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City faces slippery slope of retail

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Springfield is experiencing waning sales tax revenues and online shoppers are cited as the cause.

City Manager Greg Burris isn’t pointing any fingers, though. He said the city gets it.

“We’re not against online sales. That’s a great experience for consumers,” Burris said. “But it does create an uneven playing field.”

Local brick-and-mortar stores fund the daily operations of a city. Police and Fire operations, Public Works and administrative support all are supported by the general fund. Online retailers, Burris said, cut into that support.

“They can’t contribute to the greater good of the community,” he said.

Many retailers in Springfield have felt the impact of virtual shopping carts. Two Kmart stores and a Staples store have said their goodbyes. The Limited, Vanity and MC Sports stores have come and gone inside Battlefield Mall.

Diminishing retail options in Springfield, Burris said, could be evidence of increased online shopping – and spelling the slide of sales tax revenues. He’s likened the pace of store closings nationally this year to what followed the Great Recession in 2008.

Springfield’s fiscal 2017, which ends June 30, budgeted $45.4 million in sales tax revenues, and it’s 4 percent off that goal. City Council just passed the next fiscal budget with projections lowered 1.3 percent to $44.8 million in annual sales tax revenues.

“We will not hit our target for fiscal 2017,” said David Holtmann, the city’s finance director, concerning the year’s sales tax revenues.

On its last month in the fiscal year, the city is on a four-month slide in sales tax collections versus projections for those months. The tally for the month of June – representing sales processed by the state in May from transactions made in April – came to $3.9 million. That’s 10 percent less than what city officials forecasted for the month.

“I think it was pretty clear throughout the year,” Holtmann added. “We weren’t making our monthly projections.”

Micro and macro
One new clothing store hasn’t followed the same trend as the city’s numbers.

“We haven’t necessarily seen a downfall,” said Rachel Dillard of Lush at Bartique, 318 W. Walnut St.

While just finishing the first year in business, she said last month’s sales doubled that of the store’s first month in May 2016.

She’s found it important to provide a unique experience for customers to keep them returning. That’s why her store includes a bar along with the local brands and designers.

“I’m doing a lot more to push the alcohol side of it,” Dillard said.

However, she’s aware of the sales trends and plans to add an online store soon with the aim of increasing clothing sales by another 50 percent.

“Online is more convenient,” she said. “I do it, too.”

The problem for cities is most internet sales are exempt from sales taxes. According to the Missouri Department of Revenue, internet sales taxes only are assessed when both the shipping and delivery points in the transaction are within the state.

Across the United States, Census Bureau data show sales tax revenues could be affected by online shopping.

Gross retail sales amounted to $1.25 trillion in the first quarter, a slow growth rate compared with $1.2 trillion recorded in first-quarter 2016. During those quarters, the proportion of e-commerce sales compared with total sales grew to 8.5 percent from 3.8 percent a year earlier. While not yet a significant share of the whole, the Census Bureau data show e-commerce increasing at a faster rate.

This year, Holtmann said the city conservatively set fiscal 2018’s sales tax revenues.

“We tried to be realistic about it,” he said. “We can’t just project things and expect them to come in when we’re not seeing it month after month.”

The city’s plan now, Burris said, is to investigate different sources of revenue.

“We’re using a 1950s sales tax model,” Burris said. “That doesn’t work in 2017.”

Next steps
Though the conversation hasn’t begun, city council members and staff must identify and diversify sources of revenue to combat the slippery slope of relying too heavily on sales tax revenues, Burris said. More than half of the city’s general fund is dependent on them.

Other cities rely more on property taxes. In Springfield, though, officials say property tax is used for capital funding, whereas sales taxes support operational expenses.

“While sales taxes are down and down significantly from our budget, we have been seeing things making up for it,” Holtmann said.

He pointed to pilot projects at City Utilities, like its partnership with NorthStar Battery Co. to build a battery-powered energy storage system. Carryover funds from previous fiscal years also have contributed toward making up for any shortfalls.

Holtmann said there aren’t any particular months where sales taxes have been alarmingly low.

“While we may see a difference in (sales tax) in one month, that may be because of a processing delay. We take it to that level of detail, to make sure we’re comparing apples to apples,” Holtmann said.

He explained several sales tax remitters didn’t get processed for June, which resulted in a significant decrease.

“Several of our vendors didn’t have any remittance coming to the state,” Holtmann said. “We think that’s part of the explanation from this past month anyway.”

The city is banking on its diverse economy, particularly the two large hospitals, educational institutions and manufacturers.

“It makes us very resilient,” Burris said. “We’re going to figure out a way to address the funding shortfall.”

For now, Burris and city officials will continue to feed the prominent entrepreneurial spirit present in the community.

“I see Springfield as fertile ground,” he said.



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