Just how high was inflation this fall? Lawrence sales tax collections were up 30% from a year ago; state posted similar numbers
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As the calendar turned to fall, inflation was soaring in Lawrence and across the state, the latest Kansas sales tax figures suggest. But they also suggest something else: Consumers never blinked.
The latest numbers from the state show sales tax collections in Lawrence were up a whopping 30% for the one-month period, compared with the same period a year ago. But Lawrence was nothing special. The statewide average for the month was a 28% increase.
Shoppers across the state were facing higher prices, but they also weren’t yet cutting back on their spending, the latest numbers suggest. After all, inflation has been high, but it hasn’t been running at a 30% rate. The sales tax numbers, though, might suggest that the true rate of inflation was higher than the headline number of about 8%. If inflation really was at 8%, that would mean Lawrence saw a 22% increase in consumer demand, and the state as a whole saw a 20% increase. Both of those would be extraordinary rates of growth for consumer demand in the local and statewide economies.
What was the true rate of inflation during the fall? I don’t know, but what is clear is that there was a whole lot of money circulating through the economy during the time period. The latest numbers represent the state’s November sales tax report. But due to normal lag times in reporting, the figures in the November report primarily represent sales made in September.
It also is clear that the city of Lawrence will collect millions more in sales and use tax revenues than it budgeted to collect. In fact, the city already has met its budget and then some. The November sales tax check pushed the city’s total thus far in 2022 to about $45.3 million in sales and use tax collections. The city budgeted to collect about $43 million in sales and use taxes in 2022.
The city will get one more check from the state in 2022. Based on the trend thus far, the city likely will finish the year with just under $50 million in sales and use tax collections, meaning it will have about $6 million of unbudgeted dollars at the end of the year.
Before you get your wish list out and head to City Hall, though, remember that the city’s 2022 budget included a deficit of about $8 million. The city primarily used pandemic grant funds to cover that budget gap in 2022. Some of the $8 million gap represents ongoing expenses, meaning the city was betting on growing revenues to cover those ongoing expenses in future years. In that regard, inflation and whatever spending surge we’ve experienced came at a good time for the city.
But I’m still a little unclear on where the city’s finances sit as the year comes to a close. That’s in part because I don’t know how much inflation has impacted the city’s spending. It too is paying more for fuel and other goods and services. How much of that potential $6 million windfall is being eaten up by greater than expected expenses at City Hall? I’ve got a call into the city’s financial officer to try to get a better handle on the situation, and will report back if I learn anything of interest.
For what it is worth, Douglas County government also ought to see a bit of a windfall in unbudgeted sales tax revenue. It has budgeted conservatively when it comes to sales tax growth rates, so it will collect more than planned. But, sales taxes are a much smaller part of the county’s overall budget than is the case with the city, so I haven’t taken the time to calculate the impact on the county.
What’s clear is that 2022 is going to be a year for the record books. In the past, if sales tax revenues grew by 6% or 7%, it was a great year for the Lawrence economy. Through November, Lawrence’s sales tax collections are up 10.5% compared with the same period a year ago. Again, though, Lawrence is just following the statewide trend. Year to date, local sales tax collections across Kansas are up 11.1%.
Here’s a look at how Lawrence stacks up among 10 of the largest retail centers in the state:
• Lenexa: up 17.7%
• Overland Park: up 12.5%
• Olathe: up 11.5%
• Sedgwick County: up 11.4%
• Lawrence: up 10.5%
• Kansas City: up 9.6%
• Shawnee: up 9.5%
• Salina: up 9.2%
• Manhattan: up 9.2%
• Topeka: up 8.2%
As the calendar gets ready to turn to 2023, a big question will be how long will this crazy period last? Inflation already has shown signs of moderating. The city probably can’t bet on another year of 10% growth in sales and use taxes, but what can it count on? The answer likely will have a big impact on how the city goes about setting the tax rates for Lawrence residents next summer.