photo by: Rochelle Valverde/Journal-World

Lawrence City Hall, 6 E. Sixth St., is pictured on Jan. 31, 2023.

Lawrence has finished 2023 with a nearly $3 million budget shortfall in sales tax collections, according to year-end numbers provided by the state.

The shortfall comes as sales tax collections continued to grow in Lawrence, but did so at a rate much slower than the last couple of years. The budget shortfall — I’ve calculated it at $2.7 million — won’t be fatal for the city. It has an overall annual budget of more than $400 million, so figuring out how to make up nearly $3 million isn’t insurmountable.

But 2023’s lukewarm performance will give City Hall budget-makers something to think about as they plan for the future. The city builds a lot of its budgets — particularly its capital improvement plan that funds road and building improvements — on an assumption that Lawrence sales tax collections will grow by at least 5% per year for the foreseeable future.

In 2023, Lawrence sales and use tax collections grew by just 3.9%. That was well below the 8% growth in 2022 and the 9.1% growth in 2021. Those were exceptionally high numbers, driven in part by inflation. As inflation cooled, Lawrence sales tax collections dropped to a growth rate of closer to 4%, and for much of the year were running at a 3% growth rate. If that becomes the new normal, Lawrence city commissioners indeed might have to scale back some of their capital improvement plans and other such spending — or else boost property taxes, if they aren’t comfortable cutting.

Such talk today, however, is premature. There’s no guarantee that 2024 will follow the form of 2023. In fact, the year-end numbers show it was an odd year in at least one way. The 2023 figures highlight a sentiment that my “smart” scale has been parroting since about Thanksgiving: Bigger isn’t always better. (As an aside, if my scale is so “smart,” why can’t it predict that it will soon lose its batteries?)

Lawrence’s growth rate was below the statewide average of 5%. But what’s more interesting is that every major retail community that we track also was below that 5% average. If you want to see big growth rates, look to some of the smaller communities. In this area, Eudora, Ottawa, Bonner Springs, Lecompton, Tonganoxie and Wellsville all posted sales tax growth significantly above the statewide average.

I don’t know why that was the case, but it is not the norm. So, we’ll watch 2024 totals to see if that trend continues. If Lawrence posts a second year of lukewarm sales tax growth, the red flags may start flapping a little more furiously at City Hall, and the risk of a property tax increase may rise with them.

Here’s a look at some year end-numbers, taken from the Kansas Department of Revenue’s December sales tax report:

Lawrence finished the year middle-of-the pack when it comes to its growth rate compared to other large retail markets in the state. The percentages below are just for the city’s traditional sales taxes. The 3.9% figure above was for the city’s traditional sales tax and its use tax collection. The use tax is basically the equivalent of a sales tax for online purchases. The state accounts differently for the two, and thus the numbers below don’t include the use taxes.

• Kansas City: up 4.7%

• Topeka: up 4.5%

• Lenexa: up 4.4%

• Lawrence: up 3.3%

• Sedgwick County: up 3.1%

• Overland Park: up 2.7%

• Salina: up 2.6%

• Shawnee: up 2.4%

• Olathe: up 1.9%

• Statewide: up 5.0%

Many of the smaller communities in the area performed much better than the larger cities, but not all. Here’s a look at several:

• Eudora: up 10.8%

• Wellsville: up 9.6%

• Tonganoxie: up 9.3%

• Ottawa: up 7.9%

• Bonner Springs: up 7.9%

• Lecompton: up 6.9%

• Oskaloosa: Up 4.1%

• Overbrook: up 2.4%

• Gardner: up 0.5%

• Spring Hill: up 0.1%

• Basehor: down 2.2%

• Perry: down 11.5%

Note that a couple of communities I normally would include on this list — Baldwin City and De Soto — had sales tax rates that changed in 2023, so meaningful comparisons to 2022 were difficult.

• There were signs that online shopping remains popular in Lawrence in 2023, but not insanely so. The city’s use tax collections grew by 6% in 2023. That’s about twice the growth rate of traditional sales taxes charged by brick-and-mortar retailers, but it is far less of a growth rate than the last couple of years. In 2021, use taxes soared by nearly 28% and in 2022 by nearly 25%. The numbers suggest people haven’t stopped shopping online, but perhaps are converting fewer of their traditional purchases to online retailers.

• The city collected $51.4 million in sales and use taxes in 2023, up from $49.5 million in 2022. Its original 2023 budget, approved in the summer of 2022, called for collections of $54.1 million. Sales taxes are the largest tax category for the city of Lawrence. For comparison, the city was budgeted to collect about $43.5 million in property taxes. Both those tax categories, though, trail the city’s largest revenue category: water, sewer and trash service fees. The city budgeted to collect a little more than $82 million in water, sewer, and trash collection fees in 2023.