Sales tax shows surprising upturn (5/21/09)

Revenue for local levy rises by 3.8 percent

May 21, 2009

By Greg Elias

Observer staff

Sales tax revenue rebounded in the first quarter of 2009, raising hopes that a two-year slump for a levy that funds much of the municipal budget may be ending.

The 1 percent local option tax brought in $487,084 for the three-month period ending March 31. That’s a 3.8 percent increase from the same quarter a year ago.

The surprising turnaround came after sales tax revenue dropped in seven of the previous eight quarters. And it happened amid the biggest economic downturn in decades.

Town Manager Rick McGuire expressed guarded optimism about the latest sales tax numbers. Williston relies heavily on the tax, which provides about 30 percent of the town’s revenue.

“I don’t see a reversal where it starts going up dramatically,” he said. “But maybe there will be a leveling off.”

Williston started collecting the local option tax, which piggybacks on the state’s 6 percent sales tax, six years ago. Revenue increased in each of the first four years of the tax, but then began dropping after the state imposed new rules on the levy in January 2007. Among the changes was a provision that no longer allows the town to collect tax on items bought in Williston but shipped elsewhere.

Revenue over the next two years fell 22 percent. The latest three-month period marked only the second same-quarter increase since the rule changes.

The upturn in local sales tax revenue seems counterintuitive given the economy. The state faces huge budget shortfalls due to reduced revenue from all sources, including the sales tax.

The national economy is also bleeding jobs and bankrupting companies, although recent positive news on consumer spending, unemployment claims and housing prices have some speculating that a turnaround is in store.

Art Woolf, an associate professor of economics at the University of Vermont, said it is impossible to identify a trend with the local sales tax numbers until at least two more quarters show similarly improved revenue.

The most recent figures may be more of an indicator of local retail trends than evidence the economy is rebounding, Woolf said. He noted that Williston, home of several national retailers including Wal-Mart, may simply have become a destination for more faraway shoppers trying to pinch pennies.

“When times are tough, people are willing to drive further for a bargain,” Woolf said.

As for the national economy, he said the picture is also murky.

“Maybe we’re seeing the beginning of the end of the downturn, or maybe we’re seeing a false spring,” he said.

McGuire said he is worried that the latest quarter’s numbers may not yet fully reflect two troubling developments: The bankruptcy of Circuit City, whose Williston outlet was still open for part of the first quarter before finally shutting its doors for good; and increased competition for the town’s Home Depot store from a pair of new Lowe’s outlets in nearby Essex Junction and South Burlington.

Still, the new sales tax numbers put the town on track to meet revenue projections for the fiscal year ending June 30, McGuire said. The town had estimated it would receive $450,000 for the fiscal year’s third quarter, a figure exceeded by $37,000.

Williston now needs only to slightly exceed the projected $620,000 for the quarter ending in June to meet the yearly revenue estimate and avoid dipping into shrinking reserves to balance the municipal budget.