Slow sales

Academic, business observers gauge effects of tax decline

Data to digest

Percentage increases in sales-tax collections from July through January in area communities, according to the Kansas Department of Revenue:¢ Manhattan, 31.6 percent.¢ Junction City, 25.6 percent.¢ Kansas City, 12.5 percent.¢ Topeka, 2.3 percent.¢ Lenexa, 1.7 percent.¢ Leavenworth, 1.6 percent.¢ Overland Park, 1.3 percent.¢ Leawood, 1.3 percent.¢ Lawrence: 0.6 percent.¢ Statewide: 8.5 percent.

After years of priding itself as an economic engine driving sales for all things taxable – from clothes to food to hand-crafted beers to building materials and including dozens upon dozens of other products and services – Lawrence is finding itself slipping behind compared to some of its larger competitors in the state.

According to the latest report from the Kansas Department of Revenue, Lawrence’s growth in sales-tax receipts since July came in at 0.6 percent.

That lags behind the 31.6 percent for Manhattan and 12.5 percent for Kansas City, Kan., and all seven other communities that constitute the state’s largest retail marketplaces: Hays, Hutchinson, Olathe, Overland Park, Salina, Topeka and Wichita.

It’s also off from the statewide growth of 8.5 percent.

“That’s not good,” said Pat Oslund, a research economist at Kansas University.

But what does it mean?

With elected officials preparing to compile their operating budgets for next year, and major projects – an expanded Lawrence Public Library among them – being discussed as candidates for sales-tax financing, the answers could prove pivotal in the coming months.

We checked in with observers of sales-tax data to see what they say the numbers may indicate for the community.

Chuck Magerl
Proprietor
Free State Brewing Co.

Magerl, whose brewery in downtown Lawrence celebrated its 18th anniversary Friday, finds plenty of worry in the numbers coming out of Topeka.

First off is the relative standing of Lawrence in relation to its major-community colleagues. Lawrence’s thinkers need to mull the numbers, consider wide-ranging factors and try to understand what they might indicate so that policies or practices can be implemented or adjusted to help turn the figures around.

“We can’t be complacent,” said Magerl, who maintains a database of tax data and commiserates with others about their meaning. “What concerns me is that so many people in this community walk around, strutting their stuff, saying, ‘I live in Lawrence. Everything is great here.’ The reality is, we’ve hit a real soft spot.”

Magerl discounts assertions that Lawrence needs more retail storefronts to draw more sales. But he does worry that Lawrence’s high percentage of tech-savvy residents increasingly are turning to the Internet for shopping.

He’s also watched the area around the Kansas Speedway in Kansas City, Kan. – featuring commercial powerhouses Nebraska Furniture Mart, Cabela’s, Great Wolf Lodge and The Legends shopping center – draw Lawrence residents and siphon away some of their discretionary spending.

Even Topeka to the west, with sales-tax growth of 2.3 percent during the past seven months, compared with the same period a year earlier, is continuing to absorb Lawrence money.

“It’s starting to feel like those two areas are drawing more retail sales and sucking some of the vibrancy out of our community,” Magerl said.

Dale Willey
Owner
Dale Willey Automotive

Willey doesn’t need more than a second to come up with his conclusion.

“I don’t know all the answers,” he said, “but I know part of the answer is our construction industry has left town. They’re building out of town, and they’re spending their money out of town.”

With the nationwide real estate market having slowed from its red-hot activity in recent years, builders often found themselves with too many new homes on hand and too few buyers to pick up the slack. Builders took out four permits for new homes last month, down from the usual 40, according to the Lawrence Association of Home Builders.

With developers, builders, contractors and suppliers increasingly turning their attention to growing portions of the Kansas City area and even Manhattan and Junction City – home to the expanding Fort Riley – it’s no wonder the community’s overall sales growth checks in at less than a percent, he said.

“That’s a big engine for our community,” he said.

Pat Oslund
Research economist
KU Institute for Policy and Social Research

Oslund, who follows state and local policies, acknowledges that the housing slowdown has had an effect on overall sales. Building supplies represent a major chunk of taxable transactions.

Factor in relatively slow employment growth with likely Internet sales, she said, and “that probably goes a long way toward explaining the slowdown in sales tax revenue.”

But the housing slowdown remains the likely candidate for the biggest impact.

“It had been so strong in Lawrence,” she said. “Even now, if it’s average, that still represents a decrease.”

Dean Drennan
Owner/operator
Mr. Goodcents Subs & Pastas

Drennan, who owns two sub shops in Lawrence, can see how the state’s numbers would be legitimate. His January sales in town were up 1 percent from a year ago, less than in his other stores in Raytown and Kansas City, Mo., and below the 3.5 percent he normally expects in Lawrence.

He figures it might be high fuel prices, given Lawrence’s increasing status as a bedroom community.

“If your gas spending goes up 15 percent, it would cut down on your discretionary funds,” he said.

Kirk McClure
Associate professor
KU graduate program in urban planning

The relatively sluggish growth of Lawrence’s retail sales is not a matter of too few storefronts, McClure said.

Instead, he said, the community is grappling with both an overall slowdown in population growth and wage increases that also are lagging behind the state average.

“That’s where the real issue is,” McClure said. “Population and wages will dictate your retail spending, not the number of stores.”