Currently viewing the category: "Debt/Government Debt"

Should we call it “The Perfect Storm”? I, along with most economists who write about agriculture because it is so important to those areas we are writing about have been saying crop prices are going to go down and that means the incomes we look at are going to decline.

We apparently were right. If you read Moody’s Analytics chart of wheat and soybeans, two important ND crops, that is what has been happening. Their prices are declining. As always I am surprised about Moody’s analysis. Where is the corn. It isn’t on the chart and it certainly has become important to ND. So too have been dry beans and they are also not charted.

So, take the figures with a grain of salt, no, at least a half teaspoon of salt. With what they show though wheat and soybean prices are more than 20 percent about the 2010 base. Of course in 2011 and 2012 they both were as much as 60 percent higher than in 2010 and that is significant. If they were shown, so too would corn and dry beans. Moody’s show all food commodities at about 25 percent above the 2010 average, down from a peak in late 2012 of about 35 percent above the 2010 base of 100.

If you don’t believe that has made a difference just drive by the implement dealers lots and look at all the machinery in their lots. If that doesn’t convince you go inside and ask a salesman. Watch their eyes.

As for Moody’s projections, they are only short about a percent a one-half in sales taxes. That is certainly within the realm of acceptability. However, individual income tax collections are nearly 40 percent above their predictions and so too the corporate income taxes, collections more than 40 percent above their predictions. Auto sales excise taxes are 10 percent short of what they predicted.

They are so far off on so many accounts that when it comes to the bottom line the net figure collected is only a little more than 6 percent greater than their predictions.

This begins to get complicated, but please note: The general fund cap for oil and gas taxes contains two tiers. The first tier of $200.0 million was reached in October 2013. Additional oil taxes will flow to the property tax relief fund until that fund receives $341.8 million, after which time the general fund will receive an additional $100.0 million. Total production and extraction tax collections were $250.3 million in February 2014. Monthly allocations to the property tax relief fund were $73.4 million; allocations to the legacy fund were $69.6 million.

Standby. A significant negative in collections could lead to an interesting situation before the biennium is completed. I don’t know the people in OMB, and I have tried to keep my comments from being partisan in anyway, but I am glad that Jack Dalrymple is the Governor. They may have a tiger to ride before the biennium is over.

 

Here are two new reports.First is the North Dakota General Fund Revenues and Transfers for the biennium through December.

Below that is the city sales tax reports. It is in detail for Grand Forks, and then compares several of the major cities in the state. The sales taxes are for the checks the cities received on February 15th.

So, to begin, the state report:

We are now one-fourth of the way through the biennium and the collections are nearly 20 per cent ahead of last biennium’s revenues. Also, revenue is about 9 percent ahead of the projections the state bought. That doesn’t sound too bad, but the devil is in the detail.

In this case, major special fund transfers are already at their limit and so do not add to the error. Actually the three major funds we really need to look at are sales tax, individual income tax and corporate income tax.

The sales tax collections are only a short four percent over projections. That is certainly within expectations. Where the projections are really off is in both the individual and corporate income taxes, about 50 percent for both, and that is too much. If this keeps up the Governor and legislature will need to come into the session with a plan of what to do with the extra money. Of course if the ag economy turns out much worse than most of us expect we may be happy to have this money.

If a special session occurs that too may change everything. Because of all the problems I don’t expect that. In the meantime, you and I can only see what the leaders decide.

 

In the last couple of days I have published three reports. The way you are notified may mean you have not received emails about each of them so I am posting an INDEX.

The postings, from the top, are:
1. Jan Oil and Gas Production Report.
2. North Dakota Annual Building Permits-Selected Cities
3. North Dakota General Fund Revenue- Jul Thru Dec.

 

With this report we are beginning to see the change in the economic activity in North Dakota. I suppose it is technically correct to call it a slow down because that nearly 21 percent growth is not as great as we have seen in the past. Also, look at those negatives.

Of course an accurate analysis is that most of what we see here is the maturing of the oil exploration. The days of the wild drilling as quickly as possible are over. Instead we now have the drilling on a pace that equals the ability to frack the drilled wells and move the oil out. It doesn’t accomplish anything to have hundreds of holes waiting for the fracking crews, or completed wells waiting for the next loading station.

The one economic sector that might be called negative we can not determine from the information we have. I am referring to the agricultural sector which most think has to be smaller than in the past several years. That should mean a slowdown in income taxes and sales taxes. If they are there must be significant inventory still being sold as those are still nice increases in those taxes.

Comments on this report: Sales tax collections are nearly 7% greater than forecast. Motor vehicle tax is still less than forecast, but getting closer, not in total sales, but the projected increase isn’t there. Individual income tax is slightly off this month (December), but well ahead of forecast. Corporate income tax even after a significant tax rate reduction passed in the last session. Oil taxes are higher than expected both because of larger than expected production and higher than expected prices. Financial institutions taxes have been eliminated. The negative amounts are returns of payments the institutions made based on the old system.

There are other sectors that could be keeping the increase up. The best we can expect is to wait for the first quarter 2014 sales tax report to see what sectors have significant changes, both increases or decreases.

In the meantime we can continue to be pleased with our general fund revenues.

 

My readers know I have been critical of Economy.com’s forecast for the North Dakota budget. I think they have been too far off the mark for too many years. In the current biennium just last month at the end of four months actual revenue and transfers exceeded their forecast by 10 percent. Now, five months in to the biennium the revenue and transfers exceed their forecast by just short of eight percent. As someone who is critical of statisticians when they are off the mark I have to say that at this time that figure is at least respectably close. Of course I would want that figure to be closer as we go through the biennium, but they are heading in the right direction. We will have to see if their projections continue to improve.

That acknowledgement made then when looking at the figures and trying to see where the revenues are close to what was expected and where they are off it is apparent that it is the sales tax category, which is the largest of North Dakota’s taxes in terms of intended collections. Actual collections exceed the projection by less than just over one percent.

Interestingly, one of the larger accounts they are off significantly on is the motor vehicle excise tax. I say interestingly because these past few years they have not projected enough revenue in North Dakota’s total revenue, but in this case it is a negative. As I mentioned last month they apparently thought everyone was going to go out and buy new cars and pickups. It is still substantial, but they are short over 12 percent.

Where they have the largest gain in actual versus projected revenue is in both the corporate and individual income taxes. The individual income tax account is the larger by far and the collections are nearly one half again what was projected.

The corporate tax account while much smaller is over 160 percent greater than projected. It seems to me that both of these accounts should not have been off by the amount they are. Yes, for those who ask, it is better the income is larger than projected rather than short of the projections, but that does present problems of its own including continuing overtaxing, or under appropriating depending on your philosophy. It is not good government.

Of course, North Dakota continues to be the envy of the rest of the nation. Here are the stats as presented to us by OMB:

Here is some more data this continuing good times has done for North Dakota:
Grand Forks MSA (Metropolitan Statistical Area) grew 10.5% in 2012. That ranked it 3rd in the nation.
Bismarck grew 10.1%. The ranking was 4th.
Fargo grew 8.3 %. The ranking was 6th.
In the non-metropolitan area the growth was 26.3 %.
Fargo had been the strength of North Dakota even into the housing crisis, and there certainly is nothing wrong with a growth exceeding eight percent, but it is interesting to see that Grand Forks and Bismarck have both exceeded Fargo’s growth. Again, this is just a maturing of a market, or so I think.