Pandemic revenue crunch short-lived in the city, county

The coronavirus pandemic has been unrelenting, but the revenue crunch Hot Springs and Garland County leaders braced for was short-lived.

April collections of the city’s 1% general fund sales tax and the county’s 0.50% sales tax supporting its general and solid waste funds were down 15.91% and 9.35% compared to 2019, but collections have exceeded 2019 totals in subsequent months. The $12,249,381 the city’s tax collected through October was 5.39%, or $626,896, more than last year. The $8,824,814 the county’s tax collected over that time was 8.25%, or $672,521, more than last year.

Because of the 60-day lag from when businesses collect sales taxes at the point of sale and when the state remits the payments to local governments, November and December collection numbers won’t be available until the end of this month and the end of next month.

“The strength of sales tax collections, and the underlying sales they represent, has been one of the most surprising features of this pandemic-induced economic downturn,” Michael R. Pakko, the Arkansas Economic Development Institute’s chief economist and state economic forecaster, said. “It’s not just Garland County. Across the state, consumer spending has proven to be extremely resilient.”

North American Industry Classification System data Pakko provided for sales taxes Garland County businesses collected in September showed increases in 12 of 13 retail sectors compared to 2019. The electronics and appliance store sector was the only category that saw a decrease, falling 3.9% compared to last year.

Collections from sporting goods, hobby, book and music stores were up 32.6%, general merchandise store collections were up 24.6%, and clothing and clothing accessory store collections were up 11%. Food and beverage store collections were up 12.2%. Collections from building maintenance and garden equipment supply dealers were up 24.2%, and health and personal care store collections were up 27.9%.

Pakko said cheap gasoline prices and reduced travel have given consumers more money to spend on other goods and activities, adding that the $600 a week in supplemental unemployment benefits the Coronavirus Aid, Relief and Economic Security Act provided through July 31 and the relief package’s $1,200 in direct payments also bolstered consumer spending. Consumers put that money back into the economy rather than using it to reduce debt or grow savings, he said.

“Ordinarily, economists would expect that temporary income windfalls, like the stimulus checks, would not translate one-for-one into consumer spending,” Pakko said. “Particularly in a recessionary environment, such temporary income gains tend to be saved or, equivalently, used to pay down accumulated debt.

“In the current situation, in which it might be reasonable to expect the period of economic hardship to be short, tending to support continued consumer confidence, even in these crazy times.”

Nonstore retailers, which includes online sales, saw the biggest percentage gains in September, rising 46.3% compared to the previous September. The state law requiring out-of-state online retailers and e-commerce facilitators to collect and remit state and local sales taxes had been in effect for three months in September 2019, so last September’s gains were compared to a month when state and local governments’ had already expanded their taxing authority to online commerce.

John Shelnutt, the state’s economic forecaster, said online collections have exceeded the state’s estimates.

“Internet sales tax has been through the roof here and in most states that we talk to,” he said. ” … Suffice it to say, internet sales tax collections are running at least double the (Department of Finance and Administration) estimate from early in the process and quadruple some of the other lowball estimates prior to (the U.S. Supreme Court decision that allowed states to require retailers without a physical presence in a state to collect and remit sales taxes).”

Shelnutt said cruises and trips to destinations such as Las Vegas, Hawaii and Florida being put on hold have benefited state and local coffers. Money that would have generated sales taxes for other states and cities has been spent locally.

That trend has hurt the 3% sales tax on lodging and prepared food hotels and restaurants inside the city collected on behalf of the Hot Springs Advertising and Promotion Commission. The city’s tourism authority has seen a 13.37%, or $798,538, drop in taxes collected on its behalf through October.

But collections rebounded in September, rising 8.69% compared to last year, according to the most recent report the commission released. The increase was consistent with the 3.5% gain the NAICS reported in collections from Garland County’s food service and drinking place retail sector. September collections of the state’s 6.5% sales tax were down 1.2% in that sector.

“Our restaurants, our hotels, our small businesses, the people here in Garland County and Hot Springs, have been extremely resilient,” County Judge Darryl Mahoney said. “They’ve thought outside the box. They’ve worked hard to come up with a plan to deal with the smaller amount of people they’re allowed to have in their buildings.”

Mahoney said prior to the pandemic’s arrival in late winter and early spring, 2020 county and city revenues were positioned for even larger gains than what was realized through October. January and February collections of the county’s 0.50% sales tax were up a combined 22.94% compared to the previous year. The first two months of collections for the city’s 1% sales tax were up a combined 28.72%

“In March, we lost the St. Patrick’s Day parade, which is one of the biggest events in the city of Hot Springs,” Mahoney said. “From there on, the convention center has been dark. There’s been no events there. We’ve had to give up a lot throughout the year, but to still come out at the end of the year being up 8% in our sales tax collections for the general fund is huge. Given the numbers we had seen from January and February, we were certainly on track to have a year that would never be surpassed.”

Pakko said the $600 in direct payments provided in the more than $900 billion in relief Congress passed last month should help buoy consumer spending in early 2021.

“The recent stimulus package passed in Washington will bring a fresh influx of purchasing power to Arkansas consumers, making it more likely that the rosy statistics on sales tax receipts, and the underlying consumer spending patterns they represent, will be maintained, at least for some time,” he said.

Read the full article on the Sentinel-Record’s website here.