Thursday, July 27, 2017 12:07 am
Tax revenue, economy lagging
Businesses closing. Start-ups sagging. Shopping down. Declining population. People getting older.
It all adds up to a dismal financial picture for the city of Springfield, which is seeing tax revenue decline, with no end or solution in sight. During the first quarter of the city’s fiscal year that ended in May, the city took in between $300,000 and $400,000 less than the year before, according to city budget director William McCarty. If the trend continues, the city will collect more than $1 million less than in the previous fiscal year, he said. And receipts were down last year compared to the previous year, he said.
“That’s what really concerns me,” McCarty says. “We’re seeing a year-over-year decline.”
The state’s two-year budget impasse is often blamed, but it isn’t the only culprit. Changes in the local economy began long before the impasse began, the number crunchers say, and they don’t portend well for a city dependent on sales-tax revenue to make ends meet.
“We definitely have the data to suggest that something’s going on,” McCarty says. “I don’t think it’s a business cycle.”
The rate of business closures is triple what it was a year or two ago, McCarty said, and that doesn’t bode well for a city that derives 47 percent of its revenue from sales taxes. Meanwhile, expenses rise. The city has long used property taxes to pay pension costs, but burgeoning fire and police pension expenses will entirely consume the city’s share of property taxes within two years, he said, which could force the city to dip into other revenue sources.
The city hasn’t raised the property tax rate since the 1980s, but Mayor Jim Langfelder says that he doesn’t favor increasing property taxes. Due to other taxing bodies increasing property tax rates over the years, property taxes in Springfield now are in line with similar cities in Illinois, he said, and raising the city’s rate would discourage new businesses and would-be residents from moving to the capital city.
“They don’t say ‘What’s your sales tax?’ they say ‘What’s your property tax?’” Langfelder said. “Really, I don’t see us raising the property tax.”
Langfelder, who was city treasurer before becoming mayor two years ago, said that he expected fiscal challenges, but not to the degree the city is seeing now. “This was unforeseen,” the mayor said. “Really, the answer is economic development.”
The mayor last spring proposed raising the sales tax and telecommunications tax as well as instituting a tax on natural gas, but the city council rejected those ideas. “They sent a pretty clear message, I thought,” the mayor says. With municipal elections now less than two years away, Langfelder said that convincing the council to raise taxes will only get harder. “I’m not sure they have the appetite now,” the mayor says.
Data from the Springfield-Sangamon County Regional Planning Commission suggests systemic economic changes are in play rather than hiccups that will heal themselves. Online buying, which deprives the city of sales taxes that it would otherwise collect if purchases were made in brick-and-mortar stores, has had a significant impact, said Norm Sims, planning commission executive director. The area is also losing population, he said. “You’ve got to recruit people, not just businesses,” Sims said. “You can’t have sluggish population growth and business growth.”
The area’s population is also aging, which doesn’t help, because older people tend to spend less money than millennials, Sims said. And millennials tend to spend money for service moreso than goods, Sims said, which doesn’t help city coffers since the city collects no sales taxes on services. Furthermore, people who are moving to the Springfield area have lower household incomes than people who are moving out. “Twenty-plus million dollars in one year we lost (in household income), just because of that,” Sims said.
None of the issues happened suddenly, Sims said. Rather, the forces that have slowed the local economy have been building since the 1990s, he said. Still, Springfield is in better shape than other parts of the Midwest, he said.
“It’s not like we’re in Flint, Michigan, and we see car production factories shutting down,” Sims said.
Contact Bruce Rushton at firstname.lastname@example.org.