THE STATE OF WASHINGTON Investor Presentation November 2017
Table of Contents I. September 2017 Economic and Revenue Forecast II. Legislative and Financial Update III. Transportation IV. Investments and Fund Balances V. Debt Issuance Plans 1
I. September 2017 Economic and Revenue Forecast 2
September 2017 Forecast Overview The Washington economy shows solid growth with employment rising in The September 2017 most sectors. Washington • Employment gains and lower unemployment claims indicate a Forecast reflects strengthening labor market in Washington. After increasing by 3.1% in expectations for 2016, Washington employment is expected to again increase by 2.9% in steady employment 2017. gains. • Nominal personal income growth is expected to increase by 5.8% in 2017, averaging 5.1% annually from 2018 through 2021. Downside risks outweigh upside risks. Risks to the baseline forecast include a slow global economy, weak productivity growth and international trade concerns. General Fund-State revenue forecast for the • 2015-17 Biennium has been increased by $3 million to $38.311 billion ($39.042 billion including the Education Legacy Trust Account and Opportunity Pathways Account), 13.8% higher than the previous biennium, and • The 2017-19 forecast has been increased by $280 million to $41.183 billion ($41.965 billion including the Education Legacy Trust Account and Opportunity Pathways Account), a biennial growth rate of 12.8%. 3
Employment and Income The State’s Washington Nonfarm Payroll Employment 3,600 unemployment rate Forecast 3,500 was 4.6% in 3,400 3,300 September, down in Thousands 3,200 from 5.3% in 3,100 3,000 September 2016. 2,900 2,800 The September 2,700 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Seattle area Source: ERFC September 2017 Forecast; historical data through 2016 unemployment rate • Employment is expected to grow by 2.9% in 2017. was 3.8%. Washington Personal Income Washington 550 personal income Forecast 500 grew by 3.2% in 450 $ in Billions 2017Q2, slightly 400 faster than the 350 national average of 2.9%. For all of 300 2017, 5.8% (SAAR) 250 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 growth is expected. Source: BEA, ERFC September 2017 Forecast; historical data through 2016 4
Housing Sector and Inflation • In July and August, 46,400 units (SAAR) were permitted; the June forecast The July Case- had assumed 43,800 units for the entire third quarter. Housing permits Shiller home price are expected to increase by 0.9% in 2017. index for Seattle is 13.5% higher than a Washington Housing Permits 50 year ago and 19% Forecast above the previous 45 May 2007 peak. Thousands of Units 40 35 30 25 20 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Source: Census, ERFC September 2017 Forecast; historical data through 2016 • In June, Seattle area consumer price inflation was reported at an annual rate of 2.5%, above the U.S. city average of 1.9%. Higher Seattle inflation is largely due to shelter costs, which increased by 6.1% over the year compared to 3.3% for the nation. 5
Washington Exports Exports declined by • Transportation equipment exports (mostly Boeing planes) for the 3.4% in the second second quarter of 2017 decreased by 10.1% compared to the same quarter of 2017 period in 2016; all other exports increased by 1.9%. compared to the Washington Exports same period last Percent Change, Year-Over-Year 40.0 year, likely reflecting the impact of a still- 30.0 strong dollar. 20.0 10.0 0.0 -10.0 -20.0 -30.0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total Total excluding Transportation Equipment Source: WISER Trade Data; data through 2017 Q2 6
Revenue Collection Performance Growth in • Payments related to August sales from the general merchandise and seasonally adjusted nonstore retail sectors were very strong. Revenue Act • Revenue Act collections related to August sales increased by 6.7% Y-O-Y collections was 6.3% (preliminary). in the first quarter Seasonally Adjusted Revenue Act Receipts* 2017 and 5.6% in 1,350 the second quarter of 1,250 2017 (preliminary). 1,150 $ in Millions, SA 1,050 950 850 750 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Revenue Act Revenue 3-Month Moving Average *Current definition, adjusted for large payments/refunds and timing of payments Source: DOR, ERFC; Monthly data through August 2017 preliminary data 7
Retail Sales Tax and B&O Receipts Washington Retail Sales Tax Receipts* 900 Adjusted sales tax 850 collections were up 800 750 6.7% Y-O-Y in 1 st 700 $ in Millions, SA quarter 2017; growth 650 600 in the 2 nd quarter 550 500 2017 was only 3.6% 450 but year-ago 400 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 collections were very Retail Sales Tax 3-Month Moving Average strong. *Adjusted for large payments/refunds, amnesty payments and taxpayer reporting frequency change. Source: ERFC; Monthly data through August 2017 collections Adjusted B&O tax Washington B&O Tax Receipts* 340 collections were up 320 2.7% Y-O-Y in 1 st 300 quarter 2017 and 280 $ in Millions, SA 4.1% in 2 nd quarter 260 240 2017. 220 200 Rebounding oil prices 180 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 will boost B&O collections in coming B&O Tax 3-Month Moving Average *Adjusted for taxpayer frequency shift, amnesty payments, and recent large refunds. months. Source: ERFC; Monthly data through August 2017 collections 8
REET Activity and Property Taxes • Growth in the amount of State property tax is limited to the lesser Growth in State of 101%, or 100% plus inflation, with an additional amount property tax is associated with new construction. limited by law. • Property taxes grew by 1.9% in FY17 to $2.1 billion; due to 2017 legislation increasing state property taxes, they are While large forecasted to grow by 28.4% in FY18. commercial property sales have caused • REET receipts grew by 13.6% in FY17, due mainly to a surge in large spikes in taxable sales of commercial property. FY18 receipts are expected to slow. activity, underlying residential sales have Seasonally Adjusted Taxable Real Estate Excise Activity 10 shown strong growth 9 due to rising prices. 8 7 Large commercial 6 property sales are 5 $ in Billions expected to decrease 4 from recent elevated 3 2 levels but remain 1 strong. 0 2007 2009 2011 2013 2015 2017 Source: ERFC; Monthly data through June 2017 collections 9
Forecasted Revenue The September General Fund-State Revenues* by Fiscal Year 30 Forecast adds $3 million to General Forecast Fund-State revenues 4.23% 25 in the 2015-17 3.96% 6.62% Biennium and 6.10% 6.21% $2,359 million to the 20 7.50% 2017-19 biennium 5.50% $ in Billions 3.80% largely due to tax 6.11% 1.54% increases related to 15 funding K-12 education. 10 5 0 FY 12 FY 13 FY 14 FY 15 FY 16 FY 17 FY 18 FY 19 FY 20 FY 21 *General Fund-State new definition for FY 10-17 Source: ERFC September 2017 Forecast 10
II. Legislative and Financial Update 11
2017 Legislative Environment -- Context The Legislature entered the 2017 session with an increase in forecasted As usual in odd- revenue along with increased costs. numbered years, the Legislative session Significant fiscal and policy issues facing the Legislature in the 2017 was dominated by session included fiscal issues. • implementation of the Supreme Court’s McCleary decision (K-12 funding, particularly the state’s share of basic education The 2017 session compensation), was the longest • addressing behavioral health issues including court decisions cumulative session involving both forensic and civil mental health services and federal in State history. oversight of Western State Hospital, and other fiscal/policy issues. Forecasted revenue for the state General Fund, the Education Legacy Ultimately, there Trust Account, and the Opportunity Pathways Account (NGF-P) was broad increased from $39.0 billion in 2015-17 to $41.7 billion in 2017-19. agreement on the operating budget The cost of continuing current programs and meeting other statutory (Senate: 39-10-0; obligations increased by approximately $3.2 billion compared to 2015-17. House: 70-23-0). About 60% of this increase is in K-12 (including funding for I-732 and K-3 class size reduction), about 20% in the Department of Social and Health Services, and about 10% in the Health Care Authority. 12
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