Town's Taxes Remain Steady

Good news is that sales tax reflects health of businesses in community

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Payson is betting the budget for next year on the assumption that current economic problems won't get any worse -- but that's probably not a sucker bet considering the 10-year history of town revenues.

Sales, income and property tax revenues all fared pretty well in the current, recession-shadowed year. The reports of big revenue shortfalls for the town relate mostly to overly optimistic projections, rather than actual revenue declines, according to an analysis of just released details on revenues in the current year.

The major exception to that rule lies in the plunge in building permit and impact fees, due to the slump in the housing market. However, those impact fees are supposed to pay for various improvements relating to development rather than operating costs.

For the upcoming year, town budget planners have abandoned the notion that revenue will resume its normal 10 percent annual rise, but have also assumed they won't fall in the face of a lingering downturn.

"You hear different economic forecasts," said Doug Hill, Payson's finance manager. "But at the end of the day, no one really knows. We're doing the best we can to come up with an estimate -- we're being conservative. Unfortunately, we don't have the revenue base increase like in past years."

That's because this budget in the current year marked the first time in a decade that the town had almost no net increase in revenue -- compared to 7-10 percent annual increases in previous years.

The nearly concluded budget year had revenues about equal to last year -- and the town's forecasts assume another year with about the same $36 million in income from all sources.

An analysis of each source of revenue indicates surprising, long-term stability, which perhaps accounts for town planners' assumptions the good times would roll on through the current budget year. When revenues instead flattened out, the town had spent its entire reserve fund before making spending adjustments.

Sales tax figures provide a good case in point.

Payson collects both a share of the statewide 5.6 percent sales tax and its own add-on of 2.1 percent.

The local sales tax rose from $3.7 million in 1996/97 to $6.9 million in 2006/07 -- an 86 percent rise. The increase in that period averaged 9 percent annually, but varied from 1 percent in 2001/02 to 21 percent in 2005/06.

The town's share of the state sales tax followed a similar pattern, with a 40 percent rise, to a peak of $1.5 million in 2006/07 -- an average increase of 7 percent annually.

But after a decade of steady growth, sales tax revenue dropped in fiscal year 2007/08, but only slightly. The local tax dropped a modest 1 percent to $6.8 million. The town's share of the state sales tax dropped by 4.5 percent, to $1.4 million.

The town's 2008/09 budget balances out with a razor thin contingency, but is based on the assumption that sales tax revenues will rise about 2 percent from current levels.

Only revenue from impact fees proved extremely volatile as a result of the combination of a national mortgage meltdown and a slow-motion recession.

Revenue from building permits grew from $71,000 in 1996/97 to $557,000 in 2005/06 -- a 43 percent increase and a growth rate of 9 percent annually. But permit fees fell off the ledge in 2006/07 with a 30 percent decline. They fell again this year, with a 31 percent decline to $265,000. For the upcoming year, the budget projects only a $1,600 increase in permit fees.

Similar trends emerged in other development-based impact fees, with the park development fees dropping from $154,600 in 2005/06 to $70,000 2007/08. Water impact fees, mostly to pay for the Blue Ridge pipeline, fell from $470,050 in 2006/07 to $202,000 in 2007/08 -- a 47 percent drop.

The bed tax was another revenue source that registered a decline.

Bed tax receipts rose at a 16 percent annual rate between 1996 and 2005/06, when they peaked at $211,097.

But as the economy softened, bed tax receipts fell 2 percent in 2006/07, and an additional 10 percent in the current year to $184,117. The budget calls for a $2,000 increase in the upcoming year, which would still be the third-highest year in the town's history.

Most of the other town revenue sources remained either essentially flat or increased slightly, even in the face of the economic woes. That pattern includes the $61,000 cable franchise fee, the $210,000 electricity franchise fee and the $73,000 propane gas franchise fee.

Other town programs held their own, with a small increase in the Event Center's $16,000 revenue, a roughly 5 percent drop in court fees to $200,000 and revenue from the town's $976,000 share of the vehicle license fee holding steady.

The town's recreation programs actually recorded a 28 percent increase in revenue, to $85,000 -- a reflection of the booming participation in town swim and sports programs.

All in all, the Payson has so far ridden out a difficult economy, with big drops in permit fee revenue, but only modest losses so far in sales tax receipts -- which have been offset by increases in income and property tax revenue.

Still, town budget planners proved a year late and about $3 million short in anticipating the end of the boom times that boosted town revenues by 10 percent or more in most categories year after year. That lag consumed the once healthy rainy day fund, leaving the town little margin of error should the recession deepen rather than ease in the next 12 months.

"Some people say it's going to get worse, some people say it will turn around tomorrow," said Hill. "But we're taking the position that it's going to be pretty soft for the next year -- with flat economic growth."

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