State Controller's Report for October: look at the numbers and ignore the spin

The San Francisco Chronicle was the first of the major California newspapers to report on State Controller John Chiang's October financial statement. Partnered with Bloomberg which distributes the same article nationwide, the headline is California October Revenue Topped Budget Estimate by 4.6%, Controller Says.

The problem is nobody in the press seems to know how to compare these numbers to prior years or otherwise use them to see what's going on. A good reason exists for this.

Because of manipulations by the Gubernator and the Legislature of personal income tax withholding tables and the institution of drastic penalties for underpayment of corporate tax estimates, two of the key revenue numbers can't be compared from year-to-year. However, sales tax collections can be compared and can tell us what's going on with taxable sales.

When one adjusts for the fact that the sales tax rate is 6% of taxable sales in 2009-10 amd 2010-11 as opposed to 5% in 2006-07, taxable sales from July through October 2010 are down 18.0% from 2006-07.

It is true that during the same period last year taxable sales were down 19.4%. Yes we may have edged a slight gain during this period. The auto sales factor has to be taken into account because of the Cash for Clunkers program last year. But apparently it isn't a major factor. The California New Car Dealers Association publication California Auto Outlook reported:

...The market increased a marginal 0.2 percent in the Third Quarter. The apparent loss of market momentum was due primarily to relatively strong sales during the Third Quarter of 2009, when the market was given a boost by the Cash for Clunkers program.

So the 1.6% increase in taxable sales in July-October 2010 over the same period in 2009 is a fair indicator of growth in retail sectors other than auto sales. At this growth rate, by 2022 taxable sales will grow to 2006 levels.

Chiang, who knows better, tells us in his summary:

We are seeing indications that California has weathered the worst of the “Great Recession.” However, the road to full recovery is going to be a long one. Although current data on economic output in California is not available, we are fairly confident that the state’s economy has begun to grow again....

He then blathers on about employment and personal income which are not statistics generated by or used in his Department.

One could, like Chiang, spin a tale that the economy is growing again. Of course, the California Department of Finance estimates that the population growth rate between years is about 1%. And the U.S. Bureau of Labor Statistics indicates that, depending upon which index you wish to use, that the consumer price index has increased somewhere between 0.4% to 1.1%. So it's reasonable to conclude that the 1.6% increase in taxable sales means that per capita taxable sales in constant 2009 dollars shows no growth.

The Great California Slump has left us with an economy that crashed from 2008-2010. Based on the one statistic that we can rely upon - sales tax revenue - the California economy will remain at rock bottom for the foreseeable future.