Lincoln’s city sales tax has been limping along this fiscal year, barely bringing in as much money as last year and creating future budget problems for city leaders.
With sales tax revenue below predictions, the city could be about $2.65 million short by Aug. 31, the end of the fiscal year, said Brandon Kauffman, the city’s finance director.
That means the city may have to turn to the property tax to make up that loss, according to Rick Hoppe, chief of staff to Mayor Chris Beutler.
The sales tax and property tax are the city’s two biggest revenue sources. If one tax goes down, the other has to go up in order to avoid service cuts, he said.
Residential valuations are rising, and the city may need some of that increase to offset the sales tax losses, he said.
Hoppe said the budget discussion is like a married couple, where the wife gets a raise and the husband gets a pay cut. “You don’t go on a vacation with the money from the raise because you still have to pay the mortgage," he said.
“The mayor’s message to the public and elected officials is, don’t be in a rush to cut the property tax levy with the sales tax numbers the way they are. You have to balance things out or make significant cuts to service,” Hoppe said.
Sales tax revenue, which makes up about 46 percent of the city’s general fund budget, has been growing, but not as fast as predicted when the city leaders put together the budget.
City leaders predicted revenue from the city’s 1.5 cent sales tax would grow by 3.5 percent this fiscal year. But sales tax revenue reported for the first four months of the fiscal year — September to December — grew by just 1.4 percent, and the city has collected about $393,000 less than expected.
If the sales tax revenue grows by just 1.5 percent for this fiscal year, that would mean $2.65 million less than expected for the $172 million general fund budget, Kauffman said.
He said the city doesn’t know why sales tax revenue isn’t growing as fast as it has in the past. The state, which collects the tax and sends cities their share, doesn’t provide any information until the end of the year, he said.
The city’s arena-related occupation tax — on food, beverages, hotel rooms and vehicle rentals — has also seen very slow growth, just 2.23 percent last fiscal year. About 17 percent of city sales tax revenue comes from restaurant sales, about 50 percent from retail sales, Kauffman said.
This is the second year city sales taxes have not met projections.
Revenue from the city sales tax grew by just 2.06 percent in fiscal year 2017-18, when the city had predicted it would grow by 4 percent. The city was about $714,000 short on sales tax revenue last fiscal year, but had some flexibility in the budget to offset that loss, according to Kauffman.
That flexibility isn’t available for this fiscal year, he said.