In 2013, Walla Walla County’s cash registers didn’t seem to ring as much, at least compared to the year before and against statewide numbers.
Total taxable sales throughout the county amounted to about $737 million, down from $745 million in 2012. That’s a drop of 1.1 percent, the first since 2010.
What’s more, annual growth rates as shown in Trends graph 2.3 reveal the average rate of all jurisdictions in the state went the opposite direction as Walla Walla County in 2013 — a 7.3 percent increase. What happened?
Curiously, the local retail sector — one of several that pay taxes on sales — did all right. It chalked up an increase of 5 percent in taxable sales. That wasn’t as high as the state, but certainly above a long-term average. Key subsectors performed modestly well: auto with a 2.6 percent increase, general merchandise at 1.3 percent bump, building materials with a 5.3 percent climb, and furniture & home furnishings showing a 27.6 percent jump.
In addition, food and beverage outlets crept up 1 percent, while the accommodations subsector jumped 9.5 percent. A small but growing category, e-commerce, posted a 21 percent increase.
But the base for taxable sales in Washington covers many more activities than those we typically associate with retail. Several other sectors are taxed, such as wholesale trade, manufacturing and information (newspaper, telecommunications, radio, ISPs).
The largest of all non-retail sectors paying sales tax is construction. And therein lies the story behind the dip in taxable sales in the county for 2013.
For 2012, taxable construction activity was slightly over $150 million; for 2013, it was $126 million. Nearly all the decline came from the construction of buildings, as opposed to “heavy construction” — roads, bridges, utilities and land development.
Construction is a volatile sector, with taxable sales ranging from $105 million to $193 million over the past seven years. Over the same period, retail taxable sales remained pretty steady.
So pity the finance departments of local governments who are called to forecast revenues. They need to have their fingers on the pulse of major construction projects within their jurisdictions.
First, because sales taxes constitute the second-largest contributor to city and county’s budgets. Recently, Walla Walla County issued an outlook, reporting that in the absence of an economic upswing expenditures will soon outstrip revenues. An economic upswing would likely bump up sales taxes the most quickly among all revenue sources.
We might also care about taxable retail sales because they carry insights about the county’s economy. Here’s what I see in Trend 2.3. First, the county largely tracks the state economy, at least as measured by the part of the economy that is taxed.
Second, within that largely synchronous relationship, Walla Walla County’s experience is more volatile than the state’s. This shouldn’t be surprising, since larger units have less volatility than smaller ones. Third, the county’s taxable sales still haven’t exceeded their peak in 2008.
Will 2014 mark the year that sales taxes show that local economy returning to “even” or better? If construction returns to pre-recession levels, that should happen. Or if retail sales keep increasing at 5 percent or higher, it should also happen.
How might retail sales maintain a minimum growth rate of 5 percent? Economists typically look to increases in income.
In a prior column, we’ve seen that the county’s per capita personal income has lagged the averages of Washington and the U.S. over the past five years. So this important metric will need to climb.
But even if the county’s income increases begin to match stride with these benchmarks, retail sales still might lag.
In a related trend, per capita retail sales in Walla Walla County score well below its neighbors of Benton and Franklin counties. For several years, the county’s per capita spending, as measured by taxable retail sales, has hovered around $5,100. Over the same period, Franklin County has climbed to about $6,100 while Benton County has jumped to nearly $8,800.
It appears that Walla Walla County businesses simply aren’t capturing the purchases of its residents, many of whom shop elsewhere. Can the county become more retail-friendly to its residents and curtail the leakage? If so, municipal budgets will look rosier.
D. Patrick Jones, Ph.D., is executive director of the Institute for Public Policy & Economic Analysis at Eastern Washington University. More detail on the economics of Walla Walla County can be found at www.wallawallatrends.com., a project maintained by EWU and funded by the Port of Walla Walla.