Editorial: City residents deserve a better deal when it comes to sales taxes
Lawrence taxpayers may want to negotiate a better bargain with City Hall. As it stands now, the deal taxpayers have is when the city is flush with cash they get no break in taxes. When the city is tight on cash, they get an increase in taxes or fees or a reduction in services — or sometimes both.
Heads, you win. Tails, I lose.
That’s the scenario that is taking shape currently. The city’s sales tax collections aren’t growing as fast as the city expected them to when it created the city budget last summer. As a result, the city already is taking steps to eliminate or delay about $5 million worth of capital improvement projects and create a new system that will charge many users of the city’s recreation centers an annual fee.
At first glance, that seems like a pretty sound strategy. If your revenues are coming in light, you had better figure out how to spend less or make more. It is a strategy many smart households follow.
But first glances sometimes can benefit from a look further back in time. You don’t have to look too far in the past to see a time when the city was collecting a lot more in sales taxes than it expected — in other words, the exact opposite of the situation today.
From 2011 to 2016, for instance, city sales tax collections grew by 23%, which surpassed even the go-go growth days of the late 1990s and early 2000s. During that time the city consistently collected more in sales taxes than it budgeted to collect. Sometimes sales taxes came in more than $1 million above budget totals.
During that period, though, city taxpayers didn’t get a tax break. From 2012 to 2017, the city’s property tax mill levy increased from 29.5 mills to 33.2 mills. In other words, at a time when the city was getting more sales tax revenues than it expected, it also made the decision to collect more in property taxes from its residents.
Yes, some of the sales tax windfall was used to cover shortfalls in other areas of the city budget. But in many years the city used the sales tax windfall to fund unbudgeted expenditures or to increase the balances of reserve funds.
At no point was there serious discussion about returning the excess sales tax collections to Lawrence taxpayers. If that would have happened, it would be a little easier to understand the need to cut services or create new fees today.
Indeed, the city may need to make cuts or add fees to weather the current downturn. But it also owes it to taxpayers to create a better system for the future. That system should be built upon the understanding that sales tax revenues are always going to be cyclical and tough to predict.
As a result, city leaders and ordinary taxpayers need to be able to see at glance whether the city has a surplus in sales tax dollars or a deficit in any given year.
When there is a surplus, the city should deposit those funds into a special account marked “Surplus Sales Tax Funds.” While we are at it, the county should have the same type of fund. Then, when the city experiences the inevitable year when sales taxes don’t meet projections, the discussion doesn’t have to immediately turn to budget cuts and new taxes or fees. Instead, the city can look to the surplus fund to see if it can cover the expected shortfall.
The city has rainy day funds already that could serve this purpose, but they rarely get used for anything other than one-time expenses. City budget-makers say it is irresponsible to use reserve money to cover ongoing expenses. But couldn’t a similar statement be made about using a funding source as volatile as sales taxes to fund ongoing expenses? If the city is going to use volatile sales tax funds — which it should because it is a good way to have out-of-town shoppers help pay for our services — it needs to be prepared to cover the occasional shortfalls that come with sales taxes.
The current system too often leaves local taxpayers holding the short end of the stick. Taxpayers should bargain for a better deal. Fortunately, we are at the beginning of bargaining season — better known as City Commission elections.