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Arizona Tax Collections and the Economy

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I am often asked what indicators to follow in order to gauge what is going on in the Arizona economy.  One decent indicator is state tax collections since it picks up a lot of activity that recently happened. We don’t need to deal with an estimate from the middle of last year, or some statistic that will be significantly revised in six months. The JLBC (one of my former employers by the way) released its Monthly Fiscal Highlights document that covers April activity.  Just looking at April, tax revenues are up 5.5% compared to last year; and are up 3.6% for the first ten months of the fiscal year. Other revenue categories exist, but the tax component is most directly tied to economic activity. A tax withholding issue needs to be reconciled before the end of the fiscal year, but the fiscal story is still the same.

A couple of points need to be made. First, we need context. When I was working at the Capitol, revenues in a normal expansion grew by about 7% each year. This was like clockwork.  But, we seem to be in a new normal, at least for the remainder of this expansion. If the state hits somewhere between 4% and 5% growth in base revenue this year it will be a good year, all things considered.  Second, there has been a lot of talk about what to do with any “surplus” monies that are realized. Keep in mind that the smallest of hiccups in economic activity will wipe out hundreds of millions of dollars in revenue. An extremely mild downturn will erase more than $1B. In this case, tax receipts help us understand what is going on in our economy, but the proper context is just as valuable. State tax collections are indeed up, but shouldn’t be labeled as strong.  See the JLBC link above for the detailed document on tax revenues and economic activity.

JimRounds

Post by: Jim Rounds

 

 

 

 

 

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