Sales tax collections continue to slide -- yet the picture could be much worse

Heading into a store on 15-501 yesterday to look for some patio furniture, I noticed the adjacent Circuit City was having its last day of business -- though by 4pm, they were already shuttered. I wished a departing employee the best and told her I was sorry for what she and her ex-co-workers were going through, an easy and maybe empty thing to say, but the best human reaction, it seems, under the circumstances.

Scenes like the shuttering of the Richmond-based electronics seller, Linens and Things, and other retailers -- plus the hurting being put on other merchants as consumers pare back their spending and hike up their saving -- are certainly a factor in the ongoing bad news for Durham's governments as they see tax collections fall. From this morning's Herald-Sun:

The county is already projecting a substantial budget shortfall, and officials have in particular lowered expectations for sales tax collection, estimating that it would increase only by 3-3.5 percent from the previous year.

But so far this year fiscal year, sales tax collection in Durham County has increased by just 1.1 percent. From July to December 2008, total sales tax collected was $80.8 million. During the same time in 2007, the total was $79.9 million.

Bad news, certainly, and these aren't data that suggest any magical help is on the horizon where retail's concerned to help address the eight-figure budgetary gaps cropping up at the city and county level.

Still, it's interesting to look at the numbers in an historical perspective, from a PowerPoint presentation prepared by the County back when the land transfer tax was under consideration:

What's surprising to me about the down forecasts -- 1.1% instead of 3.0-3.5% growth in sales tax -- is that such numbers, as recently as 1998 and 2000, would have been on the low side of normal.

The recession of 2002 (and the state budget machinations around that time, when sales tax revenues were withheld from local governments) accounts for the only decline in Durham County sales tax receipts since FY1995.

What's really interesting, though, is that the slight growth projected for this year comes after five years of remarkable growth -- growth that appears to have started thanks to the retail boom of Southpoint and beyond.

The controversial Southpoint mall project opened in March 2002, just before the beginning of the 2003 FY -- a year in which we see, according to the chart above, sales tax revenue growth of about 17% or so.

Factor in the arrival of other big-box retail in the Southpoint area and at Patterson Place, and the replacement of the moribund South Square Mall with the SuperTarget/Sam's Club combination, and you see pretty healthy growth in sales tax for most of this decade.

It also hasn't hurt matters that Chapel Hill/Carrboro has steadfastly resisted retail growth in their area, driving retail to the Durham side of the Orange-Durham line. (Note that we're not making a normative statement about whether this is a good or bad choice by CH/C leaders -- merely that it is one we can certainly say "thank you!" for, from a fiscal perspective.) Much of Wake County's growth has happened on its western end, too, a market served by Brier Creek in Wake County as well as the Southpoint area.

Which brings up a point worth remembering as governmental officials fret over tax collection levels. While a 1.1% increase is below expectations -- expectations that were used in part to build this year's budget -- it's 1.1% that comes on a much higher base than we had back in FY2002, thanks to the magic of compounding growth.

Estimating percentages based on the points on the chart above, our estimate is that sales tax collections are up almost 68% from FY2002's collection levels.

There's better news -- again, of the relative variety -- in these numbers to boot.

As the H-S article today notes:

At 11.3 percent of total revenue, the sales tax category is the county's second-highest revenue stream behind property taxes.

True. But that's also a number on which Durham does better than its peers, the counties with populations of 100k+, according to the state treasurer's office.

The average for Durham's peer counties is 13.6% in FY2007 and 14.7% in FY2006 -- suggesting Durham relies less on sales tax than other large counties in the state.

And as we learned from the N&O last week, Jan. 31 property tax collections stand about 1% behind historical levels, suggesting that local governments will this year at least come close to hitting their targets.

Still, Durham could find itself in worse water.

Other counties in N.C. aren't doing so well. A report by SUNY's Rockefeller Institute looking at at least July through September 2008 year-over-year collections found that early reports from North Carolina suggested a state-wide 5.9% decline in sales tax revenue.

Mind you, none of this is to minimize the fact that even slight declines are having outsized impacts on services and programs, especially given the construction boom that's taken place with public-sector facilities.

That said, a healthy dose of context is useful. And in that context, compared to where we could be, the situation could look a lot worse. Not to say that that won't happen -- as the poor folks working at Circuit City have found out -- just that we need to keep in mind the impact of recent year's growth before worrying too much about how far we have to fall.

Comments

[Toby]

Kevin -

It would be illuminating to see real (ie corrected for inflation) sales tax collections PER CAPITA. A lot of what has driven the growth in Durham's sales tax collections must be the arrival of newcomers (including yours truly :-). And once we're here, local government has to provide services to us...

BTW, good to have you back in the bloggin' biz -- I hope the system problems at work were resolved satisfactorily.

Toby

[David McMullen]

Toby - you can get population estimates for Durham County (and the rest of NC) for the years 2000-2007 from the US Census Bureau website. Not sure how well this extremely long URL is going to post, but here goes: http://factfinder.census.gov/servlet/GCTTable?-ds_name=PEP_2007_EST&-mt_name=PEP_2007_EST_GCTT1R_ST2S&-geo_id=04000US37&-format=ST-2&-tree_id=806&-context=gct

To summarize:

2000: 223,314
2001: 229,673 - 2.85% annual increase
2002: 234,792 - 2.23% annual increase
2003: 237,297 - 1.07% annual increase
2004: 240,666 - 1.42% annual increase
2005: 244,568 - 1.62% annual increase
2006: 250,152 - 2.28% annual increase
2007: 256,500 - 2.54% annual increase

So the % annual increase in sales tax revenue has usually been higher than the % annual increase in population for the years 2000-2007. Of course, you need to factor in inflation also.

[GreenLantern]

Living out on the eastern end of Durham, I'm often tempted to shop at Brier Creek, since it's quite a long haul out to Southpoint and South Square. The new Walmart on Glenn School Rd. and the new Lowes at Fayetteville Rd/MLK help somewhat, but what most of us out here would like to see is for Brightleaf Commons to take off soon--without further delay from special interest groups. I know a Home Depot, a higher-end grocer like Harris Teeter, and associated small retail, would go a long way in keeping sales from going to the other county to the east, and it would sure help prop up home values and potential for growth. I know some want to preserve a pseudo-rural lifestyle out here, but that's not realistic given the proximity to RTP. We have a chance to draw more future taxpayers out of Wake county who want a shorter commute, decent schools, and convenient shopping. The city/county government needs to help facilitate growth out here if they are truly concerned about reversing the downward trend in sales tax receipts. (The "decent schools" part will depend on where to locate a new high school and how to redraw districts that even out the playing field)