photo by: Adobe Stock

A sales receipt is shown in this file photo.

The world may have been bumpy in 2024, but shoppers were steady. The city of Lawrence’s budget: Less so.

We now have a year’s worth of sales tax collections in the book, and Lawrence’s 2024 totals don’t look much different than 2023 figures. Lawrence sales tax collections were up by 1% from a year ago. Statewide, the story was much the same, with an average growth rate of 1.4%.

Steady, though, means short for Lawrence. City Hall budget-makers originally had budgeted for a big increase — 8% growth — in sales tax dollars for 2024. Shortly after the year began, it became clear that such growth wasn’t going to happen, and the city revised its estimate to 2.7% growth for the year.

The city didn’t hit that number either. When combining collections from traditional sales taxes and use taxes — a special tax charged primarily on internet purchases — the city’s collections grew by 1.5%, or 1.2 percentage points below the city’s already lessened expectations.

The result is that the city has a budget shortfall in 2024. How large it is, depends on how you calculate it. Compared to the 2024 budget that was approved in the summer of 2023, the city’s sales tax collections fell $9.37 million short of budget.

However, if you calculate the shortfall using the city’s revised growth estimates — which were created in mid-2024 — the city’s budget fell short by about $615,000.

Both of the shortfalls are important, but not equally as urgent. The city has largely addressed the $9 million shortfall. City Hall officials saw that one coming, and responded with some budget cuts, but also quite a few decisions to spend down the city’s savings account to cover the shortfall.

That leaves the approximately $600K shortfall as the one that needs to be addressed. The city has an overall budget of more than $400 million, so finding $600,000 of adjustments is not monumental. Some departments likely underspent their budgets, so that may take care of it by itself. Otherwise, the city might start 2025 with a little bit less cash than anticipated.

The bigger issue is whether the city’s 2025 budget is now at risk of falling short. When the city approved its 2025 budget last summer, it did so with the expectation that sales taxes would grow by 3.2% in 2025. Importantly, it also did so with the belief that sales tax collections would finish 2024 with growth of 2.7%. We now know that sales tax collections did not grow that much during the year. That means sales tax collections will have to grow even more in 2025 in order for the city to meet its 2025 budget.

How much more? Instead of growing by 3.2%, Lawrence sales tax collections will need to grow by about 5.4% to meet budget. That’s not an impossible number for the Lawrence economy to produce, but the city certainly hasn’t been trending that direction. In 2021 and 2022, the city had some huge increases fueled by inflation and pent-up demand coming out of the pandemic. Those growth rates were 9.1% and 8%, respectively. But in 2023, growth fell to 3.9%, and now it has dropped to 1.5% in 2024. That’s three consecutive years of declines, and we are getting farther from the important 5% mark all the time.

(A quick note on the math here: These 2025 numbers don’t include the estimated $1.25 million the city expects to generate from the voter-approved 0.05% rate increase in the city’s affordable housing sales tax. I’m trying show how much spending in the community needs to increase in order for the city to meet its projections, so I’m factoring out the new tax.)

To summarize, the city needs consumer spending in Lawrence to increase significantly in 2025, if it hopes to meet this year’s budget. Spending is going to need to grow at a rate that is nearly 4 times faster than it did in 2024. Again, that is not impossible, but it is far from a given.

People who care about their city property tax bills likely will want to watch the outcome. Sales taxes are the single largest source of revenue for the city’s general operating fund. When sales tax revenues start to lag, the city budget-makers often seek a property tax increase to make up the difference.

If you remember, that exactly was the proposal last summer when the city was crafting the 2025 budget. City Hall realized its sales tax projections were way off, and City Manager Craig Owens recommended a 3.5 mill increase to the city’s property tax rate. That would have been the largest single year rate increase for the city in at least 50 years. However, city commissioners rejected the rate increase. Instead, commissioners said they were comfortable drawing down the city’s reserve funds to cover the shortfall.

That worked for the 2025 budget, but it may not work for the 2026 budget. To state the obvious, the reserve funds are sizable but not infinite. Come this summer, if the city’s sales tax collections are falling short of projections, city commissioners likely will be under tremendous pressure to increase property taxes — or cut some city services — for 2026.

But, hey, that bridge is down the road. Let’s one last time look in the rearview mirror and tally some statistics for 2024.

While Lawrence’s sales tax collections didn’t meet budget projections, Lawrence’s results weren’t too bad compared to other major retail communities in the state. Nobody had a particularly big year. Here’s a look at some major retail cities in the state. Note, these figures are just for traditional sales taxes and do not include in the internet use tax dollars:

• Shawnee: up 2.3%

• Olathe: up 1.4%

• Topeka: up 1.3%

• Kansas City: up 1.3%

• Lawrence: up 1.0%

• Merriam: down 0.1%

• Salina: down 0.2%

• Lenexa: down 0.8%

• Sedgwick County: down 0.8%

• Statewide: 1.4%

To find larger growth numbers, look to some of the smaller communities. Sometimes that is just a function of math — it is easier to produce a large percentage when you are dealing with a small amount of dollars — but other times it is a sign of something changing in the economy. Case-in-point is De Soto. It has seen a huge increase in sales tax collections — more than $750,000 in new sales tax revenue — as construction wraps up on the $5 billion Panasonic factory that will build electric vehicle batteries. Thus far, though, that Panasonic boom hasn’t extended much outside the De Soto city limits. Eudora is the next closet community to the plant, and its sales tax totals actually fell in 2024. Perhaps that will change as the plant continues to hire more people, but much has been unpredictable with Panasonic.

• De Soto: up 49.8%

• Lecompton: up 36.6%

• Perry: up 12.4%

• Basehor: up 9.3%

• Spring Hill: up 8.4%

• Bonner Springs: up 1.4%

• Gardner: up 0.7%

• Eudora: down 0.9%

• Tonganoxie: down 1.4%

• Leavenworth: down 2.8%

• Wellsville: down 3.1%

• Pomona: down 3.2%

• Overbrook: down 9.7%