Sales Tax Revenues Not Recovering

Once upon a time, the economy of Snohomish County was growing along with our population and employment. Sales tax looked like a stable and growing source of revenue. That was a good thing for Community Transit, since sales tax has historically made up 60-70 percent of our budget.

In 2006 we began working on our six-year Transit Development Plan for 2008-2013, and we had all sorts of hopes for the future of public transportation in Snohomish County. Our financial forecasts anticipated a slight slow-down in sales tax growth by the end of the plan, but an average growth of 6.9 percent a year seemed reasonable in Washington’s economy at the time.

Then, along came the Great Recession. Our Transit Development Plan had estimated sales tax collections of $103 million in 2011. We’re now hoping for $62.7 million in sales tax revenue this year, 18 percent less than we collected in 2007 and 40 percent less than we expected to collect before the recession hit.

The recession is supposed to be over now, and revenues are up 2 percent compared to 2010. However, about 2/3 of the increased sales tax is the result of a tax amnesty program by the state Department of Revenue. Adjusting for one-time effects, sales tax revenue is less than 1 percent higher than in 2010.

A report from the Department of Revenue last month indicated taxable retail sales overall in Snohomish County were down by 1.7 percent in the first quarter of 2011 – worst in the state.

While it looks like sales tax collections will be sufficient to balance our budget this year, our future is still uncertain. Major service cuts in 2012 are part of our long term sustainability plan. Earlier this year we had assumed a more favorable economic recovery and projected an average sales tax growth of 4 percent for the next 6 years. The fact that the economy is recovering so slowly could mean the need for more cost cutting in 2012, including the possibility of additional service cuts in the future.