Pandemic’s hit to retail sales in Lawrence not as bad as once feared, new numbers show
photo by: Jackson Barton/Journal-World File Photo
May normally is a banner month in Lawrence. Graduation ceremonies, full hotel rooms, bustling restaurants, catered parties and much more. This May, there were banners all right in Lawrence. Most of them read “closed.”
The latest sales tax report from the state of Kansas — it is the July report but due to normal reporting delays the numbers mostly represent sales made in May — gives a glimpse at how hard Lawrence’s economy was hit for the month.
Sales tax collections were down by 9.4% compared to the same period a year ago. In dollar figures, the report suggests Lawrence lost a little more than $13 million in sales for the month. Normally I would note that this is one of the largest monthly declines for Lawrence in recent memory. Almost any other year, that would be true, but now it is not even the largest drop in the last couple of months. The city’s June sales tax report — showing sales made in April — was worse. The city saw a 13% drop in that month.
So, oddly, there might be some good news in a report that shows a $13 million loss. (It’s like that time at the casino. Sure, I lost a lot of money, but the good news was I was only one color off on the roulette wheel.) The good news is that April was worse than May. And, even though the Lawrence economy is not back to normal, June and July seemed to be closer to normal than May was. Perhaps those months will produce results that are better than May.
The even better news, though, is when you add up this mess called 2020, the city of Lawrence is not doing nearly as bad as City Hall officials once projected. In mid-July, the Journal-World reported that City Hall administrators were projecting a 15% decline in sales and use tax collections for 2020, which would amount to about a $6 million shortfall in revenue.
But the city’s sales tax collections have not yet hit that 15% down mark in even one month this year. And use taxes — which are a special type of tax charged mainly for online purchases — are still in positive territory for the year.
Here’s a look at where some key financial numbers stand for the city, as of the end of July.
• City sales taxes: down $533,190
• City use taxes: up $46,707
• City share of of county sales taxes: down $206,032
• City share of county use taxes: up $48,583.
When you total those figures, they show a loss of $643,932 in sales and use tax revenues for Lawrence through the first seven months of the year. That is a long way from the $6 million loss that City Hall officials were projecting in July.
Based on past collection rates, the city would have to see monthly declines of about 30% in sales and use tax collections in order for the city to suffer a $6 million shortfall in those revenues. In other words, the situation would need to get about three times worse than what it is currently.
City Hall officials are no longer expecting that to happen. Jeremy Willmoth, the city’s finance director, told me last week that he’s seen enough numbers since the pandemic to believe a $6 million revenue loss is now unlikely in 2020. But Willmoth said he hasn’t created a new projection. That’s because a decision has been made for the city to basically make quarterly adjustments to its spending and budgets. Making real-time adjustments lessens the need for a projection for 2020 planning.
However, a projection might be useful as the City Commission approves its 2021 budget later this month. That’s because the 2021 budget will be impacted by how much money the city ultimately loses in 2020. The goal is for the city to start making up some of that money in 2021.
For instance, if the city ends 2020 in better shape than expected, then maybe the City Commission would want to undertake some spending projects in 2021 that currently are not slated to be in the budget. Or, to the delight of people who hate property taxes, maybe the City Commission would feel comfortable approving a property tax decrease for 2021, instead of simply holding the rate steady.
Don’t expect that to happen, though. Good public finance officials generally are conservative with money, and during a pandemic, that philosophy kicks into another gear. Willmoth noted that even though sales tax revenues haven’t fallen as much as expected, they are still down significantly, and the city still expects to spend more money in 2020 than it will receive in revenue. In other words, the city is going to spend from its savings accounts or rainy day reserve funds. He argues that adding new spending or cutting taxes in 2021 would still be risky given how much the city may have to deplete its reserve funds in 2020.
Fair enough. But, still, it is worth noting that the city may find itself in a much better position at the end of 2020 than it once thought. At one point, the city expected a $6 million decline in sales and use tax, and it expected to spend $7 million out of its reserve funds.
It is, of course, impossible to know for sure how much sales and use tax revenues will decline in 2020. But, if the city sees a 10% decline each of the next five months, it likely would finish the year with about a $2.5 million loss. Theoretically, that would give the city $3.5 million of unexpected wiggle room.
In case you haven’t noticed, though, theories don’t always hold up well in the pandemic world. That’s why you won’t see one banner anytime soon at City Hall. Willmoth said the city is still a long way from being able to unfurl a “Mission Accomplished” banner as it relates to the city’s finances.
He said the current federal impasse over what to do with unemployment benefits that have expired creates a lot of risk for Lawrence’s economy.
“To the extent that some type of relief doesn’t happen, I think that definitely will impact residents’ ability to consume,” Willmoth said. “That is why, while we are getting great news compared to what we thought it would be, I really want to caution people from saying the coast is clear and we are out of it.
“We’ve all been down on our luck at some point and we extend our credit, but at some point that path ends. I fear we could be getting to a point where all those paths end at the same time and we could face a crisis. I hope that isn’t the case, but I fear it could be.”
For those of you who want more numbers, let’s end this with a few. Here’s a look at sales tax collections year-to-date and for July for major retail areas in the state. I’ve also thrown in totals from a few of the smaller communities in the area, because it is interesting to see how many small communities have seen a positive bump.
• Overland Park: down 7.1% YTD; down 12.3% July
• Lawrence: down 3.6% YTD; down 9.4% July
• Manhattan: down 4.1% YTD; down 7.0% July
• Kansas City: down 3.8% YTD; down 14.1% July
• Topeka: down down 1.1% YTD; down 1.1% July
• Salina: down 0.5% YTD; down 4.1% July
• Shawnee: down 1.3% YTD; down 0.1% July
• Olathe: up 0.3% YTD; down 3.2% July
• Sedgwick County: up 0.7% YTD; up 1.2% July
• Lenexa: up 4.0% YTD; down 9.6% July
• Baldwin City: up 3.4% YTD; down 7.7% July
• De Soto: up 12.4% YTD; up 5.8% July
• Eudora: down 7.6% YTD; down 22.6% July
• Leavenworth: up 2.9% YTD; up 3.2% July
• Lecompton: down 1.5% YTD; down 18.2% July
• Ottawa: up 9.1% YTD; up 14.7% July
• Perry: up 13.9% YTD; up 27.3% July
• Tonganoxie: up 4.6% YTD; up 7.3% July