Slowdown in Lee’s Summit housing starts drags growth in sales tax revenue

rpulley@lsjournal.comFebruary 28, 2014 

Sales taxes receipts for Lee’s Summit continue to grow, but are expected to increase slower than the historic pace.

During high-growth years, prior to the “Great Recession” of 2009, the city traditionally expected annual growth in sales tax of 4 percent, however now it is using 1.5 percent to project its receipts, officials said.

The recession caused a big dip in sales taxes but has somewhat rebounded.

The city’s general fund gets about 23 percent of its money from sales taxes, the city has a one-cent tax on every $100. It also has a half-cent tax earmarked for capital improvements, a half-cent earmarked for transportation and a one-quarter cent for parks.

Lee’s Summit now is talking about budget cuts, in part because of flat growth in sales taxes. Lee’s Summit is receiving an average of $13.3 million a year, over the last three years, officials said.

In the 2009-10 Fiscal Year (from July 1 to June 30) the city got nearly $12 million for its general fun, but that was 2.5 percent below the previous year. It bounced up nearly 7 percent in 2010-11, and the up 4 percent to about $13.3 million in 2010-11. Another downward dropped it 1.2 percent to slightly more than $13 million.

The outlook for the sales tax changed for several reasons, said Conrad Lamb, finance director, and Nick Edwards, management analyst for the city.

Right after the financial collapse in 2009 and $4-a-gallon gasoline, Lamb said the city saw a correlation between losses in disposable income and sales taxes from restaurants. Today, as people have adjusted to the market and gas prices are lower, hovering above $3

“You see some of those things coming back,” Lamb said.

The amount of sales taxes continues to grow, but the growth rate is expected to stay lower around 1.5 percent.

Edwards said the higher-growth rate of about 4-percent can be attributed, in part, to years of a housing boom when there were 700 to 800 houses built in Lee’s Summit annually. Growing the population by about 2,000 residents a year meant more sales, particularly at restaurants and groceries.

While building has increased from the standstill in the recession, it still is far below that level. In 2013, Lee’s Summit issued 334 building permits, according to the Homebuilders Association of Greater Kansas City.

The city expects to continue to add retail, there is a proposed expansion at Summit Fair shopping center, a second Wal-Mart Supercenter and another Price Chopper, but even with those, growth will be smaller because of stores already in business.

The construction of SummitWoods Crossing had already helped stem leakage to other communities, Lamb said.

Before SummitWoods, aside from groceries, there was a dearth of other kinds of sales taxes.

“At the time SummitWoods opened, it was significant,” Lamb said. “We’ve definitely closed the gap.”

They said Lee’s Summit can expect to have higher growth in sales taxes, although it might no reach the 4-percent annual level again.

“To do that, we would have to capture Internet sales,” Lamb said.

That’s a growing drain, Lamb said, to the city’s tax receipts, although he can’t quantify it at this point.

Lamb said, anecdotally, that every time he turned around this Christmas shopping season, another package his wife had ordered was being delivered to his home. That’s being repeated in thousands of homes.

Lamb said Missouri is again looking at legislation to enable it to participate in Streamlined Sales and Use Tax Agreement, an agreement passed by 24 states so far.

That would help cities like Lee’s Summit to collect use taxes on sales through the Internet, Lamb said.

But it’s complicated because of the many tax rates for different cities, and exceptions to sales tax in Missouri law, and questions about the mechanisms for collecting from vendors and distribution to cities.

It will be a difficult task the legislature might not accomplish, Lamb said.

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