Monday, January 26, 2009

Retail Tax Drops Affecting Sales Tax Revenue to Cities

From The Mercury News:

What does a $19.95 flowered spring top at the Gap have to do with streetlights and police?

For cities, the answer is a lot. The purchases rung up at the cash register are a major revenue source that pays for critical city services.

As the economy continues to tank, and as consumers tighten their grip on spending, there are fewer and fewer pennies flowing from shopping malls to cities, resulting in dramatic shortfalls in sales tax revenue — "the bread and butter" of general city funds. If a consumer spends a dollar and is charged 8 cents sales tax, cities generally get a penny of that.

For many cities facing budget deficits, that decline is expected to result in cuts residents are likely to notice. In San Jose, in part because of a $4.6 million sales tax revenue shortfall, the city is already bracing for layoffs, its first since the early 1990s. Gilroy has eliminated dozens of full-time positions. Santa Clara has frozen hiring for 30 positions funded out of the city's general revenue fund.

Santa Clara budgeted $43.4 million from sales tax revenue in the 2007-2008 fiscal year. What it actually received was $41.6 million, or $1.8 million less. For the current fiscal year, it is budgeting significantly less from sales tax revenue: $40.2 million.

"We are concerned obviously," said Santa Clara Deputy City Manager Carol McCarthy. "Like anyone else, we're out there, we're brainstorming and getting information."

Blog Archive