TRG | The Bottom Line – 11/18

TRG’s State Revenue Report studies overall state revenue collections, lending itself to a broader view of the economic health of both the state and its citizens, which supports additional public and private construction, residential and non-res. Most state fiscal year ends are June. TRG found that General Fund (GF) tax collections for our core 15 states were broadly better than forecast, up 3.3% YOY. Most states have projected FY’23 GF collections to be down from FY’22 citing an expected economic slowdown. In fact, 13 of 15 states saw YOY increases in GF collections. State revenue contacts appreciate the cushion Q1 has provided but are still projecting the impact of inflation and a slowing economy to curb collections in the months ahead. CA and VA were the only two states seeing YOY declines in Q1. While VA’s decline can be traced to a refund to citizens, CA’s decline is a bit more concerning. The state has seen declines in Individual Income collections for five consecutive months, three recording double-digit drops. The state notes the decline is due primarily to lost income tax and capital gains revenues from the state’s top earners. Despite the cautious outlook, revenue contacts have long shared the best indicator of future revenues is employment levels. TRG’s core state employment reached an all-time high in September, possibly providing a little comfort as state legislatures begin the budgeting process for FY’24 early next year.