Yuma sales tax revenues take a dive

The city of Yuma's sales tax revenue continues to plunge, leaving it with a projected $5 million budget shortfall by the 2010-11 fiscal year that begins July 1, 2010.

That translates to every city employee taking 26 days of unpaid furlough that year, Pat Wicks, finance director, reported to the Yuma City Council during its roundtable Tuesday evening.

Local sales tax revenue collected in October for retail sales alone was down 20 percent from the same month two years ago, he said.

Wicks said the comparison was made to October 2007 because that was the high point for the tax. Since then, there has been a continuing sharp decline in the revenue source.

The drop is significant for the city budget, he said, because taxes collected on retail sales comprise half of the total local sales tax revenue. The sales tax is the largest single source of revenue for the city's general fund, accounting for about one-third of the fund's total.

In the 50-year history of the sales tax, this is the first time there's been a sustained period of declining revenue, Wicks said.

Furthermore, he said he expects it will be some time before the tax revenue recovers.

For one thing, consumers are being cautious about spending their money, noted City Administrator Mark Watson. And for another, stores are deeply discounting their goods in an effort to lure shoppers.

While a half-price sale is good news for consumers, it's bad news for the city coffers because it also means only half the usual sales tax is collected.

Compounding the problem is the state's reduction in auditors who monitor and collect sales tax revenue for municipalities, including Yuma, Watson said. The state has cut 750 auditors from its staff as it deals with its own budget difficulties.

"So there's less time being spent on national accounts," Watson said. "That's why the city has been looking at having a private company collect the tax for it."

"There's no question the revenue will recover," Wicks said. "At some point, people will return to making purchases, but it hasn't happened yet."

That's why it's important for the city council to be having discussions now about how to address the shortfall while maintaining essential municipal services, he said.

"It's imperative we make changes to the budget to maintain our service levels without impacting our fund balance.

"We don't want to lose our work force," Wicks said. "They're needed to maintain services. We need to keep cops on the streets and firemen on hand."

However, the easier cuts have been made. Now it's coming down to employee costs, which between payroll and benefits account for 80 percent of the general fund, he said.

"I don't want to see anyone laid off," said Councilman Paul Johnson. "But I don't think we can sustain a furlough every other week for the long term."

Mayor Larry Nelson noted that some cities in Arizona are at the point where they're facing serious layoffs of even public safety personnel.

Councilwoman Ema Lea Shoop suggested that other alternatives need to be explored to save money or generate additional revenue.

To which Watson added: "I think some things will need to be set aside."