Declining gas prices across the state are creating a drag on the amount of money cities are getting in sales tax revenues, a consultant hired by the City of Lemoore said at the most recent council meeting.
In a chart showing the trends over the past 13 quarters, Andrew Nickerson said that the city’s sales tax receipts are down about 7 percent primarily because of lower gasoline prices.
Since the city gets just over 43 percent of its sales tax base from fuel and service stations, Nickerson warns this can negatively affect funds available to the city.
“As prices fluctuate, as they have significantly over the last couple of years in particular, that can have a big negative impact on a city’s receipt of sales tax revenues,” said Nickerson who is the president of tax consultant firm HDL.
Lemoore Mayor Lois Wynne said the heads of each city department take this into consideration as the city starts to prepare its budget and says such data influences efforts such as having more retailers locate in town.
“We’re trying to attract more retail here because we have a lot of leakage out,” Wynne said of locals travelling elsewhere to make purchases.
Having a broader sales tax base would thus help the city balance out when incoming taxes dips because of lower spending or drops in prices such as in gas price trends.
“Fluctuating gas prices affect the amount of sales tax the city receives since 43.2 percent of its sales tax comes from fuel and service stations,” Nickerson said.
The consultant’s comments came during the Jan. 19 Lemoore City Council session.
Nickerson showed a pie chart demonstrating that in addition to the 43.2 percent from fuel and service stations, the city receives 17 percent of its sales tax monies from restaurants and hotels, 12.6 percent from general consumer goods, 9.2 percent from autos and transportation, 2.4 percent from building and construction, 4.1 percent from business and industry and 11.5 percent from food and drugs.
He notes that fuel sales are down and will likely stay low with large oil supplies. Conversely though, this translates into increased sales of SUVs and full-sized pick-up trucks.
“There’s a huge amount of oil supply in the world market and so prices are likely to remain relatively low for the near term. Thus, auto car sales have been up significantly over last few years. With lower fuel prices there’s been higher sales of SUVs and full-sized pick-up trucks.”
The consultant noted that the housing market had dropped and rose again, only to “come back down a fair amount.”
“The building construction group dropped significantly during the housing bust. We’ve started to see some life in that group again, although it’s fairly modest.”
The city is getting more money from state and county pools of funds that come from out-of-state purchases. The two largest contributors to this source of money are private-party auto sales and Amazon which started collecting California sales tax in fall 2012, he said.
In a 13-quarter trend chart, Nickerson showed the volatility of fuel and service stations receipts.
“It makes it very difficult to forecast revenue when you’ve got this type of volatility in your major industry group.”
Since the city of Hanford is also reliant on sales taxes for funds, fluctuating gas prices will likely affect them as well.
Hanford City Finance Director Tom Dibble provided figures that show gas prices across the state are heading even lower and may continue into 2017.
The top 25 contributors to Hanford’s sales and use tax monies are from industries such as convenience stores, gas stations, auto dealerships, big-box retailers, construction industry suppliers and ag-based companies. These top 25 stores generate 57 percent of Hanford’s total sales and use tax monies.
Hanford City Manager Darrel Pyle said even though gas sales tax dollars may fluctuate, it may not be all bad news and it isn’t necessarily unexpected.
“If we see a decrease in our sales tax revenue, we also see a decrease in the expenses we incur putting gas in cop cars, fire trucks and street maintenance vehicles,” Pyle said. “So revenues may go down, but expenditures go down just about as much.”
Lower gas prices typically result in consumers spending elsewhere, he said.
“We like it when gas is cheaper from a sales tax revenue perspective. What that typically stimulates is people’s car-buying choices,” Pyle said. Consumers may trade in smaller, more fuel-efficient vehicles when gas prices drop or spend more at local stores.
“They have more disposable income because they didn’t spend $60 filling up the tank. So they may only spend $30 (in gas) but they take the other $30 and spend it at the mall.”
Pyle notes consumers also typically buy appliances, cars and other goods rather than simply invest in savings or retirements.