City posts sales tax gains for 2008

Posted by Chad Lawhorn January 8, 2009 at 10:45 a.m.

Financial talk in City Hall was gloomy for most of 2008, but the talk didn’t match the numbers when it came to sales tax collections. According to recently released numbers, the city saw a respectable 3.8 percent increase in sales tax collections in 2008. In fact, sales tax collections will represent a bit of a windfall for the city budget. The city collected $21.21 million in sales taxes for the year, up from $20.43 million. But perhaps more importantly, the $21.21 million is $132,000 more than the city budgeted to collect in 2008. Not exactly the type of number that makes city budget-makers get out the noisemakers and streamers, but it will help shore up what is expected to be a difficult revenue year in 2009. But put all the number stuff aside for a moment. The bigger issue here is why did the city’s retail economy fare better than expected in 2008. Financial headlines nationally were awful for most of the year.Early on, speculation was that KU’s national championship run in basketball pumped a good deal of money into the economy. For sure it did, but a closer look at the numbers suggests the title run probably wasn’t the main factor behind the increase.Sales tax collections were up for eight of the 12 months of 2008. That doesn’t suggest a short-term surge in spending surrounding the tournament. In fact, one of the four months where sales tax collections were down was April (because of a lag in reporting times, the April numbers represented sales made in early April and mid-to-late March, which was the heart of the tournament.)A possible reason for the increase may be that consumers had just gotten tired of being cautious. In 2007, sales tax collection grew by less than 1 percent. In 2006, sales also were weak, with collections growing by about 2.5 percent. Economists call this pent-up demand. Consumers can hold off on making some purchases only for so long. But as they say, it is best not to drive with your rearview mirror. The big worry now is that consumers no longer have pent-up demand but have pent-up fear that they are quickly releasing onto the retail scene. New national numbers out Thursday show that Christmas retail sales indeed were bad. It won’t be for another month or two (because of the lag in reporting issue mentioned above) before the city receives local sales tax numbers that show the full picture of how holiday sales fared in Lawrence. But there’s worry in City Hall. These days, that’s what they get paid to do.