Sales tax revenue continues freefall (2/18/10)

Quarterly number far short of projection

Feb. 18, 2010

By Greg Elias

Observer staff

Local sales tax revenue shrank by 12 percent in the fourth quarter, a shortfall that may force Williston to draw on reserves to balance the municipal budget.

The town received $600,724 for the period ending Dec. 31. That’s down by about $84,000 over the same quarter a year ago and nearly $70,000 less than the town had projected.

“It’s not good” was Town Manager Rick McGuire’s downbeat assessment of the sales tax numbers released last week. “I didn’t figure it was going to drop that much.”

Williston funds about a third of its municipal budget with revenue from the 1 percent levy, which is tacked onto the 6 percent state sales tax. Town officials expected the local option tax to generate just under $2.6 million for the 2009-10 fiscal year.

But Vermont’s recession-driven economic doldrums, which have produced a 10 percent overall drop in state revenue, have also hit the sales tax. For the first half of the current fiscal year, local option sales tax revenue in Williston was down by 10 percent over the same period a year ago, and $112,000 less than already scaled-back projections.

The latest period produced the largest drop in same-quarter revenue since 2007. That was the year the state changed sales tax rules, exempting purchases made in towns that have the local option tax but are delivered elsewhere.

Since then, Williston’s take from the tax has steadily eroded and town officials have continued to revise downward revenue estimates. In 2006, the town received slightly more than $3 million in sales tax revenue. That number dropped to $2.2 million in 2009.

Ken Jones, policy analyst with the Vermont Tax Department, said sales tax revenue was down more than 5 percent for the four months ending Oct. 31, the latest period for which statewide figures were available. The decrease, combined with even larger shortfalls in other revenue sources, has created a budget crisis that forced the state to lay off hundreds of workers and cut program funding.

Williston’s sales tax shortfall will not result in anything drastic, at least not in the short run.

McGuire noted that there are still two more quarters to go in the fiscal year ending June 30. If sales tax revenue fails to rebound to meet revenue projections, he said the town would probably use fund balance, reserves that can be drawn on to bridge budget gaps.

Fund balance, however, has also dwindled in recent years as the Selectboard steadily drew down reserves to stave off property tax hikes.

Under the 2010-11 budget approved by the Selectboard last month, fund balance will be reduced to roughly $750,000. That is equivalent to about 10 percent of the operating budget, the minimum permitted by Selectboard policy and approaching the smallest reserve considered to be fiscally prudent.

Eroding revenue

Williston has seen sales tax revenue steadily fall over the past few years. Here are the annual tallies:

Year                        Local revenue

2006                        $3,063,092

2007                        $2,511.946

2008                        $2,379,679

2009                        $2,225,617