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Local Government PartnershipAgenda
9:00 – 9:10 Welcome and Introductions Vikki Smith, Director
9:10 – 9:40 Forecast Council presentationSteve Lerch, PhD., Executive Director & Chief Economist
9:40 – 10:00 Protecting confidential tax & licensing informationCliff Magness, Privacy Officer
10:00 – 10:15 Break
10:15 – 11:00 Marketplace FairnessPatti Wilson, Marketplace Fairness Project ManagerValerie Torres, Tax Policy Specialist
11:00 – 11:45 2018 LegislationPete Levine, Tax Policy SpecialistTrice Konschuh, Tax Policy Specialist
11:45 – 12:00 Partnering with Business Licensing ServiceKatie Early, BLS Partnership Services Manager
WASHINGTON STATEECONOMIC AND REVENUE FORECAST COUNCIL
Washington State Economic Outlook & Revenue Collection Experience
Presented toLocal Government Partnership
Steve LerchExecutive Director
June 13, 2018Tumwater, Washington
Local Govt. Partnership
June 13, 2018
Slide 2WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Summary
• The preliminary economic forecast for the U.S. is similar to the February forecast; GDP growth and inflation are slightly higher for 2018 and 2019
• The preliminary economic forecast for WA has slightly higher personal income in 2018 but is generally similar to the February forecast
• Downside risks to the baseline include uncertainty regarding trade and fiscal policy, geopolitical concerns and higher oil prices
• Revenue collections since the February forecast are $85.4 million (2.0%) above expectations
Local Govt. Partnership
June 13, 2018
Slide 3WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Forecast risks
Upside• Elevated consumer, business confidence could
translate into stronger growth
• Stronger global economic growth
Downside• International trade and fiscal policy uncertainty
• Geopolitical risks: North Korea, Russia, Iran, Venezuela
• Higher oil and gasoline prices
• Maturing economic expansion
Local Govt. Partnership
June 13, 2018
Slide 4WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Consumers remain confident about economic prospects
0
25
50
75
100
125
150
2005 2007 2009 2011 2013 2015 2017
Index Mich: 1966Q1 = 100, SAConf Board: 1985 =100, SA
U. Michigan Conf Board
Sources: University of Michigan, Conference Board; data through May 2018
Local Govt. Partnership
June 13, 2018
Slide 5WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Global GDP forecasts have strengthened compared to last year
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
2016 2017 2018 2019 2020 2021 2022
Real global GDP growth
Apr. 2018 Apr. 2017
Source: International Monetary Fund, World Economic Outlook; April 2017 and April 2018
Local Govt. Partnership
June 13, 2018
Slide 6WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Oil and gasoline prices appear to be heading higher
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$0
$10
$20
$30
$40
$50
$60
$70
$80
2015 2016 2017 2018
Oil (WTI, per barrel) Gasoline (U.S. regular, per gallon)
Source: U.S. Dept. of Energy, data through May 2018
Local Govt. Partnership
June 13, 2018
Slide 7WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
As of 2018, our GDP forecast is essentially equal to “potential GDP”
14,500
15,000
15,500
16,000
16,500
17,000
17,500
18,000
18,500
19,000
19,500
20,000
2015 2016 2017 2018 2019 2020 2021 2022 2023
Bill
ion
s 2
00
9 d
olla
rs
Actual & forecast GDP Potential GDP
Potential GDP is defined as the economy’s maximum sustainable output
Source: CBO, BEA, ERFC June 2018 preliminary forecast
Local Govt. Partnership
June 13, 2018
Slide 8WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Capacity utilization is typically at or above 80% before the start of a recession
65
70
75
80
85
90
1967 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017
Capacity utilization, 12 mo. moving average
Source: Federal Reserve Bank of St. Louis, data through April 2018
Local Govt. Partnership
June 13, 2018
Slide 9WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
At the start of the last three recessions, Philadelphia Fed leading index was below 1.0% and declining
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
1983 1987 1991 1995 1999 2003 2007 2011 2015
Per
cen
t ch
ang
ePhiladelphia Federal Reserve leading economic index
Source: Federal Reserve Bank of Philadelphia, data through April 2018
Local Govt. Partnership
June 13, 2018
Slide 10WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Probability of recession by year, May 2018 WSJ Survey of Economists
0%
10%
20%
30%
40%
50%
60%
70%
2019 2020 2021 2022 after 2022
Macroeconomic Advisors recession probabilities:
1 year = 20%5 years = 80%
Source: Wall Street Journal, May 2018
Local Govt. Partnership
June 13, 2018
Slide 11WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Household financial obligations as share of disposable income below levels in last three recessions
14.5
15.0
15.5
16.0
16.5
17.0
17.5
18.0
18.5
1980 1986 1992 1998 2004 2010 2016
Per
cen
tFinancial obligations as % disposable personal income
Source: Federal Reserve System Board of Governors, data through 2017Q3
Financial obligations include mortgage payments & other required debt payments, rent, auto lease payments, and property taxes.
Local Govt. Partnership
June 13, 2018
Slide 12WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Mortgage debt is slightly above its previous 2008 peak
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
2000Q1 2003Q1 2006Q1 2009Q1 2012Q1 2015Q1
Mill
ion
s $
Mortgage debt outstanding
1-4 family residences Multifamily Nonfarm, nonresidential Farm
Source: Federal Reserve System Board of Governors, data through 2017Q4
Local Govt. Partnership
June 13, 2018
Slide 13WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
U.S. retail sales continue to grow
200
220
240
260
280
300
320
340
360
380
300
320
340
360
380
400
420
440
460
480
500
2004 2005 2006 2008 2009 2010 2012 2013 2014 2016 2017
$Billions, SA U.S. Retail Sales and Food Services
Retail Trade and Food Services (L) Excluding Auto and Gas (R)
Preliminary U.S. retail trade and food services sales (SA) increased 4.8% YOY in March and 4.8% in April.
Excluding autos and gas, sales were up 4.2% YOY in March and 4.1% in April.
Retail sales at gas stations were up 10.9% YOY in March and 11.8% in April.
Source: U.S. Department of Commerce, Census Bureau; Data through April 2018 advance
Local Govt. Partnership
June 13, 2018
Slide 14WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
WA residential construction activity is at pre-housing boom levels
0
10
20
30
40
50
60
70
80
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Thou
san
ds
Thou
san
ds
U.S., WA residential building permits (SAAR)
U.S. WA
Source: U.S. Census Bureau, ERFC; data through April 2018
Local Govt. Partnership
June 13, 2018
Slide 15WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
WA employment has grown much faster than for the U.S. as a whole
0.95
1.00
1.05
1.10
1.15
1.20
1.25
2005 2006 2007 2009 2010 2011 2013 2014 2015 2017
Ind
ex,
Jan
. 2
00
5 =
1.0
U.S. WA
Source: U.S. Bureau of Labor Statistics, Employment Security Dept., ERFC; data through May 2018
Local Govt. Partnership
June 13, 2018
Slide 16WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
WA personal income growth continues to outpace the U.S.
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
2005 2006 2008 2009 2011 2012 2014 2015 2017
Ind
ex,
20
05
Q1
= 1
.0
U.S. WA
Source: U.S. Bureau of Economic Analysis; data through 2017 Q4
WA personal income grew by 4.8% in 2017 compared to a 3.1% growth rate for the U.S.
Local Govt. Partnership
June 13, 2018
Slide 17WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
After 10 quarters of decline, exports have grown slightly in the last two quarters
-60%
-40%
-20%
0%
20%
40%
60%
80%
2011 2012 2013 2014 2015 2016 2017 2018
Year over year growth, quarterly WA exports
All Other Transp Equip Ag Products
Source: WISERTrade, data through 2018 Q1
Local Govt. Partnership
June 13, 2018
Slide 18WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Real GDP is very similar to the February forecast
14,000
14,500
15,000
15,500
16,000
16,500
17,000
17,500
18,000
18,500
19,000
19,500
20,000
2007 2009 2011 2013 2015 2017 2019 2021 2023
Bill
ion
s of
20
09
Dol
lars
Real GDP
June preliminary February
Source: ERFC June 2018 Preliminary forecast; data through Q4 2017
Local Govt. Partnership
June 13, 2018
Slide 19WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Oil prices are higher compared to the February forecast
25
35
45
55
65
75
85
95
105
115
125
2007 2009 2011 2013 2015 2017 2019 2021 2023
Do
llars
Per
Bar
rel
Average Price of Crude Oil
June Preliminary February
Source: DOE, ERFC June 2017 Preliminary forecast; historical data through Q1 2018
Local Govt. Partnership
June 13, 2018
Slide 20WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
The U.S. nonfarm payroll employment forecast is very similar to the February forecast
125
130
135
140
145
150
155
2007 2009 2011 2013 2015 2017 2019 2021
Mill
ion
sU.S. Nonfarm Payroll Employment
June Preliminary February
Source: ERFC June 2017 Preliminary forecast; data through Q1 2018
Local Govt. Partnership
June 13, 2018
Slide 21WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Washington personal income is slightly higher than in February
0
100
200
300
400
500
600
700
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Bill
ion
s of
US
DWashington personal income
June preliminary February
Source: ERFC June 2018 Preliminary forecast; historical data through 2017
Local Govt. Partnership
June 13, 2018
Slide 22WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Washington employment forecast is slightly lower than in February
2,6002,7002,8002,9003,0003,1003,2003,3003,4003,5003,6003,7003,800
2007 2009 2011 2013 2015 2017 2019 2021 2023
Thou
sand
sWashington Nonfarm Payroll Employment
June preliminary FebruarySource: ERFC June 2018 Preliminary forecast; historical data through Q1 2018
A slightly lower population forecast revision has reduced the employment forecast. The nonfarm employment forecast is 42,000 jobs lower (1.1%) by 2023 compared to February.
Local Govt. Partnership
June 13, 2018
Slide 23WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Washington housing permits forecast is higher this year, about the same for 2019 - 2023
20
25
30
35
40
45
50
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Thou
san
ds
Washington Housing Permits
June preliminary February
Source: ERFC June 2018 Preliminary forecast; historical data through 2017
Local Govt. Partnership
June 13, 2018
Slide 24WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Revenue Act growth relative to personal income has rebounded since 2017Q3
-15%
-10%
-5%
0%
5%
10%
1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017
Year-Over-Year Revenue Act* Growth Less State Personal Income Growth
YOY Rev Act Less Income Growth Long-Term Average
Source: ERFC; Quarterly revenue data through Q1 2018, February 2018 income estimates
Adjusted Revenue Act growth YOY:
17Q2: 5.6%17Q3: 6.4%17Q4: 8.3%18Q1: 8.2%
February personal income YOY growth estimates:
17Q2: 5.3%17Q3: 5.3%17Q4: 5.7%18Q1: 4.3%
*Adjusted for large one-time payments and refunds and payments under the amnesty program
Local Govt. Partnership
June 13, 2018
Slide 25WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Cannabis revenue continues to be volatile
10
15
20
25
30
35
Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18
Mill
ion
sRetail Cannabis Collections
Actual February Forecast
Source: LCB, ERFC; data through April 2018
Collections were 2.7% below forecast in April
Collections are 6.9% below forecast since February
Local Govt. Partnership
June 13, 2018
Slide 26WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Large commercial property sales slowed in 2018Q1 while residential sales increased
0
1
2
3
4
5
6
7
8
9
10
1996 1999 2002 2005 2008 2011 2014 2017
$Billions
Seasonally Adjusted Taxable Real Estate Excise Activity
Total Total excl. sales >$10M
Source: ERFC; Monthly data through April 2018 preliminary
Large commercial sales (>$10 million) totaled $3.5 billion in the 4th quarter of 2017 and $2.6 billion in the first quarter of 2018
April large commercial sales were weak
Local Govt. Partnership
June 13, 2018
Slide 27WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Revenue collections to date
Estimate Actual Difference Pct.
Dept. of Revenue $4,258,020 $4,340,611 $82,590 1.9%
All other agencies $15,957 $18,785 $2,828 17.7%
Total GF-S $4,273,977 $4,359,395 $85,418 2.0%
Collections Variance Since February Forecast (February 11, 2018 – May 10, 2018)
dollars in thousands
Local Govt. Partnership
June 13, 2018
Slide 28WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Legislation from the 2018 session with revenue impacts
Bill # Bill Title 2017-19 2019-21 2021-23
6614 Funding for common schools (206.2) (184.0) -
2998 Accountable communities (9.9) (9.8) (2.5)
2444 Low-income housing/REET (1.0) (2.3) (2.3)
6007 Electrolytic processing tax (0.3) (1.4) (1.4)
Other* (0.3) (0.9) (1.3)
Total (217.7) (198.4) (7.5)
Other Transfers GF-S
6614 Funding for common schools (935.0)
ELTA
6614 Funding for common schools 935.0
Millions of dollars
* Bills 1783, 2269, 2580, 5143, 5746, 6058
Local Govt. Partnership
June 13, 2018
Slide 29WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Conclusion
• The U.S. and Washington economic forecasts are similar to February; we continue to expect moderate growth
• As has been the case for some time, Washington’s economy is continuing to outperform the nation
• Threats to economic expansion include geopolitical risks and concerns about international trade and fiscal policy
• The next monthly revenue collection report will be available on June 15th and the revenue forecast will be presented on June 19th
Local Govt. Partnership
June 13, 2018
Slide 30WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Questions
Economic & Revenue Forecast CouncilPO BOX 40912Olympia WA 98504-0912
www.erfc.wa.gov360-534-1560
Ten Things You Need to Know about Protecting Confidential Tax
& Licensing Information
Cliff MagnessPrivacy Officer &
Data Share Administrator
Most information from Revenue is confidential and cannot be re-disclosed
Before giving out information ask yourself:
“Is this confidential taxpayer (CTI) or licensing Information (CLI)?”
1. Most DOR Information is Confidential
Public Records
o RCW 42.56.230(4)
Excise Tax
o RCW 82.32.330
Business Licensing Service
o RCW 19.02.115
Property Tax
o RCW 84.08.210o RCW 84.40.020o RCW 84.40.340
2. Tax and Licensing Information is exemptunder Public Records Act
* List not for commercial purposes
3. Limited Information is Public
• RCW 82.32.330
• Know and understand limitations on use of information
• Do not share (re-disclose)
• Safeguard the information at all times
4. Data-sharing or Partnership Agreements Protect Confidentiality
5. Confidentiality Agreements Are Required
• Agree to keep confidential information confidential
• Assure understanding of laws and penalties for violation
• Signed byo Each employee authorized to access confidential informationo Authorized by: Finance Director, Treasurer, City Manager, or
Mayor
• Complete before getting access to confidential information
• Keep it on file at local jurisdiction and send copy to DOR so our staff know who can access confidential information.
6. Process for Confidentiality Agreement
• Maintain system and network security, data integrity and confidentiality
• Common security standards help ensure an effective and secure environment
• Remember:
o Print only information you need
o Copy or download electronic data onlyas needed
o Do not communicate confidential information via e-mail
o Secure all data – electronic or paper – while in transit, in use, “at rest” and during disposal
7. Data Security Requirements Apply
8. Let us know if there’s a breach
• Information about taxpayers is sensitive
• Businesses may need to know if there is a breach in order to protect themselves
• Data Sharing Agreement requires notice of a breach to DOR
• State law requires notification of breaches of personal informationheld by government agencies in RCW 42.56.590
• Better to report than to find out the wrong way
RCW 82.32.330 & RCW 19.02.115
o Misdemeanor sanctions include:
Up to $1,000 fine
Up to 90 days in jail
Loss of job
Barred from employment by state or local government for two years
9. Penalties for Breach of Confidentiality Are Severe
DOR Information Governance Office
(360) 534-1624
10. Help is available!
Questions?
42
Marketplace FairnessPatti WilsonValerie Torres
2017 Engrossed House Bill (EHB) 2163 Part II
Remote Sellers, Referrers, and Marketplace Facilitators
• Beginning January 1, 2018, marketplace facilitators, remote sellers, and referrers meeting certain receipts thresholds must choose to:
– Collect and remit retail sales or use tax
OR
– Comply with sales and use tax notice and reporting requirements
Marketplace Fairness
Marketplace Facilitator
Definition
• Facilitates sales; and
• Engages in specified activities bringing buyer and seller together; and
• Engages in activities related to seller’s products
Facilitator deemed to be agent of marketplace seller making retail sales through facilitator’s marketplace
*Example – Amazon, eBay, Etsy, Walmart
Marketplace Seller
Definition
• Makes retail sales through physical or electronic marketplace operated by marketplace facilitator;
or
• Makes retail sales directly resulting from referral by a referrer
*Example – Companies that sell on Amazon, etc.
Remote Seller
Definition
• Does not have physical presence in this state, and
• Makes retail sales into this state
*Example – Hilo Hattie (Hawaiian store)
Referrer
Definition
• Contracts with seller to advertise items for sale
• Receives a commission from seller for the advertisement
• Transfers purchaser to seller to complete the sale
• Does not collect receipts from the purchaser for the transaction
*Example: Google Shopping
Threshold
2017
• Marketplace facilitator or remote seller (who does not have a physical presence in WA) with $10,000 or more in retail must make an election
OR
2018
• Requires election when threshold met
Use Tax Notice Option
• Provide platform (consumer) notice; and
• Invoice/receipt notice; and
• Annual report to purchasers; and
• Annual report to DOR
* Referrers have different use tax notice requirements
Questions
• No change to Annual Gain/Loss
• Effective July 1, 2017, transportation authorities, public transportation benefit areas, and regional transit authorities no longer receive SST mitigation payments
• Beginning with March 2018 distributions, jurisdictions may see additional revenue from Marketplace Fairness
o Any additional revenue will reduce SST Mitigation payments starting with the June 30, 2018 payment
• Effective October 1, 2019, cities, counties, and public facility districts no longer receive SST mitigation payments
Changes SST Mitigation Payments
• Using the identified taxpayer’s local sales and use tax data
• Apply local tax components rates as done for the voluntary compliance offset to calculate marketplace facilitator and remote sellers revenues which includes tax reported by consumers
• Quarterly payment is one-quarter annual loss offset
o First by voluntary compliance revenues, and
o Then by Marketplace facilitator/remote seller revenues
SST Mitigation – New Offset Calculation
This June 2018 payment information is preliminary.
Final data will be posted to the Department website the week of June 18th.
June 2017 compared to June 2018
Questions
2018 Tax & Administration LegislationTrice KonschuhTax Policy Specialist
Bills Passed – Tax & Administration
ESSHB 1570 Concerning access to homeless housing and assistance
2SHB 2015 Modifying the lodging excise tax to remove the exemption for premises with fewer than sixty lodging units and to tax certain vacation rentals, short-term home-sharing arrangements, and other compensated use or occupancy of dwellings
EHB 2444 Providing a real estate excise tax exemption for certain transfers of low-income housing
Bills Passed – Tax & Administration
SHB 2448Increasing the availability of housing for developmentally disabled persons
SHB 2538 Exempting impact fees for low-income housing development
HB 2858 Allowing excess local infrastructure financing revenues to be carried forward
Bills Passed – Tax & Administration
E4SSB 5251 Relating to Tourism Marketing
ESB 5288 Authorizing certain public transportation benefit areas to impose a sales and use tax increase approved by voters.
2018 Property Tax LegislationPete LevineTax Policy Specialist
Bills Passed – Property Tax
HB 2479Concerning Washington's property assessment appeal procedures
SHB 2576Allowing fire protection district annexations and mergers within a reasonable geographic proximity
ESHB 2580Promoting renewable natural gas
Bills Passed – Property Tax
SHB 2597 Extending the existing state property tax exemption for residences of senior citizens and disabled persons to local regular property taxes
SHB 2627 Concerning authorizations of proposals for emergency medical care and service levies
Bills Passed – Property Tax
SSB 6475Prohibiting the imposition of regional transit authority property taxes on less than a whole parcel
ESSB 6614Concerning funding for the support of common schools
Questions? / More Information
Summary of 2018 Tax Legislation
BLS UpdatePartnership Services Manager Katie Early
June 2018
RCW 35.90
• 2017 House Bill
o Combined Licensing
o New requirements
• 2018 Operating Budget
67
BLS Partnerships
• CY 2017 priority
• CY 2018 Ramp-up
o Alternates added
• Plan Change to FiscalYear
o 22 cities – FY19
o 32 cities – FY20
Cities joining BLS by January 2020
• Airway Heights
• Bainbridge Is*
• Blk Diamond*
• Burlington
• Cashmere
• Castle Rock
• Centralia
• Chehalis
• Cheney
• Darrington*
• Edmonds
• Federal Way
• Friday Harbor
• Grandview
• Granger
• Kirkland
• Medical Lake
• Medina
• Mercer Is*
• Moses Lake
• Mountlake Terr.
• Napavine
• Normandy Park
• Orting
• Othello
• Quincy
• Ridgefield
• SeaTac
• Shelton*
• Snohomish
• Tenino
• Toppenish
• Tukwila
• Yelm*
• & 1 TBD
Partnership Planning
281 WA cities
230 with licenses
77 in BLS
5-year plan
140+ new city partners
December 31, 2022
Contact
Partnership Services (360) 705-6777
citypartners.dor.wa.gov
73
Questions?