photo by: Shawn Valverde/Special to the Journal-World

Downtown Lawrence is pictured in this aerial photo from September 2023.

The wild and wooly, predator-filled Amazon — the online retailer, of course, not the jungle — may not devour the Lawrence economy after all.

That’s probably good news for a host of local retailers and others in the Lawrence community. But it may create some pain at Lawrence City Hall.

The latest sales tax numbers show the city of Lawrence is on pace to have a more than $3 million budget shortfall in sales tax collections this year, in part due to local online shoppers becoming less spend-happy.

Lawrence, like every city in the state, collects a special sales tax on online purchases. During the pandemic, citywide collections of those taxes — called a use tax — soared by nearly 28% and 25% in 2021 and 2022, respectively.

This year, the use tax dollars are on pace to grow by less than 1%, a sign that shoppers haven’t abandoned online shopping, but seemingly are no longer treating it like the national pastime.

If the trend holds, Lawrence City Hall will see one of its cash cows turn sickly. In 2022, the growth in use taxes added about $1.8 million in new revenue to the city’s coffers. This year, use taxes are on pace to add about $45,000 in new revenue.

A cooling off of the “buy now” button isn’t the only trend impacting Lawrence’s budget, though. Sales tax collections from traditional brick-and-mortar purchases also have cooled off. Traditional sales tax collections grew by 8% in 2022 and 9.1% in 2021, a modern-day record for the city.

Thus far in 2023, sales tax collections are up 2.9% in Lawrence. Presumably, a slowdown in inflation has impacted these numbers. As prices for goods and services rise at a slower rate, it stands to reason that total sales tax collections also would grow more slowly, given that sales taxes are charged as a percentage of a price of a product. But it is possible the numbers also reflect the beginnings of a pullback by local shoppers. Pandemic relief money is largely depleted from many savings accounts, and talk of a possible recession may have some shoppers delaying some purchases.

But, it is important to remember that Lawrence isn’t yet experiencing an actual decline in retail activity. Sales tax collections are still growing. They just aren’t growing anywhere near as fast as they did during the last couple of years. A growth rate of about 3% — if that is where the figures end the year — would be in line with the city’s historic growth rate.

Instead of a slowdown, the biggest cause of the city’s pending budget shortfall is too much optimism. City budget-makers were pretty optimistic when they made their sales tax projections for 2023. They budgeted for sales and use tax revenue combined to increase by 9.5% over 2022 totals. Instead, sales and use taxes through three-quarters of the year have grown 2.5%.

In fairness, predicting the future is hard, and the timing of the city budget is awkward. The 2023 budget was crafted in the summer of 2022. The first half of 2022 sales tax collections were strong, giving city officials reason for some optimism about 2023. But the second half of 2022 saw a slowdown, but by that time the city already had approved its budget for the next year.

The city created the 2023 budget with the assumption that sales tax revenues in 2023 would grow by 5% over 2022 totals — a historically high growth rate, but much less than what the city had posted in 2021. But the city’s projections for how 2022 would end were off by about 4%, so the city finds itself needing to see sales tax growth of 9.5% instead of 5%.

Spoiler alert: That type of growth isn’t going to happen in 2023. A 9.5% growth in sales and use tax revenue would be a new city record. To get there, it would require retailers to have a monster fourth quarter of the year. In broad terms, the city needed to collect $13.5 million in sales and use taxes each quarter to get to their annual budget total of $54.1 million in sales and use tax collections. However, through three quarters of the year, the city has collected about $12.7 million per quarter.

When you do the math, that means the city needs to collect more than $16 million in the fourth quarter to meet its budget. That seems unlikely, (though I could add to my Christmas wish list, if it would help the cause.)

What’s unclear is how the city will react to this budget shortfall. Will the city make some cuts to expenditures as the year ends? I reached out to city officials for comment, but they had little to say on the prospect of a shortfall, but said they have been monitoring sales tax totals closely.

The city’s finance department, which is responsible for monitoring the budget, is in transition currently. The city’s chief financial officer, Jeremy Willmoth, has left the position. The Mid-Continent Public Library — Kansas City, Mo.’s largest library system — announced in late July that Willmoth had been hired to serve as that organization’s chief financial officer.

Lawrence has appointed an interim finance director, Alley Porter, and the city recently hired a search firm to assist in hiring a replacement.

That’s a key position that will be worth keeping an eye on. So too, will future sales tax collections. If Lawrence is on the verge of a slowdown in sales tax collections, don’t be surprised to hear City Hall leaders talk about the need to raise property taxes to make up for some of the differences. It is probably early for anyone to make that argument now — a $3.5 million shortfall is not insurmountable in a city budget of more than $400 million — but it certainly won’t make the task of lobbying for property tax decreases any easier.

For those of you following along at home, here’s a look at sales tax collections for Lawrence and other major retail markets in the state, through September, as reported by the Kansas Department of Revenue:

• Topeka: up 4.3%

• Kansas City: up 4.0%

• Statewide: up 3.7%

• Lawrence: up 2.9%

• Sedgwick County: up 1.9%

• Salina: up 1.6%

• Lenexa: up 1.4%

• Shawnee: up 1.2%

• Olathe: up 0.8%

• Overland Park: up 0.5%

As you can see, many of the major retail markets are seeing less growth than they have in past years. Lawrence compares favorably to many of the Johnson County communities.