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Peoria sees ‘remarkable growth’ in revenues during pandemic

Gains in sales tax revenue, housing, small business permits

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The COVID-19 pandemic hit the country in numerous negative ways, but Peoria’s local economy actually netted some positives, gaining ground in sales tax revenues, housing and small business permits.

To take advantage of this, city officials will ask the council to approve more than 35 new positions — largely in public safety — through a mid-year budget adjustment.

Peter Christensen, deputy finance director for budget and revenue, said about 37%, or about $63.4 million, of Peoria’s general fund, about $168 million, comes from sales tax revenue, which has benefited from a number of economic indicators during the pandemic.

The city has seen steady growth in local tax revenues since coming out of the Great Recession, and that revenue has gradually risen year-over-year at an average of 5.5% during the past five years.

Going into the COVID-19 pandemic, unsure of how the local economy would be affected, the finance department made drastic revenue revisions to the budget, projecting losses.

But Christensen said the city only saw two bad months in March and April 2020. In actuality, revenue in fiscal year 2020 went up 7% and in fiscal year 2021, the city saw “remarkable growth” of 14% — almost $21 million above what was initially budgeted.

“Because of those projections, we completely changed our budget. We eliminated most ongoing spending and actually started preparing for mid-year budget cuts at that time,” Christensen said. “Fortunately, those forecasts never materialized and actuals came in much more positive.”

Sales tax growth

When the pandemic hit in March 2020, sales tax revenue fell 5% compared with the previous year and in April 2020, sales tax revenues dropped 13% compared with the previous year. The two declines equaled a loss of about $1.5 million.

Since that time, officials said Peoria’s monthly sales tax revenues have been averaging double-digit growth compared with the prior year.

Interim Public Works Director Kevin Burke said when the CARES Act was approved in May 2020, national consumer confidence stabilized.

Then the American Rescue Plan Act injected $10.38 million into Peoria’s general fund earlier this year, with $5 million set aside to help individuals, families, and businesses negatively affected by the pandemic. The balance was used to make up for pandemic-related revenue losses and is available for one-time uses in the city’s general fund.

Burke said consumer confidence has dipped in recent months because of inflation, but the city’s sales tax revenue is still growing.

The stimulus packages kept the Consumer Confidence Index high during the pandemic, allowing for growth in retail sales, a critical economic indicator for the city.

Officials said another critical local indicator — automobile sales — has also grown.

As for the growth in car sale revenues, Christensen said the only hard data the city has is its sales tax revenue receipts.

“I can only speculate that it is attributable to the higher costs of vehicles,” he said.

In summary, Peoria’s key economic indicators continue to show stable but solid growth going forward, Burke said.

“The CCI is a story about the stimulus packages. CARES got us through a year and then ARPA preceded a jump in CCI, and got us closer to pre-pandemic levels,” he said. “Consumer confidence is what really drives our economy. When people are confident in the economy, they spend their money, and if they spend their money the economy moves, and everything seems productive.”

Finance department officials forecast that revenue will continue to increase at a modest rate through fiscal year 2027.

However, compensation increases and large capital projects will affect expenditures moving forward, Christensen said.

“We expect a positive gap between revenues and expenditures over next five years,” he said. “That gap will get smaller in the coming years.”

Economists are predicting other gaps opened by the pandemic to also get smaller in the future.

Danny Court, senior economist at Elliott D. Pollack & Company, said states and cities like Peoria have benefited from high sales tax revenues, but the effects of the stimulus packages and other relief will not last forever and spending will shift back to hotels, services and entertainment, as well as every other industry that was acutely affected by the pandemic.

Going forward, revenues will continue on a high rate of year-over-year growth, he said, but it will probably settle down to around 3-5% growth, which will still help grow the base.

“When you see it happing at the state level then know it’s happening in cities, but each city captures different percentages,” Court said.

“The revenue increase was an unexpected and pleasant surprise, but will settle back to a normal trend line in the next year or two.”

Public safety positions

Based on a positive Peoria forecast, Deputy City Manger Andy Granger said the city is asking for a mid-year budget adjustment to allow for 35 new positions.

At a city council meeting in January, staff will ask for these positions, which will include 15 new positions in both the police and fire-medical departments. This increase in public safety positions includes a sixth ambulance, which comes with six firefighters to make it fully operational.

To help reduce overtime in the fire-medical department, the city wants to bring nine new rovers to the roster — four captains, one engineer and four firefighters.

Granger said costs for this will be partially offset by overtime savings and ambulance revenue.

“Rovers do not have a shift assignment. They are available for shifts to fill vacancies due to vacations and sick leave,” he said. “This will fill that hole instead of requiring overtime.”
For the police department, staff will ask for a training officer and a lead equipment coordinator.

Because of an increase in caseload of investigations, staff will ask for three detectives and three support staff, in addition to six officers and one lieutenant for patrol services.

“The officers would improve our proactivity time in the south, which is basically the free time when officers aren’t responding to a call for service or writing reports, and allows them to provide enhanced community policing,” Granger said. “In the north it would allow for improved calls for service and response times.”

Commercial, residential growth continue
The city has seen a renewed interest in strategic parcels for economic development, partially due to the Taiwan Semiconductor Manufacturing Co. plant that recently broke ground in north Phoenix, east of the city.

Burke said supply chain companies continue to consider the Vistancia commercial core and Lake Pleasant Parkway for new locations.

He added the city continues to be on pace for 1,400 new houses this year, which has been consistent with the past couple years.

You would not know there was a big jolt to the economy by looking at the local housing industry, which has skyrocketed in the Phoenix area, he said.

“Nationally and locally, housing prices have shot up even more during the pandemic,” Burke said.

Because development activity remains high, Granger said the city’s development and engineering department is asking for three new positions that will help with residential and commercial plan review and plan review turnaround, as well as inspection oversight on residential and commercial plan review.

“These costs will partially be offset by development fees,” Granger said.

Water, small business

As part of the mid-year budget review, staff also will request two new positions for the water services department to help with the city’s water contingency plan and redundancy efforts, as well as enhance water conservation efforts throughout city.

Lastly, new business licenses grew 37% over fiscal year 2020 and 14% over fiscal year 2021. Officials said the city is seeing a great injection of activity for new businesses.
Burke said when the vaccine was launched, the city saw a leveling off of COVID-19 cases but then unfortunately an increase with the emergence of the delta variant. But the city remains optimistic about the future, he said.
“The delta variant ends this story on a down note, but not a sad note because if we start looking at our other economic indicators, we really see some good news coming,” Burke said.

Despite the positive forecast, Christensen said there are still reasons to proceed with caution — inflation, the end of federal stimulus packages, declining consumer confidence, supply chain disruptions, a tight labor market, rising labor costs, as well as housing price increases and lack of affordability.

“Each of these things affect our budget and our financial position in different ways,” Christensen said. “Inflation impacts our capital projects and the commodities that we use in our operations, and consumer confidence can signal where sales tax revenues may be headed.”

Philip Haldiman can be reached at phaldiman@iniusa.org, or on Twitter @philiphaldiman.

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