Sales Tax Projections Impact Local Government Budgets

May 21, 2020

The Coronavirus Pandemic popped up just as local governments across the state were in the heart of budget season. That’s forced many to reassess plans that were made back in January. As cities and counties ponder budget cuts, they’ll look closely at the pandemic’s impact on sales tax revenue.

The economic impact of COVID-19 has yet to be fully realized by local governments.  But that doesn’t mean they’re not bracing for it during the budgeting process, says Canton Town Manager Jason Burrell.

“We decreased the expectation of sales tax by 10 percent with the idea that as we track the bimonthly payments of sales tax, we haven't seen that much of a decline,” Burrell said. “But at the same, time we've seen we're still in a better position than say for instance, last year.”

Merchants charge sales tax and remit that to the state, which then distributes it back to cities and counties. Data collection lags by about two months, so most governments don’t yet know what they’re in for yet.  But Burrell hasn’t had to cut much – Canton’s strong manufacturing base leaves the town less reliant on sales tax revenue.

“Our economy here in Canton or the dynamic here in Canton is a little bit different than some of our other sister municipalities,” he said.

Haywood County’s $87 million dollar general fund is far more dependent on sales tax revenue.

“Sales tax is probably about 20 percent of our general fund revenue, so it’s critical,” says County Manager Bryant Morehead.

That works out to roughly $16 million dollars a year. Although more diversified than Canton’s economy, Haywood’s is heavily reliant on the millions of dollars tourists annually spend on hotels and motels, at bars and restaurants and the area’s many outdoor attractions. Due to state and local “stay at home” orders, much of that money won’t make its way to Haywood County this year.  That means Morehead must hold back on projects previously planned.

“We had discussed doing a classification and pay plan study for our employees. It's been over 10 years, maybe closer to 20, since we've done that. We've cut out of the budget. We also were gonna talk about our response times, adding some telecommunicators for 911 and looking at an EMS base in the Clyde area to lower our response times,” he said. “Both of those have been cut out.”

By law, local governments must pass yearly budgets no later than June 30.