The city of Tempe is seeing a tremendous increase in sales tax revenue, which could mean a boost to city services in the coming year.
As of Nov. 19, the city’s taxable sales increased by 18.9% over the same year in the prior fiscal year. Total sales tax revenue is up 20%, or $11.4 million. Much of that is because of growth in the retail sector, which so far has amounted to $5.7 million, with hotel and lodging and restaurant activity accounting for $1.7 million and $1.6 million apiece.
Tom Duensing, interim deputy city manager and chief financial officer, attributes a lot of the current fiscal year’s success to pandemic recovery, even as the pandemic refuses to subside.
“There was a lot of uncertainty in that year and everybody’s attributing it to the pandemic and I would as well,” he said. “There’s a couple of areas that we’re seeing the increases in. One is we’re seeing increases in restaurant and hotel/motel and related activity. We’re only a third of the way into this fiscal year so it’s difficult to see whether those will stick, but we are seeing increases in those and it looks like those increases are getting back to what I’ll call kind of normal levels.
Duensing said what’s happening in Tempe is happening across Arizona and the rest of the country as employment numbers rebound and people have more dollars to spend in their communities, which he said could be attributed to federal stimulus distributions.
Tempe, a landlocked city without much space to grow, isn’t seeing the influx of new residents happening in other parts of the Valley, though business is certainly booming in the area dominated by Arizona State University and a host of technology companies making it their new home.
Cranes have popped up all over town, pointing to development projects underway.
“I think we’re seeing new business growth, though,” said Duensing. “You come down to Tempe and you see in the downtown area and other places throughout the city, that there is growth happening.”
He said the onset of the COVID-19 pandemic put a significant damper on last fiscal year’s sales tax revenue, which had been steadily growing during the past several years. The year began with about 8% growth and ended up just north of 1.5% growth, according to Duensing and city data. The current fiscal year started with a base of 1.6% and has since recovered.
Tax collections are taken for the general fund (1.2%), transit fund (0.5%) and arts and cultural fund (0.1%) and the general fund bed tax (5%).
The general fund, the largest operating fund in the city, is not legally restricted and provides
police services, fire services, human services, social services, and community services such as parks and recreation.
The other funds are legally restricted for a specific purpose. For example, the arts and culture fund can only go toward arts and culture activities. One-third of sales taxes goes into those restricted funds, according to Duensing, and the remaining two-thirds goes into the general fund. Much of it goes back to support city services and is decided by the city’s annual budget.
“Over the next month or two, we’re going to take a deep dive into these revenues, and we’ll determine and make a prediction on how much of this growth we think is going to stick,” he said. “And then based on that, if we think that there is growth, we think it’s going to stick, then we go through our budgeting process.”
The council makes all policy decisions, though the city takes its annual community survey into account.
Results of the 2021 community survey shows streets and sidewalks, police services and neighborhood improvements should be top priorities for the city in the coming year, which city leaders will take into account when planning out its budget.
Though the sales tax revenue increase is encouraging, Duensing said the city will exercise caution during the budgeting process as the pandemic continues and inflation rises, with some necessary materials, such as fuel, costing the city and its taxpayers more.
“We have to be cautious,” he said. We have to make sure that that growth is going to be sustainable. In other words, is it real or is it just pent-up demand? And then it’ll kind of level off so we just have to watch it closely. The last thing you want to do is to be overly optimistic and then it doesn’t pan out because reducing costs is a difficult process.”
Lindsay is a Phoenix native and is thrilled to be reporting in her hometown.
After spending several years in advertising after college, she switched gears and graduated with her master’s degree in journalism at Arizona State University in 2019.
When she’s not writing, you can usually find her reading a book or playing with her family’s dogs.
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