City’s sales tax collections soar in latest period; more than $3 million budget surplus now on the books
photo by: Chris Conde
My Fourth of July party was big, but not this big. Something caused a retail explosion in July that has contributed to a more than $3 million budget surplus at Lawrence City Hall, according to the latest sales tax reports from the state.
The new reports are technically the September sales tax reports, but due to normal delays in the state’s reporting system, they largely reflect spending that occurred in July. And locals, it appears, were in a real mood to spend in July.
Sales tax collections for both the city of Lawrence and Douglas County grew by 20% compared to the same period a year ago. Certainly an easing of pandemic restrictions, some pent-up demand to celebrate, and a good amount of federal pandemic assistance dollars all could be part of the increase in spending. It is not hard to come up with theories, but the state report isn’t the type to give any reasons for the increase. It just shows that it happened.
For the city of Lawrence, it happened to the tune of about $460,000. That is how much additional sales and use tax revenue the city collected during the month compared to the same month a year ago.
That is an impressive number, but it is dwarfed by the year-to-date number that has accumulated in the city’s coffers. As we’ve been reporting, retail sales in Lawrence mostly have been in bounce-back mode in 2021. All those increases throughout the year have added up to a $3.66 million budget surplus for the city thus far. That includes sales tax revenues and use tax revenues, which are the type of taxes charged on Amazon purchases and other online retail sites. That’s been a huge growth category for the city.
We still have three more sales tax reports coming in 2021, so it is possible a reversal of fortunes could occur. But the city is sitting in pretty good shape currently, and that is particularly welcome news for City Hall budget-makers.
If you remember, the city approved a 2022 budget that has quite a few new hires and additional spending, but held the line on property taxes. As a result, it was a budget that had about an $8 million gap between what the city plans to spend and what it normally collects in revenue. The first installment of the city’s $19.3 million in federal pandemic relief funding is enough to cover that gap, and the second installment could cover a similar gap in 2023.
But the city administrators warned commissioners that much of the new spending in the 2022 budget is ongoing spending. It will have to cover that $8 million year after year after year, and the plan City Manager Craig Owens put forward is betting on growing city revenues as the economy picks up.
If these current sales tax numbers hold form for the rest of the year, the city basically would have about $3.6 million more in its bank account to start 2022 than it planned to have, all else being equal.
So, that is welcome news for City Hall budget makers, as far as it goes. After all, $3.6 million is not $8 million. While positive, the recent growth puts into perspective just how much increased economic activity the city has to see in order to make up that $8 million gap.
The city’s sales tax collections thus far in 2021 are up 8.3%. That is a historically high number. A 5% increase would be considered a really good year in any other time, and you would feel pretty good with a 3% increase.
There may have been a time or two that Lawrence approached or exceeded that 8% growth rate that we’re currently on, but it was a long time ago. I had fairly easy access to the sales tax growth rates back to 2010. The highest growth rate in that time period was 2016, when it hit 5.5%. The average for the 10-year period was 2.7%.
If the October, November and December sales tax reports come in really strong, the city conceivably could finish the year with something a bit higher than a $4 million budget surplus. Maybe. But that still would only be half of what the city is going to need to grow revenue by.
Granted, the city has a couple of years to get to that $8 million mark, and sales taxes aren’t the only way the city’s coffers can grow. Property tax revenues could grow without a tax rate increase, if property values continue to go up. They could also go up even quicker if the city sees a new boom in residential construction, which you would think might happen with the short supply of homes. Builders, though, would tell you the city needs to get more aggressive in opening up new areas of Lawrence to development in order for such a boom to happen.
So, none of this is to say that Lawrence can’t reach the $8 million mark to balance its budget. Rather, this has been an exercise in pointing out that we are experiencing a historically strong increase in sales tax revenues and that may only cover half the gap.
The city manager said this in his own understated way when he proposed this budget to city commissioners, but I’m not sure the general public has quite grasped it: This city budget has created a new growth imperative. I can imagine that being an imperative some residents won’t be comfortable with, but that is the budget that has been approved. The city is either going to grow, or it is going to have to cut some approved services or raise taxes in the not-too-distant future.
As for broader sales tax news, Lawrence isn’t alone in having a great year. Lawrence’s sales tax collections grew by 20% for the month, while the average growth rate for cities and counties for the month was about 17%.
As noted, Lawrence has been having a great year by historical standards, but the September report followed an August report that wasn’t too good. Lawrence posted a decline in sales tax for that period. Plus, the city started the year out slower than many other cities in the state. This next set of numbers shows that. While Lawrence is on pace to have its best sales tax year in at least a decade, its year-to-date performance still has not been as strong as the statewide average. Lawrence’s sales tax collections are up 8.3%, while average growth for cities and counties has been 10% year-to-date.
Here’s a look at how the largest retail centers in the state are doing thus far in 2021, compared to the same period a year ago:
• Kansas City: up 12.4%
• Manhattan: up 12.0%
• Salina: up 10.9%
• Overland Park: up 11.1%
• Lenexa: up 10.9%
• Olathe: up 8.5%
• Topeka: up 8.3%
• Lawrence: up 8.3%
• Shawnee: up 8.3%
• Sedgwick County: up 8.1%