SUBSCRIBER EXCLUSIVE

Surprise revenues reverting to normal this fiscal year

Posted

While the city, state and nation are nowhere near the other side of the COVID-19 pandemic, its associated fiscal chaos appears to be in retreat.

At least conditions are more comfortable for planning a city budget than they were nearly a year ago. In mid-March 2020 the novel coronavirus brought the economy and city services to a halt — right in the middle of Surprise City Council meetings detailing a Fiscal Year 2021 budget now rendered at least partially obsolete.

“When we were setting our Fiscal Year 2021 budget, there was much more undecided,” Surprise Financial Director Andrea Davis said. “2021 was the COVID budget. This (fiscal year 2022 budget) is more like 2020.”

Ms. Davis said her office always structures the budget conservatively, and the FY 2021 edition came together with even more caution.

Surprise, like most cities, took an economic hit in the summer. But sales tax revenue data collected from July through November 2020 is closer to a “normal” amount, Ms. Davis said.

SALES AND USE TAX (FISCAL YEAR JULY-NOVEMBER)

General Fund 2019 Actual 2020 Actual 2021 Actual 2020/2021 Variance
Retail  $6,880,560  $7,664,947  $10,487,324  $2,822,378
Vehicles  $3,110,937  $3,456,691  $4,267,798  $811,107
Communications/Utilities  $2,412,006  $2,384,816  $2,547,140  $162,324
Restaurant/Bar  $3,076,426  $3,376,965  $3,671,804  $294,839
Real Estate/Rental & Leasing  $2,164,118  $2,418,268  $2,717,164  $298,896
Arts/Entertainment  $206,517  $240,704  $185,516  $-55,189
Hotel/Motel  $208,055  $271,543  $232,701  $-38,842
Use Tax  $589,33  $678,681  $979,337  $300,656
Transient Lodging  $52,617  $79,232  $69,467  $-9,765
Other Tax Activity  $134,146  $57,047  $79,304  $22,257
Total General Fund*  $18,834,714  $20,628,893  $25,237,555  $4,608,662


REAL ESTATE PERMITS MAKE UP SALES GAPS

Sales and use tax general fund revenue for the city in those months totals $25,237,555, a 22% increase from the figure from those same five months in 2019 (FY 2020).

“The overall impact was not as deep or as disastrous as was feared,” Ms. Davis said.

The seemingly COVID-proof real estate boom is helping the city cover for understandable sales tax shortfalls in retail and tourism businesses.

New home construction continues almost unabated in the city. Surprise sees the benefit of the current housing boom from revenue on permits for service.
These permit revenues have more than made up for parks and recreation fees, which took a major hit, and passport services, which have not resumed.

“That definitely helped since parks and recreation and spring training were hurt last year,” Surprise budget director Holly Osborne said.

Plus the new arrivals add to the consumer base in Surprise, expanding sales tax revenue every time they shop in their new town.

Local sales tax accounted for 40% of the city’s FY 2021 budget, the largest of any category. Intergovernmental revenue — from federal, state and other government sources — is next at 31%.

CARES Act funding also gives Surprise some flexibility.

Sales tax revenue from restaurants, gyms, movie theaters and hotels is still down.

“Although restaurants were down, they did better than maybe we thought they would,” Ms. Davis said.

The Cactus League is a major source of sales tax windfall. That will not happen this March, but the smaller revenue amount is easier to project this year. COVID-19 shut down spring training 12 days earlier than planned in 2020.

Spring training games will be capped at 25% capacity and out-of-state travel to and spending in Surprise figures to be down considerably.

“Because it’s still very limited in nature, we’re still being very conservative with our projections for spring training,” Ms. Davis said.

Surprise’s sales tax ratio per household is lower than West Valley neighbors Avondale, Glendale, Goodyear and Peoria.

The city’s three other sources of tax revenue also are trending up.
• Transportation Improvement Fund revenue was $4,064,396 in July-November of 2020, an increase of $1,450,652 from the same period in 2019. This increase is directly linked to Surprise’s growth, as the it flows from a dedicated 1.5% local construction transaction tax.
• General Capital Fund revenue skyrocketed to $5,961,114 in those five months, a considerable jump of $2,127,623 from the same time frame in 2019. This includes collections from businesses engaging in contracting activity — such as prime contracting, speculative builders and owner builders, new commercial and residential construction, and modification contracts.
• Surprise’s share of State Tourism Fund — typically money collect from statewide bed taxes on hotel rooms — dipped to $244,523, a comparatively minor drop of $34,373 from July-November 2019.

“March and December are typically our biggest sales tax months, though we don’t know how this March will be,” Ms. Osborne said during the Feb. 16 council work session.

Ms. Osborne said the city is monitoring a bill in the state legislature that would siphon off some intergovernmental funds.

“There is current legislation that is going through the governor’s office that’s proposing to reduce the income tax all around. If that goes through this city, at our current rate, would lose $2.2 million year over year,” Ms. Osborne said during the meeting.

Surprise is growing its sales tax base, and shows signs of its economic windfall is catching up to the costs of serving a city that grew wild in many of the past 20 years.

Rapid population growth, for example, requires a host of new services, such as expansion of public safety.

“When you’re in a residential growth community, you’re running at a deficit. For every dollar of residential costs — public safety and the rest — your revenue is 72 cents. Commercial catches up but there’s this timeline. That’s part of our challenge,” Mayor Skip Hall said.

Comments