Pocket Change: What falling sales tax revenue means

(Graphics by Steven Bartholow)

With the downturn in the economy, sales, property and hotel tax revenues are all down. What does this mean for our future?

Sales tax revenue makes up about 18 percent of San Diego’s general fund, and it decreased by about seven percent this year compared with last year. Part of the sales tax drop is due to the decline in tourism and convention center business. Fewer people are coming to San Diego to spend money. At the same time, hotel taxes (also known as Transit Occupancy Taxes) are declining since there are fewer tourists.

If you are reading this and thinking, “Haven’t I been paying more sales tax lately?,” you are correct. But this extra one percentage point is going directly to the state. So San Diego won’t see a cent of this tax increase.

Some economic experts say they see a light at the end of the recession. This is fueled by a boost in California consumer confidence to a pre-recession level and employee confidence numbers that are on the rise.

The State of California expects sales tax revenues to continue to fall through 2010 and begin to rise in 2011. That points to another tough year with news of unbalanced budgets filling the headlines.

Now for a look of what’s happening with your money, two of San Diego’s top policy researchers offer their candid commentary.

Murtaza Baxamusa, Ph.D., AICP, director of Research and Policy, Center on Policy Initiatives:

The current recession is deeper and broader than most of us have seen in our generation. Consumer confidence was at a 40-year low. Employment in retail sales plummeted, fewer tourists visited, and auto sales reached record lows, earlier this year. All of which means that San Diegans had $17 million less to spend this year on our general fund services such as police, fire, parks and libraries, than last year.

There is a $17 million deficit between last years sales tax revenue and this years. (Graphic by Steven Bartholow)

Every cent spent in this economy counts. A cent on every dollar of taxable goods purchased in the city goes to the General Fund. This is the fund that pays for services that the general public receives. The $210 million in sales tax expected to be generated this fiscal year is one of the most significant sources (18.3%) of the general fund. It is also a source that is tapped by the state to support general operations, with 11 states (including California) in the nation raising their sales tax this year in order to avoid drastic cuts that would worsen the recession.

The next two quarters will test not only the resilience of our economy, but also the ability of government spending to turn things around. This includes the federal stimulus that is putting money in the pockets of working families, extension of unemployment benefits, and loans to auto manufacturers. The stabilization in the latest data of some leading economic indicators, of car sales, and of retail sales in general, gives us some hope for next year’s sales tax revenue.

Erik Bruvold, founding president of the National University System Institute for Policy Research:

There is increasing evidence that the slump in sales tax collections is not going to be a dramatically reversed. A recent article in The Economist reported the dramatic decline in housing prices is likely to have a long-lasting impact on consumer spending.

Anecdotes are starting to pile up about how the recession may be leading a new generation of American consumers to save more and spend less.

American retailers are starting to advertise how products that help consumers “make it at home” can add up to hundreds of dollars of yearly savings.  Big Box centers are sitting empty or converted into uses that do not produce sale tax receipts and Cities and counties in California have long relied upon consumer spending to fuel the growth in sales tax receipts. Prudent planning would suggest that governments should be thinking now about what challenges they will face if, even after the recession ends, consumers stay home and spend less.

Steven Bartholow is the SDNN multimedia editor and a political writer.

Tags: budget, California, confidence, consumer, sales, SDNN, tax, Uncategorized

This entry was posted on Monday, July 6th, 2009 at 3:52 pm and is filed under Pocket Change, Politics & Government . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.