Lower Tax Revenues Result In County Budget Shortfall

By Tammy Gray-Searles
   According to Navajo County officials, budget cuts at the state level are not the reason the county is facing a potential shortfall. Instead, an unexpected drop in sales tax and vehicle license tax revenues has left the county struggling to balance the budget.
   Throughout the past fiscal year, revenues from state shared sales tax and county sales tax have been in a downward spiral. A report prepared by Finance Director James Menlove indicates that, with the exception of July, both revenue sources have fallen well below last year’s averages.
   State shared sales tax revenues were down by 4.1 percent in August, 5.28 percent in September, 4.5 percent in October, 6.18 percent in November and 7.24 percent in December as compared to fiscal year 2007-08. A steeper decline began in January, bringing the difference into double digits. In January state shared revenue was down by 12 percent, in February, 13.39 percent, in March, 10.14 percent, in April, 13.71 percent, and in May, 17.22 percent. Menlove is estimating that they will be down by an average of 13.7 percent throughout the rest of June.
   County sales tax revenues followed a similar pattern, with single digit differences August through January, and jumping into the double digits in February. In August, county sales tax revenues were down by 2.41 percent, in September, 3.31 percent, in October, 5.28 percent, in November, 1.83 percent, in December, 8.01 percent, and in January, 7.69 percent. In February, the revenues dropped by 18.69 percent, bounced back slightly in March to a drop of 4.96 percent, and then continued plummeting downward by 12.52 percent in April and 22.6 percent in May. Menlove is optimistically predicting a total 15 percent drop for the month of June.
   So far in fiscal year 2008-09, the county has collected approximately $9.2 million in state shared sales tax and $6 million in county sales tax. An even smaller amount is predicted for fiscal year 2009-10, with state shared sales tax revenues projected to be $8.9 million and county sales tax revenues estimated at $5.8 million.
   The estimates for fiscal year 2009-10 reflect an anticipated 13.7 percent drop in state shared revenues from July through December and a seven-percent drop throughout the rest of the year; and a 15 percent drop in county sales tax revenues from July through December and a six-percent drop the remainder of the year.
   According to Menlove, it is this anticipated drop in sales tax revenues that is creating the anticipated $700,000 shortfall in the 2009-10 budget. He noted that he is hopeful that the predictions are wrong and sales tax revenues increase rather than decrease, but he does not believe that is likely. He also noted that he is hopeful that revenues will not drop off even more than he has predicted.
   Menlove explained that according to economist Mark Barnes, a consultant asked to look at the county’s financial predictions, there is no precedent for the current economic situation, and no good models on which to base upcoming budgets.
   “He said we can take all the models we’ve ever seen and throw them out the window, because this is like nothing anyone’s ever seen,” Menlove commented.
   If the state does not go through with its proposal to force counties to give up half of vehicle license tax revenues, the county is expecting a slight increase in those revenues. The $2 million the county hopes to collect, however, will not make up for the drop in sales tax revenues.
   During the current fiscal year, vehicle license tax revenues have dropped varying amounts, from a dip of 17.51 percent in December, 14.19 percent in October and 11.43 percent in July, to 8.93 percent in March and 9.63 percent in May. Revenues reached anticipated levels, or slightly above those levels in August, October, January and April. Menlove predicts, however, that they will drop by a total of eight percent for the month of June. He is predicting that they will increase by eight percent each month during fiscal year 2009-10.
   According to Menlove, even if the state does force counties to turn over half of their vehicle license tax revenues, they will have the authority to recoup that money out of Highway User Revenue Funds, so the general fund revenue will not be affected.