Log in

Pandemic nets flat budget: Peoria hit with big reduction in sales tax revenue

Car sales city's biggest source of revenue

Posted 5/7/20

The city of Peoria has released its proposed budget for fiscal year 2021, which is smaller than the current budget and will include only essential and mandatory budget requests due to reduced sales tax revenues as a result of the COVID-19 pandemic.

You must be a member to read this story.

Join our family of readers for as little as $5 per month and support local, unbiased journalism.


Already have an account? Log in to continue.

Current print subscribers can create a free account by clicking here

Otherwise, follow the link below to join.

To Our Valued Readers –

Visitors to our website will be limited to five stories per month unless they opt to subscribe. The five stories do not include our exclusive content written by our journalists.

For $6.99, less than 20 cents a day, digital subscribers will receive unlimited access to YourValley.net, including exclusive content from our newsroom and access to our Daily Independent e-edition.

Our commitment to balanced, fair reporting and local coverage provides insight and perspective not found anywhere else.

Your financial commitment will help to preserve the kind of honest journalism produced by our reporters and editors. We trust you agree that independent journalism is an essential component of our democracy. Please click here to subscribe.

Sincerely,
Charlene Bisson, Publisher, Independent Newsmedia

Please log in to continue

Log in
I am anchor

Pandemic nets flat budget: Peoria hit with big reduction in sales tax revenue

Car sales city's biggest source of revenue

Posted

The city of Peoria has released its proposed budget for fiscal year 2021, which is smaller than the current budget and will include only essential and mandatory budget requests due to reduced sales tax revenues as a result of the COVID-19 pandemic.

There will be no new full-time employee hires as part of the new budget.

Mayor Cathy Carlat said the proposed budget, taking into consideration the current economic uncertainty, is $665 million. This is a 0.75% decrease from the prior year without any tax increases.

This has been a very unusual year — certainly, a pandemic was not in the plans, she said.

“When we started this year, our revenues looked great, we were zooming to the top of the wish list that we had for the goals of the city. And then everything stopped,” Ms. Carlat said. “The great news during this time is that we have seen our residents and our businesses pull together and stand up and do what was right for the greater good. It was wonderful to see that, and it made me really proud. But as the businesses that had to close, those revenues fund everything we do in the city of Peoria. In Arizona, cities get the majority of their revenue from sales tax so when someone doesn’t buy a shirt or doesn’t buy a car, then we do not have the normal funding that we would expect to have at budget time. Having said that, this budget is flat.”

Sales taxes decrease

Local sales tax makes up about 40% of Peoria’s general fund revenues. The Retail (non-grocery), Restaurants, Auto, Travel and Entertainment sectors were the most impacted. This is particularly relevant to Peoria because it is heavily dependent on sales tax revenues for its operations.

Chief Financial Officer Sonia Andrews said retail, restaurant and auto make up about 60% of Peoria’s sales tax categories.

She anticipates a greater hit to sales tax than during the Great Recession when Peoria experienced a 13.8% drop in 2009, and a 4.8% drop in 2010, the first and second years of the downturn.

This year’s budget, which ends in July, is projected to see a 3.3% decrease in sales taxes, and the fiscal year 2021 budget is expected to see a 15.3% decrease.

Total revenue in Peoria is forecast to decrease 2.4% this fiscal year and 3.6% fiscal year 2021.

However, the sales tax decrease is expected to be offset by an increase in the income tax allocation and other revenues in the general fund.

Automobile sales

Automobile sales are the city’s largest source of revenue, making up about 40% of revenues in the retail category.

Since the pandemic emerged less people are buying automobiles, with car sales down about 40%, according to data released two weeks ago from J.D. Power.

This will have an effect the city’s sales tax revenues, but City Manager Jeff Tyne said Peoria has $46 million in reserves in the general fund.

“But that’s there for a reason, because we rely on things like auto dealers to provide us revenue. So when you have a drop like we are seeing, we need to prepare accordingly. This is why we have large reserves,” he said.

Kim Cummings, marketing director at Liberty Automotive, said sales remained strong for Liberty GMC in March and Liberty Buick experienced a slightly slower March. Liberty GMC sales temporarily slowed at the start of April, while Liberty Buick’s sales showed increase.

He said the COVID-19 pandemic began affecting the buying habits of Arizonans in different ways as increased data, news, and constant social media daily updates became more present.

As the pandemic emerged, GM introduced 0% for 84 months plus deferred payments for 120 days, which Mr. Cummings said was a huge contributor to stronger March sales.

Also in March, the dealership began offering complimentary home delivery, as well as the ability to have customer vehicles picked-up and delivered for service.

“I believe this has helped to bring the sales and service levels up at both dealerships throughout mid-April,” he said.

While it is true that about 40% of revenues in the retail category come from auto sales, these revenues actually represent only 19% of Peoria’s total local sales tax revenues.

Deputy Finance and Budget Director Barry Houg said sales taxes on auto sales are certainly an important revenue source for the city.

“In Arizona, cities and towns are reliant on sales tax revenues,” he said. “Sales tax revenues are tied to consumer spending, which ebbs and flows with the economy. When consumers delay purchases of cars, like they did during the recession, it has a detrimental effect on the city’s revenues.”

Capital improvement program

The proposed budget is comprised of four major categories: the operating budget at $313.3 million represents the day-to-day operations of the city; the capital budget at $233.7 million entails large, one-time capital projects; debt service payments at $42.3 million; and contingency reserve at $75.7 million. Also, the city is proposing a 10-year capital improvement program of $783.2 million.

Development and Engineering Director Adina Lund said that as the community grows, new projects and amenities are needed to serve a growing population and maintain service levels. This has become more challenging as funding sources that were traditionally used to offset these costs are no longer available or have been significantly restricted, she said.

This year’s recommended CIP includes major investments in several projects already underway such as the expansion of the Pyramid Peak Water Treatment Plant, the Happy Valley Road Widening between Lake Pleasant Parkway and the Agua Fria River, Paloma Community Park, and a new neighborhood park in the Meadows subdivision. Other notable projects in the CIP include a recreation center at Paloma Community Park, regional drainage improvements at 67th Avenue and Pinnacle Peak, a new fire station in northern Peoria, a planned replacement of the aging fleet building, increased capacity at the Jomax Water Retreatment Facility, and expansion of reclaimed water infrastructure.

City councilwoman Bridget Binsbacher said city leadership and staff have done an amazing job in creating such a prudent budget during difficult economic times.

“We go into this knowing all the things we want to do and we know there is no way we can all get what we want during budget time. It never happens,” she said. “But I have to say, considering the current COVID-19 situation and everything we have been through, I am amazed at the hope in this [budget], and all the emphasis on all the things we are able to do.”

Philip Haldiman can be reached at 623-876-3697, phaldiman@newszap.com, or on Twitter @philiphaldiman.