Sales tax revenue is down for the city of Tyler and for Smith County, and officials say it could be the start of a troubling trend.

The city of Tyler relies on sales tax revenue for nearly half of its general fund budget. While City Manager Ed Broussard and his staff planned for a 4 percent increase in sales tax receipts in the 2015-2016 fiscal year, new numbers released by the Texas Comptroller’s Office show a decline of 5.1 percent. In dollars, the decline has meant a shortfall of $859,584 below monthly budgetary expectations, and about $1.06 million so far this fiscal year (which runs Oct. 1 to Sept. 30).

Smith County’s sales tax revenues are down even more, at 7.53 percent year to date.

“We think we’re starting to experience what our neighbors in Longview and Kilgore have experienced lately,” Broussard said in an interview. “It goes back to the low oil and gas prices. We expected to see a little bit of this late last year, so we’re not surprised that we’re starting to feel some of that pain, as well.”

Cities and counties that rely even more heavily on the oil patch are hurting more, Broussard added. Midland, for example, has seen its sales tax revenues drop by 29 percent, year to date.

Here’s how the numbers break down for the city of Tyler.

Throughout the fall and into the holiday shopping season, sales tax revenues were solid, if not spectacular. October 2015 saw sales tax revenues up by about 5 percent over October 2014. November 2015 was even better, with a 7.9 percent increase over November 2014. December 2015 was up just slightly, at 1.65 percent over December 2014.

January 2016 saw the first decline, with revenues down 1.46 percent from January 2015. There was a brief uptick in February 2016, at 4.17 percent over February 2015.

But then came March, which was down more than 22 percent from the year before.

City officials said that drop was mostly due to a one-time adjustment by the Comptroller’s Office. They said the comptroller found that one Tyler company overpaid sales taxes, dating back to 2008, and was due $633,015. That’s not uncommon; a similar one-time adjustment last year at this time worked in the city’s favor by about $98,000.

Still, even with that one-time payment taken out of the equation, the city’s sales tax revenues are down, and it’s enough to have city officials going back to their department heads, looking for ways to cut costs.

“The city of Tyler pays for about 45 percent of our general fund expenditures – the police, the fire department, streets, parks and the library – through sales tax revenues,” Broussard said. “That’s both a blessing and a curse.”

Most cities rely more on property taxes to pay for those things. But, not Tyler.

“On the one hand, that allows us to have the lowest property tax rate of any city more than 16,000 population in the state,” Broussard said. “On the other hand, it can be a roller coaster. Sales tax revenues can be way up, and they can be way down. Property taxes don’t fluctuate like that.”

In 2007 and 2008, the recession hit consumer confidence hard – and East Texans just weren’t spending their money. That translated into a big drop in sales tax revenues for the city. Officials instituted a hiring freeze and put off some projects – but at no time did they reduce city services, Assistant City Manager Susan Guthrie noted.

“We didn’t have to lay off a single employee,” she added.

Broussard said the city has a great institutional memory.

“If anything positive came out of the Great Recession, it’s that we’ve built the city of Tyler into an organization that can adapt quickly to the roller coaster,” he said.

MAKING CUTS

Broussard, along with Ms. Guthrie and Chief Financial Officer Keidric Trimble are confident that some spending cuts can make up the shortfall, provided it doesn’t get substantially worse.

“We already had a soft hiring freeze in place,” Trimble said.

The city also is seeing a significant savings in fuel costs, Trimble added – the other side of low oil prices. When added up, those savings, along with some salary lag and other cutbacks total $925,378.

About $554,000 in planned transfers from the general fund to accounts, including Technology, General Capital Projects, Development Services and Productivity, will be postponed or canceled. And another $107,000 of the shortfall will be made up through transfers from the unreserved fund balance (the rainy day fund) or from program cuts.

“We expected a shock on Wednesday (when the Comptroller released the sales tax figures),” Broussard said. “And it was a shock to the system. But it’s not something we can’t handle; now we sit down with our key leaders, and we talk about ways to save money, ways to operate more efficiently.”

Ms. Guthrie noted that the city’s enterprise funds – such as water utilities and wastewater – are unaffected.

“Due to the less than expected revenues for four out of five most recent months, city officials are currently preparing for the trend to continue through the end of the fiscal year,” Trimble said. “Departments heads are being challenged to find additional savings. The city will plan for the worst and hope for the best as it completes the last half of the fiscal year.”

SMITH COUNTY

The county’s sales tax revenues also are down. Smith County Judge Joel Baker, the county’s chief budget officer, would not agree to an interview but he released a statement late Friday in response to questions about sales tax figures.

He said he wasn’t aware of the comptroller’s numbers, but that the county has budgeted conservatively and can respond to any revenue shortfalls.

“If we were to have a 5 percent sales tax reduction for this year, it would mean an approximate $500,000 reduction in revenue to Smith County,” he wrote. “We anticipate that the downturn in the energy sector will have some effect on us locally, and we’ll take that into consideration when we are preparing the upcoming budget. To address any decrease in revenue, we would consider the same options that we did in 2010, when we were faced with declining economic issues.”

Those options included hiring freezes and deferring expenditures.

Commissioner Jeff Warr said the county has a healthy reserve fund balance to draw upon if needed.

“This is something we’ll keep an eye on, especially as we go into a new budget cycle,” he said.

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