After consistently eclipsing budget projections and 2019 numbers each month, Lake Havasu City saw its revenues fall well short of both of those figures for the first time in March.
City sales tax revenues have been steadily climbing in recent years, but the coronavirus has abruptly reversed that trend as social distancing recommendations and other guidelines to slow the spread of covid-19 started taking hold locally and across the country. According to the monthly sales tax report, Lake Havasu City collected $2,231,199 in sale tax in March which is 9.5% less than it collected in March 2019 and 12.2% lower than projected in the budget.
“We weren’t fully impacted in March, but we were for a good part of that month,” said City Manager Jess Knudson. “So this is the first information we have received since the stay-at-home order and the restaurants and other business were impacted with closures.”
The city sales tax revenue is comprised of the 2% city sales tax, the 3% hotel/motel tax, and the 1% restaurant and bar tax. The hotel/motel tax was the most negatively affected of the three, bringing in just $67,798 in March — a 44.2% drop from March 2019. The restaurant and bar tax also dropped by 29.2% compared with 2019.
Although the city is still waiting for more information, like these sales tax reports, to develop a full picture of the coronavirus’ impact on the local economy, city staff is currently projected up to a 20% decrease in city revenues in the coming fiscal year. Knudson said the latest report tracks with the city’s expectations.
“Honestly, it is pretty close to what we were expecting to see,” Knudson said. “It is another piece of the puzzle as we try to gather as much information as possible to make a determination on how the city was impacted over the last few months and what the impacts are going to be moving forward.”
While sales tax numbers overall are down, the retail industry actually did better in March 2020 than in 2019 by 6.3%.
Within the retail industry, retail stores were the most adversely effected with a 14.4% decrease from to last March. Tax revenues from motor vehicles and parts fell 10.9% and home furnishing and appliances saw a 9% drop. But those declines were offset by increases in other retail categories in March. Non-store retailers, mostly internet sales, saw the biggest spike while generating 85% more revenue than last March. Building materials, lawn, and garden also rose 12.2% in March while food and beverage stores increased 8.7%.
Although it is the first report showing a decline in city sales tax revenue, April’s numbers are expected to be even grimmer. March started out as a fairly normal month, economically speaking, but the World Health Organization declared coronavirus a pandemic on March 11, all spring break activities in Havasu were canceled on March 16, and Lake Havasu City Mayor Cal Sheehy declared a state of emergency on March 18. Perhaps the most impactful action was Gov. Doug Ducey’s executive order closing non-essential businesses including bars, movie theaters, gyms and dine-in at restaurants which was issued midway through the month. The order didn’t take effect in Mohave County until the first confirmed positive case was reported on March 25.
“Those impacts happened at the end of March,” Knudson said. “So the data that we are looking at is before the closure of many of the businesses in Havasu – it included about a week. April will be more significant in terms of impacts to the small businesses and the local economy.”
Sales tax numbers from April are expected to be released sometime in June.
FY 2020-21 so far
Although the sales tax numbers dipped in March, Lake Havasu City’s strong first three quarters still keep it ahead of last year’s pace, and ahead of projections.
Sales through March generated $22,219,133 in sales tax revenue for Havasu, which is 5.1% more than budgeted and 6.8% ahead of last year’s pace.
By industry, retail accounted for the largest share of that increase bringing in $1.2 million more in sales tax, or 10.9% ahead of the 2019 pace. Restaurants and bars sales tax revenues through March are almost exactly the same as 2019, bringing in a total of about $1,000 more than last year. Meanwhile rental, leasing and license has increased by 11% compared to 2019 while accommodations rose 7.8%. The construction industry has seen a small drop of 1.3% compared with 2019.
Communications and utilities saw the biggest drop compared to last year with an 11.3% decrease in 2020.
Other major revenues
Many of the city’s other major revenues were also adversely effected by coronavirus in March, according to a monthly report from the city.
Water user fees brought in 12.8% less than budgeted in March, and 1.3% less than in March 2019 while the wastewater user fees came in 7.7% below the budget and 3.1% lower than the previous year. The Highway User Revenue Fund also took a significant hit in March coming in 9.3% under budget for the month, and generating 7.2% less than it did in 2019.
The city allocated portion of the state shared sales tax was the most positively affected revenue category included in the report after it brought in 27.8% more than anticipated in the budget and 27.1% more than in March 2019. Knudson said internet sales are included in the state shared sales tax, and likely played a role in the increase in that category.
All other state shared revenues decreased, coming in 13.8% under budget and 4.7% below 2019 revenue.