With three-quarters of the year gone, Lawrence sales tax numbers still lackluster
photo by: Richard Gwin
Story updated at 4:27 p.m. Monday, Oct. 8:
Nationally, there are plenty of signs that the economy is improving. Unemployment is at its lowest level since the 1960s, the stock market continues to post new highs, and there’s a rumor at my house that we’ll get to turn the thermostat all the way up to 62 degrees this winter.
None of that, though, has translated into a banner year for retail sales tax collections in Lawrence. With three-quarters of the year in the books, it is clear that consumers have not gone crazy with their spending. Sales tax collections have grown some from last year, but the rate of growth is considerably slower than past years. As a result, the city is facing anywhere from a $400,000 to $800,000 shortfall in budgeted sales tax collections.
First, the good news. The city’s September sales tax report showed some decent growth. Sales tax collections for the month were up 2.5 percent, compared to the same period a year ago. That increase followed three straight months where Lawrence’s sales tax collections grew by less than 1 percent, or actually declined for the month. So, maybe Lawrence is set to finish the year on a stronger note.
Thus far in 2018, sales tax collections are up 1.4 percent compared to the same period a year ago. But that is quite a bit less growth than the city has come to expect. From 2013 to 2017, Lawrence has averaged sales tax growth of 3.7 percent a year.
The slowdown is happening at an interesting time. First, this was a Final Four year for the community. Despite there likely being some extra money spent on celebrations, T-shirts and cracked television screen repairs, the city’s sales tax collections haven’t seen a big bump. (For what it is worth, the other commonly held perception about Final Four appearances is that they give your school a bump in enrollment. Thus far that hasn’t panned out, either.)
But the other notable point is Lawrence’s slowdown is happening at a time when several other major retail communities in the state are seeing a jump in sales tax collections. Here’s a look:
Lenexa: up 16.9 percent
Overland Park: up 7.0 percent
Kansas City, Kan.: up 4.9 percent
Olathe: up 3.0 percent
Sedgwick County (Wichita): up 2.9 percent
Shawnee: up 2.6 percent
Topeka: up 2.5 percent
Salina: up 1.7 percent
Lawrence: up 1.4 percent
Riley County (Manhattan): up 0.4 percent
Near the bottom of that list is about where Lawrence has been most of the year. This month I dug a little deeper to see how Lawrence compares to the entire state. Out of 263 Kansas cities with their own sales taxes, 165 of them have posted growth rates better than Lawrence’s. (Note: There are actually 295 cities with a local sales tax, but 32 of them had changed rates in the last year, and thus weren’t easily comparable.)
In other words, Lawrence is in about the bottom 40 percent of Kansas cities. That’s not terrible but not great. None of Lawrence’s numbers are cause for major concern, yet. It is hard to post great growth rates year after year. And Lawrence’s five-year growth rate likely would be better than many of these communities.
But Lawrence is on track to post its second straight year of lower growth rates for sales tax collections. And, of course, sales taxes are a huge component of the city’s overall budget. If sales taxes don’t grow at a robust rate, it will put more pressure on City Hall to raise property taxes or cut spending.
On that front, there is a chance Lawrence’s sales tax collections will come in below the city’s budget for 2018. That would be the first time in years that the city has had a budget shortfall in sales tax dollars.
When the city approved its 2018 budget in the summer of 2017, it expected to collect about $40.5 million in sales and use tax dollars, not including a few hundred thousand dollars in special transportation sales taxes that are charged at a handful of developments around town. Through September, the city has collected $29.5 million in sales and use taxes. That is 73 percent of what they have budgeted with 75 percent of the year elapsed. So, in a basic sense, that puts the city on pace for a 2 percent budget shortfall. That would amount to about an $800,000 shortfall.
The city, however, in August did revise its budget, including sales tax collections. It revised sales and use tax collections downward to about $39.9 million, which would put the city on pace to have about a 1 percent or $400,000 shortfall.
A strong fourth quarter could change those numbers for the better.
Even if sales tax collections don’t pick up, though, it is not clear that the shortfall is going to require any major spending adjustments at City Hall. Assistant City Manager Casey Toomay told me that total general fund revenue — sales taxes plus property taxes plus fees plus other items — is still projected to come in above the city’s revised budget figures.
Still, there will be plenty of people rooting for a fourth-quarter surge.