With the COVID-19 pandemic causing a near shutdown, not just nationwide but worldwide, the economic stability to operate governments, right down to the local level, has been severely undermined. Many states and communities are scrambling to figure out how to keep going with the services they provide the public.
As the reigns are loosening on restrictions due to the health emergency the Town of Fountain Hills finds itself in a good position, at least with regards to last quarter of the current fiscal year.
Many communities rely heavily on revenue from sales taxes to operate their governments and Fountain Hills is no different. The Town Council made a decision last year to increase its local sales tax, which went into effect in November. While that decision is by no means a salvation for the town, it certainly didn’t hurt.
“The rate increase definitely put the town in a better position to weather the current situation,” town Finance Director David Pock told The Times in an email. “The budgeted [sales tax] revenues for this fiscal year did not include the rate increase, because it had not been adopted by council when the budget was prepared. This gave us a bit of a buffer because those additional revenues were able to accumulate since the increase took effect...”
Pock said that with the most recent sales tax revenue numbers, which were through the third quarter ending in March, the town was only $100,000 short of its revenue target for the entire fiscal year.
“We will surpass that target over the next two months, and that will help offset the decreased state shared revenues that I’m expecting for the rest of [this] fiscal year,” Pock said.
Pock went over the revenue numbers for March, the first month of the virus impact. The town’s local sales tax collected for the month was $1.3 million. That was a 6.6 percent increase over March of 2019.
“[The] rate change accounts for some of that increase,” Pock said. “I did compare the retail category, adjusting for the rate change, and found that there was still a 17.1 percent increase year-over-year.
“I would also say that some of that was expected due to increased purchasing of supplies and food ahead of the stay-at-home order. This time next month, we should have the April activity numbers, and those will reveal the full effect of the stay-at-home order on town [sales tax] revenue.”
Pock said there was also a court decision related to online retailer Wayfair that was very helpful in allowing municipalities recover additional sales tax revenue.
“That has helped ensure that the town receives TPT revenue from online sales,” Pock said.
Projecting revenues for planning the 2020/2021 fiscal year budget is more difficult, with the final budget about to be approved by the council early next month it is largely guess work at this point as to the impact of the shutdown will be.
“Most of the proposed budget had already been completed before the middle of March, and we were about to start the time of year with historically lower activity,” Pock said. “The decision was made to keep revenue projections mostly unchanged, with the belief that activity would be returning by the start of June. That activity would be collected in July, the first fiscal period of the [new] year.
“Along with that decision though, was the thought to keep a larger portion of those anticipated revenues in contingency. If the revenues aren’t collected, then the town has some breathing room built-in to the budget.”
State shared revenues are also a concern going into the new fiscal year, according to Pock. Those revenues are primarily state sales tax, vehicle license tax and income tax, which is based on collections from two years past so a known amount.
“We received estimates from the Department of Transportation and the Department of Revenue in early March, and we’re expecting updating projections before the end of this month,” Pock said.
The $1.7 million contingency in the budget plan will also help offset those losses to the town.
In an effort to keep a close eye on the revenue picture through the upcoming year, Pock will be preparing quarterly updates to present to the council at the end of each quarter. The first such presentation will be in October. While that is a lot of time to pass, Pock said he will work to keep the council updated on a monthly basis through the summer break into the fall.
Council members have indicated they may want to consider budget adjustments through the year based on the quarterly updates.