Denton got its first peek into the economic hollows carved by the COVID-19 pandemic this week: a 5% dip in March sales tax receipts.
The city’s chief finance officer, David Gaines, said it will be several days before the city gets a report with more details for March.
“We don’t have numbers for industries yet,” Gaines said. “It will be later in the month when we receive the confidential report.”
Denton’s 5% drop in sales tax revenue in March was about what finance staff projected. But they are projecting a 40% drop in April.
They won’t know until early June whether they’ve got that right because of the way sales tax is collected and reported. There is a two-month lag between the time someone makes a purchase and when the city receives the sales tax they paid.
For example, an individual may have purchased a new $100 vacuum cleaner in early March, paying $8.25 in sales tax. The store would have filed a report on all its March sales and remitted the taxes to the state in April. The state kept its portion, $6.25, before remitting Denton’s ($1.50) and DCTA’s ($.50) portion on May 8.
That reporting lag means getting key details on who’s selling taxable goods and services also lags. The city gets a confidential report each month. Over the next few months, those reports should help the finance staff see where the biggest hits are coming to the local economy. The city is not allowed to disclose details about individual businesses, but the staff can study the performance in different sectors and refine their budget projections accordingly.
Whether some of Denton’s sales tax hit came after shoppers went online and bought their vacuum cleaners later in March is hard to say. In Texas, sales tax gets collected in the city where the order is fulfilled, not where it originated — at least for now. Before the pandemic hit, the state comptroller’s office had proposed flipping that rule.
Amazon is building a fulfillment center in Lewisville. City officials there expected a big boost in sales tax receipts from the new warehouse even before the pandemic pushed more shoppers online.
Gaines said Denton’s sales tax activity was diverse enough that they didn’t expect a fulfillment center down the road to have an overall impact over the long term.
But they are paying attention to other large-scale indicators in the economy, Gaines said.
“They give us some sign where things are going,” he said.
It will be another week before Denton and Denton County know the local unemployment rates in comparison with the national numbers, which surged to 14.7% in April.
Some economic experts have said as much as 40% of those job losses since March could be permanent.
If that’s the case, Denton’s 7% gain in sales tax collection this year — before the pandemic — could be wiped out. Instead, sales tax collections could end up lower than last year.
Hotel occupancy and mixed beverage tax collections have already cratered, as the tourism industry collapsed and bars closed. The city’s mixed beverage tax collection dropped 47% in March, Gaines said. And the city may get only a fraction of the hotel revenue budgeted this year. Hotel occupancy taxes are expected to drop 75-85%, staff said.
The preliminary property tax rolls are out, too, but the city won’t have much confidence in those numbers until June, Gaines said. The full impact of business closures and job losses won’t affect the property tax rolls for another year, however.
The city’s finance staff is continuing to gather information, and managers are making cuts in the budget as they go, he added.
City spokesman Ryan Adams said it will be another month before the city manager’s office knows how much a voluntary separation program will save on the payroll. Managers offered buyouts to employees close to retirement or otherwise ready for a change. If enough employees accept, the city may be able to avoid layoffs.
All that information will be cobbled back together by the end of June, when the finance staff will be back in front of the City Council for more direction and decisions.
By then, the forecast — however glum — will at least be surer, Gaines said.
“Hopefully our conservative approach was correct,” he added.