City’s sales tax revenue still lagging

City Manager Bill Watkins expects the growth rate to continue its slide.
Wednesday, August 8, 2007 | 2:00 a.m. CDT; updated 9:24 p.m. CDT, Sunday, July 20, 2008

COLUMBIA - Columbia’s sales tax revenues have been lagging for months, and it’s expected that the trend will continue into the 2008 fiscal year, City Manager Bill Watkins said when he released his new budget proposal on July 31.

The budget proposal estimated that Columbia’s sales tax will bring in $40.5 million in 2008, a 3 percent growth from this year. This growth rate, while still increasing from last year, is smaller than the city has seen in the past.

Sales Tax Revenue

Year 2008 (proposed) Revenue - $40.5 million % Change - 3.1% Year 2007 (estimated) Revenue - $39.3 million % Change - 2.6% Year 2006 Revenue - $38.3 million % Change - 7.6% Year 2005 Revenue - $35.6 million % Change - 6.0% Year 2004 Revenue - $33.6 million % Change - 6.3% Year 2003 Revenue - $31.6 million % Change - 2.9% Year 2002 Revenue - $30.7 million % Change - 11.6% Year 2001 Revenue - $27.5 million % Change - 9.1% Year 2000 Revenue - $25.2 million % Change - 9.1% Source: City of Columbia

The tight budget proposal reflects this trend, offering smaller raises than usual to city employees and postponing the purchase of new equipment for city use.

The city is also dipping further into its reserves than it has in the recent past to cover the missing sales tax revenue, Watkins said. It is the city’s policy to keep an equivalent of at least 16 percent of the general fund budget in reserve. In past years, the city left around 20 percent. However, this year, the minimum 16 percent— just over $11 million—will remain, “leaving fewer dollars to carry over to support next year’s budget,” Watkins said.

Gary Markenson, the executive director for the Missouri Municipal League, said slow sales tax growth is not unique to Columbia.

“Statewide, last year, sales tax collection was up 2 percent, which doesn’t even keep up with inflation,” he said.

Some reasons for the slump, Markenson said, are sales tax holidays, certain tax exemptions and increased Internet shopping.

Watkins thinks that similar factors are affecting the local environment.

“I believe that the Internet sales, for which we don’t receive tax money, is really beginning to impact our sales,” Watkins said.

He also suggested that rising gas costs could be contributing to the slowing growth because people buy less gas when prices are higher. Despite the higher prices, the sales tax rate remains constant, meaning the city sees less tax revenue from gas purchases than usual. He said another contributing factor occurs when people are spending more money on gas and thus have less discretionary money to spend on clothes and other goods.

Conrad Lamb, the finance director for Lee’s Summit, said his city’s sales tax revenue didn’t grow at all this year. Lee’s Summit had expected 2 percent growth for 2007, but the actual numbers are within $3,000 of last year, he said.

For Columbia, at least, Watkins thinks that hope is in sight.

“Although this trend may linger for another year or two, I strongly agree with analysts who say that Columbia has a strong, growing and enviable economy,” Watkins said.

He said he sees the fact that Columbia has attracted lots of new retailers and commercial expansion as a sign that people still believe the city is a solid market.

“I’m thinking good thoughts about the future,” he said.

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