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Declining sales tax collections hurt state, city revenue streams


All those delayed purchases of appliances, automobiles and other goods attributed to declining consumer confidence are taking a toll on state and city sales tax collections. State sales tax collections were down 7.5% for November 2000 in Mississippi, with some cities affected more than others.

Lester Herrington, deputy commissioner for the Mississippi State Tax Commission, said sales taxes are the number one source of income for the state, generating about 40% of the general fund revenue. Missing sales tax collections by 1% per year costs the state $30 million. Overall sales for the past six months are down only 1.5% over the same six-month period a year ago. But the decline in sales is particularly a problem since state officials had budgeted for an increase of 3% in sales taxes.

Figures for the Christmas sales season are not in yet, but there are concerns amid reports nationwide of one of the worst Christmas sales seasons in a decade.

“The December general fund revenues alone were down $32 million, and half of that was sales tax,” Herrington said. “January revenues are based on sales reported in December. If the trend continues on the same basis of November, which is also a big buying month as far as sales tax, we could have a significant shortfall for January, also.”

Collections in other major categories — income tax, corporate income tax and gaming tax — have also declined from what was anticipated.

Although state employment levels are still high, Herrington said people aren’t working as much overtime because of the slowing economy, and that ends up diminishing income tax proceeds.

Herrington said the state projected continuing growth because the economy has been so good in recent years.

“We have had a very prosperous last several years,” Herrington said. “There is a tendency to think the economy will do that forever. That’s why some people have found it easier to project continuing growth.”

He believes rising interest rates have caused the economy to slow, which affects many businesses including real estate and the state furniture industry in Northeast Mississippi.

“When interest rates go up, you have a decline in home sales and a decline in activity in the furniture manufacturing industry and many other industries,” Herrington said. “We are subject to the rise and fall of the economy according to interest rate changes just like everyone else.”

With the recent decision by the Federal Reserve to decrease interest rates, and perhaps more interest rate decreases in the near future, Herrington hopes the economy will turn around in a short period of time.

Sales taxes are also the top revenue producer for most cities across the state. Some cities report being in good shape because they had earlier indications of an economic slowdown and hence didn’t budget for a sales tax increase. Other cities are taking in less than expected, and may have to revise spending as a result.

Gulfport had seen steady increases in sales taxes until November, when sales tax collections declined to $1,247,178 compared to $1,332,414 for November 1999.

“Obviously we’ve had concerns because there is an indication of an economic slowdown nationwide,” said Steve Dickerson, business development coordinator, City of Gulfport. “I think it is fair to say we’ve had some ups and downs. Small, independent retailers have been hurt more than the big retailers in Gulfport. But you can see by our figures that we aren’t way off. Ours have stayed pretty consistent.

This is the first month that it has been less than the year before, and last year’s was a good jump from the year before. We don’t have any indication that we’re in trouble here at this point.”

Dickerson said the city budgeted for only a small increase, so there aren’t any current concerns about a budget shortfall. Gaming revenues are down from projections, but are a smaller percentage of the city’s revenue and hence of less concern than sales tax revenues.

Daphne Holcombe, chief financial officer for the City of Tupelo, said each month into the fiscal year the city’s sales tax collections have been down. Overall the city is down 2.67%. But that compares to an increase of 8% in 1999.

The city had budgeted for a 3% increase. Since 55% of the city’s revenue is from sales taxes, the nearly 3% decrease when a 3% increase was expected means income is off about 6%.

“We will be in a crunch if December sales don’t come in,” Holcombe said. “Next month when it comes in if we are still down, we will have to take a serious look at doing some cuts.”

Holcombe said merchants at the mall are saying they had record sales in the past year, but sales tax collections don’t reflect quite so rosy a picture.

Ed Skipper, director of finance and records for the City of Meridian, said that while the first part of their fiscal year was off a bit, November sales picked back up.

“Looking at our rebate for that month, it is actually up over last year,” Skipper said. “But earlier months were down, so we certainly can’t say there is a trend there. Statewide I know the trend is down. The December sales that we will get in February will be a big indicator. This is a year when there is concern about the economy nationwide, not just in Mississippi. So everybody is watching it very closely.”

Skipper said traditionally Meridian hasn’t seen the large extremes experienced in some other areas, which makes it easier to budget. The city tends to be conservative in estimating income and then hopes for a windfall. At times when there is a slowdown in the economy, that conservative estimating reaps dividends.

Skipper is encouraged that the city continues to see new retail developments even during a declining economy.

And while a decline in sales isn’t yet a big concern in Meridian, there has been a lot of concern about high utility bills from the abnormally cold winter.

“Everyone is looking at utility bills now,” Skipper said. “Last year it was gasoline we had to monitor. We got through that fine. This year it is the utility bills that we’re keeping a close eye on. I don’t think we’ll have a particular problem, but that is one thing that we do monitor in our budget process.”

In Hattiesburg, sales tax collections have been flat for the past four months, according to Joseph Townsend, the city’s chief financial officer.

“The talk I’m hearing from retailers is that is was certainly not a banner year for the Christmas season,” Townsend said. “We won’t really know until February what the December sales were. Some merchants have said they were reasonably pleased because they were concerned about the economic slowdown. And, given that, they were generally satisfied with the sales activity that went on in December.”

Hattiesburg budgeted for no growth in the sales tax revenues after collections were less than expected the year before.

“We would have liked to have seen a windfall developing, growth where we didn’t plan for growth,” Townsend said. “But so far that hasn’t occurred. If we don’t lose any ground with December sales, if we can just maintain where we were last year, I think we will all be generally pleased with that.”

Townsend said he believes higher gasoline prices have impacted sales tax revenues. No sales tax revenues are derived from gasoline sales, and higher costs for gasoline mean consumers have less money available for other purchases.

“I think higher gasoline prices have taken a bite out of people’s discretionary income,” Townsend said. “And in terms of our priorities, of the things we are willing to give up, transportation is just not on that list. We all want to be able to get in
car and go shop, work, recreation or church. People are not going to change habits in terms of using vehicles. So, if the price of fuel has gone up, that is going to put a dent in our discretionary income. That takes some money out of the local eco


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