POSTED ON APRIL 24, 2013:
More jobs, but city in revenue slump
Sales tax revenue drives city finances. Out of every dollar in Tulsa's general fund, 64 cents comes from sales and use taxes, according to the city's most recent budget.
But what drives sales tax?
It's not just spending at shopping malls.
In February, the city's sales tax revenue fell about 3 percent compared to the same month a year ago.
Yet taxes collected on retail sales only declined by 0.3 percent, said Mike Kier, the city's finance director.
Kier said the city is studying reasons for the decline.
However, the dwindling of dollars has already spurred a belt-tightening move, a hiring freeze -- the city's first since finances were badly wounded by the recent economic recession.
So far, no one is making a case for a likely return to that scenario of layoffs and major cuts. But the recent downward trend comes at a critical time of the year, with Mayor Dewey Bartlett's administration preparing a budget for the 12-month period beginning July 1.
When April sales tax revenue also came in below totals from a year ago, Bartlett on April 15 announced the temporary hiring freeze -- the first since 2009, and that one lasted until December 2010.
"At this time, it is estimated the General Fund total revenues collected for the year will be less than the projected amount of $261.1 million," Bartlett wrote in an email distributed to city employees.
Now, roughly 100 vacant positions won't be immediately filled, though it isn't clear how long the freeze will last.
"You should expect the limitation will last for at least the remainder of the current fiscal year," Bartlett wrote to employees.
The city may wind up being wrong in its sales tax budget projection, which based city operations on a 3.7 percent increase in sales tax dollars flowing to the general fund.
Yet city officials weren't off the mark in predicting job growth: "As local employment has been forecast to continue to grow, it can be expected that growth in sales tax revenue should follow the budget status."
Mayor Dewey Bartlet
The seasonally-adjusted March jobs estimate topped any month since February 2009, with the Bureau of Labor Statistics reporting 429,500 workers in the Tulsa metro area, defined to include Tulsa County as well as Creek, Okmulgee, Osage, Pawnee, Rogers and Wagoner counties.
Kier said he did not yet have details to explain the April decline in sales tax revenue. Such detail is available some days after the initial monthly revenue amount is reported.
He said retail sales generally account for two-thirds of sales tax revenue.
But with retail sales close to flat in the city's February revenue -- which reflects spending from mid-December to mid-January -- Kier put forth some theories about the cause of the sales tax slump, ticking off categories showing decreases.
A category of sales tax collections including electricity and transportation was down in February, Kier said, as was revenue related to service industries. "Wholesale trade was down," he added.
Much of the information is available publicly through the Oklahoma Tax Commission, though Kier said the city also analyzes business-by-business information.
"It isn't unusual to have certain categories performing at different levels than other categories, although, over the longer term, they do tend to move in similar directions," Kier said.
He said a trend of declining electricity prices might help explain a decline in some sales tax collections.
Also, the effects of the recent uptick in payroll tax rates could be a cause for lower business activity, he said.
"Understanding what is driving it is important. We spend a fair amount of time looking at things," Kier said, referring to his department's staff of 13 people.
In Oklahoma City, economist Russell Evans studies sales tax data.
"I often think about the monthly sales tax releases as being some of the most timely data that's available. Often it would be the case that changes in your monthly sales tax numbers would be reflective of local economic conditions, or, you know, a signal of what's going on in the economy at the time," said Evans, the executive director of an economic research center at Oklahoma City University.
Told of Kier's comments, Evans said it's less worrisome to have sales tax declines mostly unrelated to consumer spending.
"I think what you're really concerned about when you look at the sales tax numbers a couple of months in a row, is there a big change in the way many households are behaving?" Evans said.
Decreased spending by households might mean "their economic situation has worsened considerably," Evan said. Or, it might indicate people are preparing for expected bad times.
Otherwise, there are "going to be ebbs and flows of sales tax collections," Evans said. "That's just the reality of the data." Oklahoma City has also seen recent declines in monthly sales tax collections.
But Evans said it doesn't appear the economy as a whole is worsening.
"I don't have any reason to believe that the Tulsa economy is headed for a period of extended weakness, either," Evans said.
The hiring freeze was criticized by Michael Rider, president of the local American Federation of State, County, and Municipal Employees union for city workers.
"It's going to hurt the services, first of all," Rider said, also expressing concern that the move is part of a national trend of "starving" city services as part of a privatization strategy.
Not all departments are affected. 911 operators will continue to be hired as needed. Kim McLeod, the city's communication director, said plans for an upcoming police academy will be released along with Mayor Bartlett's formal budget proposal.
Kier and others in the city's finance department are putting the finishing touches on the proposal, scheduled to be presented on April 30 to the city council.
"We'll be a little more limited in terms of revenue than I think we would have thought a year ago," Kier said, adding, "We're still reviewing those numbers.
Kier said the city must also consider roughly $3.1 million in expiring grants that have funded some police and fire operations.
While sales tax is "very important," Kier noted it's not the only revenue source for the city.
"We have to go through all of them," Kier said, declining to talk about working projections for the upcoming budget.
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