If you are in or soon entering bargaining, right now it is critical to be reviewing the month to month sales tax numbers, in a way that is has never been seen before.
Two immediate takeaways: First, sales tax revenues have dramatically declined, and second, the drop is not nearly as sharp as many local budget officers have been projecting. You can’t take your budget department’s dramatic announcements of dire circumstances to be accurate without doing your own work.
Raw numbers for 320 cities and counties are monthly available through the State Department of Revenue, but those aren’t very useful until you can perform some month to month analysis. We took the month over month numbers up to the latest available and have developed some revealing charts. These charts show both the month to month drop in the first half of 2020, along with a comparison of 2020 months with 2019 months. (Due to seasonal sales tax fluctuation, it’s critical to evaluate sales tax data against the corresponding period in the previous year.)
These are the “highlights” and “lowlights” of our analysis. This table shows 10 Cities and Counties over 10,000 population that had significant sales tax revenue drop in Quarter 2 2020 relative to 2019 Quarter 2:
Not surprisingly, jurisdictions with large shopping malls got hit hard: Compared to Q2 2019, Tukwila’s Q2 sales tax revenue declined 13% and Centralia declined by 32%. 203 cities and counties had sales decreases in Quarter 2 2020 compared with Quarter 2 2019. Of these 203 cities and counties with revenue decreases, 137 of them had decreases greater than 5%.
Just a year earlier the numbers were much different. Data from the second quarter of 2019 as compared to the second quarter of 2018 shows that 97 cities and counties had sales tax revenue decreases. And of these 97 cities and counties with decreases, there were only 60 that had decreases greater than 5%.
What was surprising was that some jurisdictions came out relatively unscathed. Mercer Island’s revenue was flat (0% change), and Pasco’s increased 6% and Franklin County’s rose 14%. Of the 320 reported cities and counties there were 117 that had no decrease in revenue or had revenue increases.
These 10 Cities and Counties are some of the largest that showed increases in revenue:
For full access to this calculated data, you’ll need access to our Premium Website. The Website lists the following reports:
- Month to month numbers for the first half of 2020 for each Washington City or County. This chart shows the 2020 drop in Q2 revenues from Q1.
- The change from the first half of 2019 to the first half of 2020, which is here. This chart reveals how much of that change relative to 2019 occurred in Q1 and how much in Q2.
The surprise for us wasn’t that some jurisdictions were dramatically off but that some were not. Here’s the most surprising conclusion: On a Statewide basis, the overall drop in total local government sales tax revenue from the first of 2019 to the first half of 2020 was only 1%. A couple of qualifiers are needed. The predicted expectation built into budgets; no doubt relied upon a year over year increase. And the drop in the second quarter in 2020 relative to 2019 was quite a bit more — an 8% reduction in sales tax revenue.
It’s also important to put this data into perspective as to the broader array of local government revenues. Sales tax revenues are a major source of revenue for most cities, and many counties, but especially rural counties, and cities without a commercial hub, are typically much more dependent on Property Taxes and other revenues. While there have been some predictions of property tax declines, we are not expecting those revenues to be off much, more impacted by a delay in a collection that an actual reduction.
All told, many jurisdictions less reliant on sales tax may come out of 2020 with minimal losses, while others have dramatic reductions. It’s important to bear in mind that the Q2 reductions cannot be extrapolated to the entire year. That’s a (perhaps deliberate) mistake some budget offices have made, projecting an unnecessarily pessimistic budget impact. Yes, revenues are down, and will continue to be lower in most cases relative to 2019. But businesses that were closed during some part of the Spring have reopened. The economy is clearly not in good shape, and program cuts and even layoffs are likely to occur, but you need a clear-eyed view of the specific impact in your particular agency. We’ve already seen some wildly inaccurate budget office reports, so it’s important to do your own homework. We will continue to follow sales tax trends through this year on a more immediate month to month basis and will keep you informed on those changes.
