Mobile Leaders Wary on Spending as Sales Taxes Stagnate

Mobile has had its share of positive economic news in the last 18 months, including the start of production at the Airbus Final Assembly Line in the Mobile Aeroplex at Brookley. Despite such job-creating developments, however, city sales tax revenues haven’t taken off — and that’s a trend that could make for hard choices if it continues. (Courtesy of Airbus) (bn)

Mobile seems to be out of sync with the rest of the state when it comes to sales tax revenues, and a lack of growth is leading city leaders to step cautiously as they shape the city’s 2018 budget.

As yet, there seems to be no sense that drastic cuts are required, or that the city will have to consider diverting money from a capital improvement plan that has been funding a three-year wave of infrastructure work. But there’s also no guarantee that the current sales-tax trend will change in time to save the city from painful choices.

Mobile’s finance director, Paul Wesch, sounded a note of concern when he addressed the Mobile City Council at the end of April. There was “good news and bad news, he said, “the bad news being revenues not where they need to be, primarily because of the failure of sales taxes to get to where we had projected they would be.

“Sales taxes actually are about $3.3 million dollars under projections at this point,” he said. “Christmas was very damaging for sales taxes. We were about a million (point) eight under projections and a million under 2016 Christmas. What that means, obviously, is that people are doing much more shopping online during holiday periods.”

The state has a Simplified Sellers Use Tax plan that directs some revenues from online sales to cities, and Mobile has received a little over $400,000 over the last two quarters. Wesch has been vocal about his view that the state set this tax up in a way that’s great for the state, but which shortchanges cities, and it’s a view he still holds. State leaders, including former revenue commissioner Julie Magee, maintain the view that whatever amount the cities get from the arrangement, it’s better than the nothing they’d get without it.

Speaking to the council in April, Wesch said the good news was that significant savings elsewhere in the budget – particularly in the city garage – were offsetting the lack of revenue. But that didn’t mean the sales tax issue was going away. “It’s liable to continue, at least that’s what we’re starting to be able to come to you and project.”

The big picture

Curiously, Mobile’s affliction doesn’t seem to be statewide. The sort of sales tax growth that Wesch and others projected for Mobile – usually in the 2 to 4 percent range – seems to have been a shared expectation in Huntsville, Birmingham and the state as a whole. But they’ve gotten it.

According to numbers provided by Huntsville’s Finance Department, general fund sales tax revenue rose from $96.6 million in the 2014-15 fiscal year to $101.4 million in 2015-16. The projection for the current fiscal year was $103.3 million, or a little over 2 percent growth. As of early May, receipts had shown 1.8 percent growth, but according to information provided by Director of Communication Kelly Schrimsher, that was close enough that revenue from the Simplified Sellers Use Tax made up the difference.

In Birmingham, operating budget sales tax revenues grew from $114.4 million in fiscal 2015 to $120 million in fiscal 2016, to a projected $126.2 million in the current year. (That bullish estimate of 5% growth was offset by a lower projected increase in use tax, for a combined total growth of 3.6 percent.) In May, city Finance Director Tom Barnett said his projection was that the city would come in “very, very slightly up” above projections in the fiscal year ending June 30.

Most of the state’s sales tax revenue flows into the Education Trust Fund. According to information in the 2017 budget, ETF sales tax revenues were $1.70 billion in the 2014-15 fiscal year, and estimated $1.77 billion in 2015-16 and a projected $1.83 billion in 2016-17. (That’s approximately 4 percent growth in each case.)

Magee, speaking before she left the post of revenue commissioner in May, said the state’s sales tax revenues were on track. Bright spots included rapid growth in the Simplified Sellers Use Tax – “this is new money,” she said – while less helpful areas include corporate income tax revenue, which has dropped.

Mobile saw an actual decrease in sales tax revenues in the 2015-16 fiscal year; for the general fund, sales tax revenues dropped from 150.4 million to $147.5 million. For the current fiscal year, planners had projected a rebound to $151.5 million, or growth of about 2.7 percent. Instead, revenues have been flat.

The obvious question is, why? The answers are complex.

Trends and timing

Reid Cummings, an assistant professor of finance and real estate at the University of South Alabama, said national figures do show that the 2016 Christmas season saw a jump of more than 11 percent in online spending. Brick-and-mortar retailers saw a corresponding drop in traffic and sales, and the repercussions of the slump are still being felt in terms of lower stock prices and store closings.

But he said that while such trends affect the entire country, they don’t necessarily impact various areas the same way at the same time. Mobile could be experiencing “a combination of a shift mirroring what’s happening nationwide to online sales, and possibly a shifting population.”

Cummings spoke well before the recent release of census figures showing that Huntsville has rocketed past Mobile to become the third-biggest city in Mobile, while a slight but persistent decline has dropped Mobile to fourth.

Paul Wesch

Wesch said that a few years back, Mobile entered a recession somewhat after the rest of the country, and even after other big cities in Alabama. It came out of the recession later, and enjoyed the post-recession rebound a little later. It might be that Mobile is still riding the same waves as everybody else, it’s just catching them a little later.

In the 2013-14 and 2014-15 fiscal years, “we were ahead of most other cities” in the state, he said, riding high on the post-recession rebound they’d already seen. For Mobile, things started to flatten out in late 2015, as that rebound tapered off.

So far, he said, he sees it as a cause for concern but not a cause for alarm: Mobile hasn’t seen plant closings or excessive loss of retail centers. The trick is to manage expenses and expectations – and that’s no small trick, when costs such as the city’s pension obligations are guaranteed to grow. So as work proceeds on the 2018 budget, the word to departments has been to hold the line. “Currently we are not projecting growth,” Wesch said.

“What we are not doing is accessing any reserves,” he said. “We’re not adding general fund expenditures by robbing capital.”

Wesch’s good news to the council – the seven-digit savings at the county garage – didn’t just happen. It was the result of a sustained investment in new fire trucks, police cars and other rolling stock, which paid off in dramatically lower maintenance costs.

Asks if there are other such windfalls ahead, Wesch said there will be, though they might not be as conspicuous. The ongoing switch to a single citywide system for many records will result in some savings, he said. In the long run, the city’s three-year, multimillion-dollar capital improvement plan is making substantial road and drainage improvements that should cut down on maintenance and repair costs.

None of that solves the sales tax slump though, and that’s a problem.

Mobile City Councilman Joel Daves

Joel Daves, head of the Mobile City Council’s finance committee, said that regardless of what’s causing the slump, “we have to deal with the reality of the situation.” He largely agreed with Wesch’s view that the answer was to keep a lid on expenditures, while resisting the temptation to dip into reserves or capital funds.

“Our reserve is at the minimum we need it to be,” he said, and when a government raids its own capital fund, it piles up problems in the future. “That’s a path to disaster, and frankly a path the city followed too long,” he said.

Daves credited Mayor Sandy Stimpson with leading a belt-tightening push that had reduced city expenses by millions, after he took office in 2013. “In government, reducing operating expenses at any time is a difficult, painful matter, so it’s rarely done,” he said.

The problem with belt-tightening, Daves said, is that the belt can only get so tight. “A lot of the low-hanging fruit has been picked,” he said, and further cuts aren’t likely to come without a fight.

Mobile has had some very positive economic developments in the last 18 months: expansion at Austal, the start of production at Airbus, the announcement of major projects by Walmart and Amazon. One problem, however, is that those have little direct impact on sales tax receipts. And if the people who work those jobs drive in from Baldwin County or Mississippi, they might not even have much indirect impact.

“The problem we have is that the jobs are in Mobile, but the money’s being spent elsewhere,” Daves said.

“What’s good for the region is good for Mobile,” he said. But the challenge for Mobile will be to retain the residents it has, and attract new ones.

Decisively winning that fight could take decades. But Mobile is making some steps in the right direction, Daves said, citing the capital improvements to streets, parks and drainage that ultimately make the city a better place to be.

“We’re not Baldwin County,” Daves said. “But that doesn’t mean we can’t be as attractive a place.”

Lupin pharmaceuticals has recalled birth control pills due to a packaging error that could result in them not working correctly. (Contributed photo/Lupin Pharmaceuticals)
Alabama State Sen. Trip Pittman, R-Montrose, poses for a picture on a tractor sold at his tractor supply company in Daphne, Ala. Pittman is one of 10 GOP candidates seeking one of Alabama’s U.S. Senate seats during this summer’s special election. (John Sharp/

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