TRG | The Bottom Line – 11/10

TRG’s State Revenue Report published this week showed tax collections were better than estimates. Most states have forecast a decline of 2-3% in FY’24 citing the negative impacts of elevated use of credit, inflationary pressures and a slowdown in federal stimulus spending. Q1 revenues, however, surprised to the upside at 1.5% YOY showing the consumer still has some life. Excluding California, collections were up a solid 4.2%. A Tale of Two States continues to play out between California and Texas. Having just addressed a $27B budget deficit for FY’24, CA is already forecasting a $14B deficit in FY’25. Optimists in the state believe the downward revenue spiral has slowed and collections could rebound, improving the FY’25 outlook to a $10B deficit. The Texas Comptroller, meanwhile, certified its FY’24-25 outlook with a projected revenue increase of 24.8% over FY’22-23. To rub salt into the wound, the Comptroller added the “revenue is estimated conservatively.” In addition, the state has now rescinded its call for a mild recession and added “Texas’ economy is better positioned than other state economies and the national economy to absorb slower growth rates.” Time will tell, but it’s hard to argue recent results.