Local governments are well placed to survive the decreases in sales tax revenues associated with the coronavirus, thanks to robust reserve fund balances.
City leaders on the Northside say it’s too early to tell exactly how much sales tax collections will decline as a result of the outbreak.
However, they say they’re prepared to dip into their rainy-day accounts to cover any shortfalls.
Jackson has at least $13 million remaining in its rainy-day fund. The city had to dip into the account earlier this year to help cover cleanup costs from the Pearl River flooding. Much of those expenses will be reimbursed by the federal government.
Meanwhile, Ridgeland has about $15 million in its reserve fund, roughly 59 percent of its annual budget. Farther north, the city of Madison has about $9 million in reserves, about a third of its annual budget.
Whether those funds will have to be touched remains to be seen.
“We know anecdotally that sales tax from restaurants has gone down, but we believe we will see an uptick in grocery store sales,” Jackson Chief Administrative Officer Robert Blaine said. “We’re not sure if that will be enough to replace the revenues we lose from restaurant sales. We won’t know that until we get the numbers in.”
Cities across the country are facing similar concerns. According to an NBC affiliate in Forth Worth, Texas, leaders there are expecting a 30 percent drop this year in sales tax revenues. Farther east, the Alabama League of Municipalities says some cities there could see sales tax collections drop as much as 40 percent, according to an ABC affiliate in the state.
National numbers seem to back up those projections. Business Insider reports that U.S. retail sales for March dropped 8.7 percent, the same month cities and states began implementing coronavirus mitigation efforts.
Locally, in mid-March Mayor Chokwe Antar Lumumba issued an executive order closing non-essential businesses and limiting restaurants to carry out and delivery services. A week later, Gov. Tate Reeves issued a similar order for the state.
In April, those limitations were continued as part of more strict shelter-in-place orders issued by both the governor and mayor.
Last week, Ridgeland lifted some of its restrictions, allowing non-essential businesses to provide curbside service and deliveries.
Statewide, Reeves was also beginning to lift some restrictions on non-essential businesses.
The rules shuttered many retail shops, like the ones at Highland Village, Northpark and Renaissance at Colony Park. However, big box retailers, like Walmart, Sam’s Club, Kroger and Costco have remained open.
Costco’s grand opening on March 12 likely will help boost Ridgeland’s sales tax numbers during the outbreak. Because it sells groceries, the wholesale warehouse is considered an essential business and may remain open, under rules of the state’s executive order.
Prior to the outbreak, projections showed the store would generate $1.3 million a year in new sales tax revenues for Ridgeland, about 10 percent of what the city brought in all of 2019.
Madison Mayor Mary Hawkins Butler said big box retailers in her city have been doing significant business, even as many smaller shops there have temporarily closed.
Even so, city leaders truly won’t know the impact of the shelter-in-place orders until May, when they receive March’s sales tax diversions from the state.
Municipalities remit sales tax collections to the Mississippi Department of Revenue (DOR) on a monthly basis. Once collections are finalized, the state diverts 18.5 percent of those revenues back to their cities of origin.
In other words, Jackson, Madison and Ridgeland receive 18.5 percent of all sales taxes they submit to the state.
Cities will receive March’s diversions in early May and April’s diversions the following month.
Jackson received almost $1.7 million in sales tax diversions in March 2019, while Ridgeland received a little more than $1 million and Madison received $665,000. April diversions were nearly $2.6 million for Jackson, $761,000 for Madison and $1.2 million for Ridgeland, according to DOR statistics.
Blaine expects the city will have to dip into its reserve fund but wasn’t sure how much would be needed. He also said it’s too early to tell if the city will have to make budget cuts to cover any revenue shortfalls.
“The honest truth is we don’t know,” he said. “We won’t know until we get the numbers in.”
Ridgeland Mayor Gene McGee and Madison Mayor Mary Hawkins Butler said strong reserve funds in their municipalities likely means cuts won’t have to be made.
“That is … why we keep a strong fund balance, so we won’t have to make cuts,” McGee said.
Said Butler, “Madison has a healthy fund balance that prepares us for the unknown.”
