Lawrence sales tax collections losing steam as year closes, but single-family building permits rebounding

photo by: Chad Lawhorn/Journal-World

Construction crews work on new single-family housing on Oct. 27, 2023, just east of O'Connell Road on 26th Street Terrace in Lawrence.

As the numbers get short on the calendar, let’s take a look at a couple of numbers from Lawrence City Hall, with one set gaining steam and the other losing it.

• First is the monthly report on sales tax collections in Lawrence. Those numbers are losing steam, and it sure appears likely that the city won’t meet its budget numbers for sales tax collections.

The latest report from the state — the 11th of 12 reports for the year — largely reflects sales made in September because the sales tax numbers lag real time by about two months. For that one-month period, Lawrence’s sales tax collections declined 2.5% compared to the same one-month period a year ago.

That decline was the largest of the nine big retail communities that we track. It also was below the statewide average, and by quite a bit. The average increase in local sales tax collections statewide was an increase of 3.6% for the month.

The latest numbers put a dent in Lawrence’s year-to-date sales tax figures. Lawrence is still on pace to post an increase in sales tax collections for the year, but the collections are growing less than the statewide average. Lawrence has posted a 3.6% growth rate thus far in 2023 compared to the same period a year ago. Statewide, local sales tax collections have grown by 5.7% for the year.

In terms of how Lawrence stacks up to other large retail centers in the state, the city is in the middle of the pack. Here’s a look:

Kansas City: up 5.8%

Topeka: up 5.1%

Lenexa: up 4.8%

Sedgwick County: up 3.8%

Overland Park: up 3.8%

Lawrence: up 3.6%

Salina: up 3.3%

Shawnee: up 2.8%

Olathe: up 2.6%

Statewide: up 5.7%

The more important number, though, may be how Lawrence is faring compared to its budget for the year. When the city created its 2023 budget, which was crafted in the summer of 2022, it overestimated how much revenue it would collect in sales taxes in 2022. It also budgeted fairly aggressively for sales tax growth in 2023. Those two factors have put the city in a situation where it needs about 9% growth in the city’s sales tax collections to meet the city’s original budget projections. The city is on pace to probably have a little less than a $3 million budget shortfall, although the numbers are a little hazy. The city is in the process of hiring a new chief financial officer, so some of the reports I rely on haven’t been updated recently.

I also should note that any budget shortfall would be a shortfall from the city’s original budget. It revises its budget throughout the year as numbers start to come in, but I always compare back to the original budget because that is the budget that is used to set the city’s property tax rate. The city only gets one shot to set that rate.

For context, a $3 million shortfall would be significant, but the city does have an overall budget of $400 million, so it wouldn’t produce a real crisis. The bigger importance of the sales tax collection figures likely is what they might tell us about whether the economy overall is heating up or cooling down. At a 3.6% increase — considering the inflation we’ve had this year — the sales tax numbers suggest an OK but not great year for Lawrence’s retail industry.

• The second set of numbers are single-family building permits issued in the city of Lawrence. Those are gaining steam, and in fact, you might want to pop a champagne bottle. If so, make it a mini one.

Lawrence’s latest building permit report — which tracks activity through October — shows the number of single-family building permits already has exceeded the total for all of 2022. That’s good, but you also have to remember 2022 was the worst year on record for single-family building activity in Lawrence.

Through October, Lawrence has issued 92 single-family building permits. For all of 2022, Lawrence issued 79 building permits. So, Lawrence already is assured at least a 16% increase in single-family home construction with two more months of data to be added to the 2023 totals.

Another positive sign is the numbers generally have been getting stronger as the year has gone along. In July, Lawrence was on pace to have just 56 single-family building permits for the entire year, which would have been another all-time low. But in August, builders took 41 single-family permits, which was the highest one month total in at least a decade. Since then, the numbers have been OK — seven permits in September and 11 in October, which actually was the second highest monthly total in 2023.

But as the hammer said to the nail, I still have some bad news for you. Lawrence is on pace to finish 2023 with 110 single-family building permits. While that is much better than a year ago, it is still a historically low number. From 2014 to 2021, Lawrence averaged 143 new single-family permits per year. If Lawrence were to get to 110 single-family permits, it would still be more than 20% below average.

And even the average of 143 homes per year wasn’t what it used to be. Lawrence in the 1990s and 2000s averaged much closer to 300 new single-family homes per year.

If you want to understand Lawrence’s rising home prices, those numbers can be instructive. But, the past is in the past, and it does appear that Lawrence home builders will have some good news to point to as 2023 ends.


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