We have 50% projected growth in 4Q21 followed by 20% and 7% in the first two quarters of 22 in this particular sector. Then long term increases back to pre-pandemic levels of approximately 2% annually all the way out to fiscal year 26/27.


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The other industry group that Bobby highlighted at the beginning was restaurants and hotels. We expected positive performance, and that's what we saw statewide with the actual results at 47.6%, a little bit better than our projection of 42%. And what we're seeing is continued pent up demand for restaurants and leisure activity. Casual and quick service business types included in this sector have recovered and those are the two biggest categories statewide, so that is good news for the overall industry. We're expecting fine dining and entertainment to post strong recovery for the next four quarters. 

We're continuing to see very high spending. Consumer capacity and people are out there and continue to have discretionary income and they want to be out shopping and going to the restaurants. And there are fewer capacity constraints compared to one year ago. Another factor here in this sector, we are seeing it and you're experiencing it, is rising menu prices both at fast food restaurants and sit-down restaurants. Also, labor shortages have caused employers to increase the pay to try to attract workers. It's been very difficult to fill workers, especially in the fast food restaurants. 68% of the restaurants have reduced their hours due to lack of staff, so the demand is out there. But the restaurant owners are really having difficulty filling that demand.

There are spending upticks in business travel. The airline industry strongly believes that business travel will fully recover by 2024. The statewide results in this sector in the 3Q21 are actually, now half a percent higher than the pre-pandemic 3Q19. So, we're fully recovered in terms of this industry group and continuing to grow. Overall, fiscal year 2122, we are projecting 33% or 32.9% growth in the entire fiscal year, and that's followed by a gradual slowing of growth back to the pre-pandemic levels. 3% annual growth starting fiscal year 23/24 and all the way through 26/27 


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We're going to jump into a couple of the bigger and sensitive categories that we've been talking about most recently through the pandemic. 

Just a reminder, at this point in the in the webinar,  when we meet with you guys and we prepare forecasts for our clients, while we use a lot of what we look at statewide and the trends that are going on, we customize our forecast for you specifically. We bring it back to your business. If how your businesses are performing may be consistent with the statewide or maybe a little bit different, better or worse. And then we will home in that forecast for your community and what we're seeing locally. 

As you heard Bret talk about, auto dealerships and even restaurants, we’ve seen phenomenal results statewide. It may actually come down to inventory locally or the availability of both indoor and outdoor dining on the restaurant front. It will continue as we talk about general consumer goods or even the pools throughout. When we put together your forecast, we really do customize it to make sure that we're getting as close to possible for your community as we can.

Let's jump in now into general consumer goods and what has been moving the category. You can see, this is a line, specifically related to discount department stores. Think big box retailers, Costco, Walmart, Sam's Club, Target all the like within discount department stores. The trend overall, it’ll always peeks at the fourth quarter, and that's kind of what we're expecting in the next set of data we will get which is the normal holiday shopping period. You can see 4Q2020 just last year, as a result of the start and reopening from the pandemic period.

What we've been experiencing more recently and what we're anticipating of discount department stores is to continue to go up. Some of the larger big box retailers do also include fuel sales with their in-store sales tax which helps move the category along, as you heard Bret talk about how much gas prices have gone up most recently. We are anticipating discount department stores to be doing really, really well.


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Those that were hit the hardest at a general consumer goods. This is a big category, so we're going to break it down just a little bit. You can see the depths of the pandemic, most notably for the apparel companies, but what I want you to look at, much like restaurants as we saw, is the rebound and where we've come most recently. And then what we're expecting. There is almost a full recovery for many of the categories. For example, blue here is department stores.

From Online, the lose out to family apparel stores and discount department stores, traditional department stores may take a longer timeline to recover or just kind of flattened into their new normal, but pretty much everything else is expected to continue to rebound and recover from the pandemic period here on the apparel side.


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This category has been the specific businesses that have done really, really well. Probably no surprise to many, but as you can see, jewelry stores or most recently, sporting goods stores. As the pandemic and the shutdown happened, everybody was getting out. That's the green line right up top here. You can see how much they've jumped up and maintain. Then also variety stores. Lower costs came as price-minded consumers really kind of found another way or another place to buy goods. These categories most recently have done really, really well. For the jewelry stores, while it dropped off and you know think mall locations that were closed during the pandemic, you could see that in depth here.

The gains out of the stock market, which I think could apply more generally, have given folks the ability to invest in other places as well. This goes in line with jewelry, whether it be diamond or gold, it appears as though consumers are really pushing to invest, make purchases and have an opportunity to buy goods that maybe they couldn't buy before. The overall increase in flood of federal money and availability of funds, much like autos, have allowed consumers to kind of tweak and jump into things maybe they couldn't afford before. This has been pretty fascinating to watch because it may have a shorter run. You can kind of see our long-term forecast, for jewelry, it will always kick up on the fourth quarter, but it may end up peeling off just a little bit from the place where we've been. Then the stores that usually also kind of hold the line, whether it be electronic appliance stores, home furnishing or specialty stores and some of the other more specific retailers, we dump into the specialty stores. You can see obviously they also took a hit during the pandemic and have since recovered. Specifically, with the electronic appliance stores. That's the green line that you may see here, hasn't yet recovered.

A couple of large retailers, as you can imagine, just aren't quite back to where they were, or consumers have found another way in which to buy the goods. This process may end up impacting them and lead them into not quite recovering to the levels that we've seen in the past. So, we are kind of cautious with some of these. We're watching them very closely. Home furnishings being the yellow line here, has taken a nice rebound, especially with the increased property values, especially home values. Some consumers feel like” hey, maybe it's time to reinvest it back into our property by some new furniture.” And we've seen the yellow line recover, but how long is a question there.


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Overall, for the for the general consumer category again, you see great results, 22% increase here in 3Q21. We are still anticipating a strong fourth quarter overall holiday shopping period. 1Q and this 8%, for us we're looking back at the  1Q21 period and realizing maybe there's still a little bit of growth to happen there, but you can see pretty quickly once we hit the summer months, for general consumer goods, we’re going back to more historical normal growth or a move back to maybe consumers get a little bit cost conscious, not feeling like they're going to spend like they have most recently. So, we do anticipate general consumer gross to slow down.


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Here's a line graph just to kind of reiterate what we've been talking about the last couple of quarters. As we've seen a reporting change in deporting, it has shifted away for a couple of major online retailers away from the countywide use tax pools, which is the green line here. Reporting to local jurisdictions where they have the fulfillment centers, we see an increase or an uptick on the light green line, which is business and industry. Within that major industry group is where it will show fulfillment centers. We've got a slide to here in a bit to reiterate that.

From the pandemic periods, which is the second quarter through the fourth quarter 2020, you could see how much online spending had increased. There was probably really no way that we expected that to continue at that level. You can see here, throughout the calendar year 2021, we've seen it tail off from where it was, but still remain rather strong. From third quarter 2020 on average to third quarter 2021 only a 2% growth out of the pools again. There was no way we could really keep up that pace, but because of that reporting shift we had seen business and industry jump up 18%.


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Then some of the trends overall. Obviously, as we've talked a lot about the return of consumers back into stores, now that that's available there would be a decrease overall in terms of growth for the pools and fulfillment centers. But an uptick for brick-and-mortar stores. For many of you, you can also appreciate this welcomed recovery where your local brick and mortar stores are getting the full 1% Bradley Burns rate versus just a percentage of the pool. Many cases it's much, much less such as somewhere between 5 and 10% of that 1% versus the full 1% value. This just kind of restates what our expectations are with consumers coming back in brick-and-mortar.


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Let's start with business and industry because we've seen that dramatic growth. This gray period which goes back to 4Q2019 and all the way up through the pandemic where you could see we're almost there. So 3/4 into the reporting change, that started back in 1Q21, and  you’ll see a 23% gain on the business and industry side which had a lot to do with the change from new reporting to fulfillment centers. We've seen a consistent dramatic gain. 

We are anticipating once the initial fourth quarter period is done, future gains will start to level off back to their normal historical growth. There is not too much more to go when it comes to business and industry and our future outlook is definitely leveling off.


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Here, we are more specific on fulfillment centers through the first growth that you see, starting in fourth quarter 4Q2019. We've got a couple of notes over here to the right. Just a reminder, we had AB 147 and new tax revenue that began in fourth quarter 2019. We then had the pandemic that helped both second quarter, third quarter, and fourth quarter dramatically grow for those that reported locally. Then starting here in 1Q21 to now, 3Q21, through the shifts and reporting, we've seen the gains really jump overall for fulfillment centers specifically.


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Business and industry is also a very large category overall. There are a lot of different pieces to this puzzle. As you can see, this is just a quick line graph of some of the other categories here. Medical Biotech, as you can imagine with the pandemic, really took off through 2020 and has most certainly begun to level off as far as sales tax generated there. Light and heavy industrial businesses, now post pandemic, have remained steady and we do anticipate that trend to continue along.

The seasonal effects are shown through the light green line here. For garden agricultural, you could see really that second quarter has set a tone and even with in earlier 2021. With water shortages and others, garden agricultural suppliers actually had a nice second quarter. Now being able to see that and really frame it tells us a little bit about what happened during those summer months. There are just a couple of others here which we won't highlight too much.


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County pools are shifting away from business and industry in the fulfillment centers is now goods really coming in from out of state or from online retailers that are out of state. This tax is being allocated by way of the countywide use tax pool and you could see how much. Especially once we hit AB 147 and the new reporting requirement, you can see how much they jumped up. But with the change in reporting from the pools and back to the fulfillment centers, you can see how dramatically here in 2021 the growth has dropped considerably. 

This is a lead in for what we do anticipate out of the pools going forward. We will expect them to really not have as dramatic growth with seeing more over there on the fulfillment center side. These are just some notes as reminders of where we've been when it comes to pools performance.


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I won't talk too specifically because every county pool is a little bit different, but in general the county pools are made up largely of general consumer goods. Think online retailers here, of about 40%. Then with business and industry and kind of everything that's included there, whether it be medical, cultural, or electrical come into here on business and industry side with 30% plus. But again, every county is going to be a little bit different.

So, our forecast on the pools… as we kind of talked about the shift and this dramatic growth that we had seen previously, has most certainly tailed off in these most recent quarters. We're anticipating that to continue through the end of this fiscal year at least, 5 to 6% growth. When we look outward, we see a more consistent 8 or 6% by quarter growth. This growth probably has more to do with the increased cost of goods or inflation as we think about it which has to do with the driving up of the taxable portion of the goods or increasing the tax generated. So, pools should remain fairly steady, just not nearly the dramatic growth that we've seen previously.


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We will now bring it all together in the statewide trend and looking at it on a fiscal year basis. You could see how overall statewide we trended through the pandemic with really 19/20 being the depths with 2Q2020 having such a dramatic impact coming down to decrease 2%.

Then we had a nice recovery in fiscal year 2021 of 11% so 2Q2021 already ended. We've seen now the start of the 21/22 fiscal year, and we're anticipating right now, about 11% growth for the current fiscal year. It has a lot to do with the third quarter results that we just talked about.We are anticipating a very solid fourth quarter period to come. Overall, the economy hasn't really been hindered too much. 

We can talk about some of the headwinds. As you look outward of the fiscal year, what we're seeing with the most recent variant, omicron, numbers are going up. But it does not appear as though some of the other factors or statistics, such as hospitalizations, are nearly quite the same as what we experienced through the first COVID-19 pandemic.

That's giving us a lot of hope that while numbers may go up over the next, maybe month or so, by the time we hit February or March, we probably won't continue to see the sales tax impacts really hurting like the levels that we saw previously. With that, third quarter or fourth quarter should keep the current fiscal year really strong.

I know the variants and some of the headwinds are first and foremost on people’s minds. As we go out though, you can see us returning back to more of a 3% growth right now. We are not anticipating such growth like what we just experienced but also not expecting a dramatic drop off or a regular recessionary period. There are a few things that we believe have mitigated that to the benefit of the overall economy. It feels like some of those headwinds are starting to be already factored into everybody's expectations.


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Just a few reminders and talking points as you go. Many of you will be doing a midyear budget or financial update for your councils and communities. So, this is just a quick recap of all of the different federal packages that help support our economy through the pandemic and even through calendar year 2021.

The are trillions of dollars that they've pumped into the economy and there's still a few out on the horizon that will do the same. We believe that to be a positive that we're waiting on. Obviously, the question is what will happen once people have to go back to work, pay their mortgages, or pay their rent. It's not so much at the front of our radar right now, because we've seen such great results to date.

With the inflation, interest rates, and federal government starting to increase interest rates to offset inflationary factors, we have seen the cost of goods go up. We're really watching and listening. It appears there will be multiple interest rate hikes, but later in the calendar year 2022, which is actually the start of the fiscal year 22/23. 

So again, as we think about mid-year and what's in front of us for the current fiscal year there will probably not be as many lasting impacts. I would say that’s the majority of why we’ve started to level off those future growth expectations, it comes from the consideration of higher interest rates and what it will do for home value. Further, how it will affect consumers’ confidence to continue spending at an increased rate.


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Here, you can see what we anticipate with what fell off between both goods and services during the pandemic and obviously goods have rebounded much stronger than services. We know that services are to come, and again, probably as we reach into 2022 with folks getting back to traveling again, spending on non-tangibles or experiences, there will start to be an increase which will steal some of the money that would otherwise be spent on goods. So, we know this is to come. We feel like we've factored that into our forecast that there will still be a good amount of spending on goods, but it'll be mitigated compared to what we've just been experiencing.


Next Slide

Online sales, we are always watching to see what the trends are. Mainly, on the black line where you see 2020 by quarter period and the peak that we experienced right there at the pandemic… there is no way that we expect to keep pace with that. So, we're watching to see what just happened in the fourth quarter with online sales. We do anticipate a bump up from prior periods. Is it going to equal or exceed what happened a year ago? Which again, just really help support fiscal year 2122 numbers.


Next Slide

This is just another way that we look at data overall statewide and how we've been trending. The normal fourth quarter holiday shopping period really boosted up there.


Last Slide

So, just for some final takeaways as we get towards the end of the webinar…

What we've seen overall, FY2020-21, local tax revenue grew in excess of 10% statewide, nearly 8% above the pre-pandemic levels. So, it was a great rebound there. 

The economy and spending appear to have remained strong through the fourth quarter 2021, which would be the middle of the 21-22 fiscal year. So, we are still anticipating and forecasting about 11.5% for the current fiscal year. But it's really starting in 2022 calendar year, where price and inflation is becoming a bigger concern for consumers.

Federal interest rates being on the horizon again but probably out another full fiscal year.

But as Bret really talked about, and we know that even though the ports are being offloaded as quickly as possible, the whole overall supply chain could still be a concern for consumers and restrict some spending that might otherwise happen.

So, for a short-term forecast, we are anticipating having more slower growth, beginning 22/23 and we'll kind of hold that line overall until we hear more about possibly a next recession or another factor that could thereby boost up our expectations for the future.

Hopefully this has all been helpful for you and your local communities as you are starting to put the pieces together for the current fiscal year and start your planning for next fiscal year. We do look forward to meeting with all of you as clients over the coming months to really walk through what we customized for you.


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