Like many municipalities, sales tax serves as one of Ceres’ largest sources of revenue, but the coronavirus and its threat to health and disruption to the economy could create a big hole in the city’s budget.
The U.S. Census Bureau reported that nationwide, retail sales fell a seasonally adjusted 8.7 percent in March from February — the largest monthly decline on record. While Ceres City Manager Tom Westbrook – who just took over for the departing Toby Wells on April 14 – said we won’t know the full impact of COVID-19 on Ceres’ retail sales for months, it’s likely to have a significant impact.
For the current fiscal year which ends on June 30, the city projected $6.8 million in its share of sales tax revenue. Property taxes were estimated to be $2.2 million and $4 million in motor vehicle in-lieu fees.
“What I’m hearing through my channels and the calls that I get to be a part of now folks are kind of estimating that overall through the course of the year … they’re expecting plus or minus 10 percent (in decrease),” said Westbrook. He said that translates to an expected loss of $680,000.
Because sales tax receipts are released by the state by quarters, the city likely won’t know until September what happened in April, May and June, the second quarter.
With a General Fund of about $24.4 million in spending and $24.3 million in revenue, sales tax makes up a “big chunk” of Ceres’ livelihood.
Westbrook said the city gets a lot of sales tax revenues which fall outside of the normal retail world that shoppers know about. He gave the example of ABC Supply Company, a drywall company, Kingspan, Hertz Penske Truck Rentals, E.R. Vine & Sons, Pacific Mobile Structures, Sunbelt Rentals, Rush Truck Center (formerly Country Ford Trucks) and Stanislaus Farm Supply. Some of the sales from those companies may also be impacted by the shutdown of the California economy.
McDonalds, which has four restaurants in Ceres, is the only fast-food chain in Ceres’ top 25 sales tax generators.
While the social distancing requirements have devastated sit-down restaurants and non-essential retail businesses, local markets and grocery stores are seeing a big boost in sales. Grocery stores are doing two times what they were averaging prior to the shutdown. Those increases in sales won’t result in sales tax increases since food sales are non-taxable. Still, in Ceres, Cost Less Foods and Food-4-Less are among the top 25 sales tax producers for Ceres city coffers.
In addition, many shoppers are now buying non-grocery items from out-of-area online companies, like Amazon.
Top producers that are still open include stores that have been deemed essential, like Walmart, Home Depot, McDonald’s and gas stations. Gas stations dominate the list of top 25 sales tax generators. Some businesses in the top 25, including Ross and dd’s DISCOUNTS, have been forced to close.
A number of restaurants which have remained open for curbside pickup are still struggling to do the volume they did before.
Across the country, the outlook is bleak. The federal government’s March sales report saw nearly all types of brick-and-mortar retail establishments sustain loss and projections predict that sales tax collections will remain depressed throughout most of 2020.
Another 4.4 million Americans filed for initial unemployment claims last week, raising the total to more than 26 million who have lost their jobs since the COVID-19 pandemic economic closures began in all 50 states more than a month ago. But it could be as high as 29 million, since the monthly unemployment report from March showed 3 million Americans had also lost their jobs in March. Add to that the 5.8 million who already were unemployed when the economy was at a 50-year low of 3.5 percent, and that raises the effective unemployment rate to anywhere from 19 percent to 21 percent, with more than 32 million jobless.