Tuesday, May 15, 2007

Downturn 'Getting a Little Deeper and Lasting a Little Longer Than We Thought'

UPDATE: From a Sacramento Bee editorial:

The drop in the housing market that is hurting many homeowners, and causing an overall drop in consumer spending, is hurting the wallets of local governments, too...[S]imple restraint alone won't be enough to deal with the red ink that is likely ahead.

In a recent survey of local government finances by The Bee's Loretta Kalb, the findings were similar to a tide that is beginning to turn. The coming budget year will have some pain, but nothing like what could loom in 2008-2009...In Sacramento County, revenues for the general fund may decrease by $35 million (from a 2006-2007 base of $655 million) this coming fiscal year...
What is happening? The big change is the housing market...[W]hen the market is hot and a lot of homes are selling, property tax revenues flow in well beyond the basic inflation rate. That is what has been happening in recent years. But as the housing market has slowed, prices have dropped and sales activity has declined. The changing market is affecting consumers' spending behavior as well. Less spending means less sales taxes and less money for government.

In places such as El Dorado County that were accustomed to lots of construction, the initial response for this coming fiscal year is to suggest a 35 percent increase in building permit fees to pay for the staff of building inspectors that don't have as much work as before. That's not exactly a winning long-term strategy. Neither is a proposal by Sacramento County to consider selling "surplus" land and using the money for an operating shortfall.
From the Sacramento Bee (hat tip Gwynster):
Sacramento's real estate slump has led to a projected $4.5 million shortfall in the city's 2007-08 budget. Property transfer taxes and supplemental taxes are down from 2005 levels, and so are sales and utility user taxes, budget officials said Monday. "Things have slowed down, no question," said Assistant City Manager Gus Vina.
To deal with the expected funding gap, budget officials are suggesting using $4.5 million of Sacramento's $30 million reserve...Vina said the city can't look to its reserves on an ongoing basis. If the tax decline continues, the city might consider not filling vacant positions, he said.

Declining tax revenues have darkened the city's five-year financial forecast. According to the city's budget report, the cost of providing services will continue to outpace revenues.
From the Stockton Record:
This year's episode of the Capitol's annual budgetary soap opera opened Monday in familiar fashion: Gov. Arnold Schwarzenegger proposed a slightly larger state spending plan than last year that doesn't raise taxes but relies on some accounting gymnastics to balance.
Schwarzenegger also had to retreat from his earlier spending plan, which had eliminated the structural gap between what California spends and what it collects in taxes for the first time in a decade. His new budget leaves a $1.4billion gap while it increases spending by $1.5billion.

"There were some unforeseen things, as in every budget," Schwarzenegger said. "That's why you have a January budget; that's why you then have a May revise." Most of the missing revenue can be attributed to the slump in the housing market, while most of the extra expenses went for public education.
From the Sacramento Bee:
The housing market is "pulling our numbers down slightly," said Michael Genest, the governor's finance director. He said forecasters have been taking the housing slump into account since last spring. The new projections reflect that the downturn "is just getting a little deeper and lasting a little longer than we thought," he said.

Yet Chris Thornberg of Beacon Economics, a private consulting firm in Los Angeles, said the revision didn't go far enough. He said the effects of the housing slump are just beginning to ripple through the rest of the economy, noting, for example, the sharp decline in U.S. automobile sales last month. "In the midst of what's clearly a cooling economy, this isn't realistic -- this is not a realistic budget," he said.

Others disagreed. Chief economist Alan Nevin of the California Building Industry Association said the governor's projections are actually pessimistic when it comes to the housing market. The governor predicts 132,800 housing starts in calendar 2007, a 19 percent drop. Nevin predicts 150,000 to 155,000 starts. At the peak of the housing boom in 2004, housing starts in the state totaled 213,000.

However, Nevin acknowledged the market has been weaker than he originally believed, and "it would not be wrong for the governor to use a lower number."
From the Stockton Record:
Air-pollution fee program sputters
Funds collected far less than anticipated

A unique rule that charges developers in the San Joaquin Valley for air pollution emitted by vehicles netted $13 million in its first year - far less than air-quality experts had expected.

The money is used to offset pollution from the increased traffic that results from new neighborhoods, shopping centers and other developments.

The San Joaquin Valley Air Pollution Control District had expected to collect about $200 million over the program's first three years. The quiet start may be due to a slowdown in development around the Valley, officials said.


Patient Renter said...

"He said forecasters have been taking the housing slump into account since last spring."

Is this for real? As I recall, MSM and most economists were saying all was well.

Rob Dawg said...

Remind me again when the property sales tax was voted upon and approved by 2/3rds of the electorate.