Puyallup braces for COVID-19 impact on budget as sales tax revenue expected to drop 25%
The coronavirus pandemic will hit all government budgets this year, but for those more dependent on sales tax revenue — such as Puyallup — the pain will be more severe.
Half of Puyallup’s general fund comes from a tax on sales at car dealerships, the South Hill Mall, other retail and professional services, Finance Director Barbara Lopez said. She expects a quarter of estimated sales tax revenues to disappear.
In total, Lopez is preparing for a $7 million reduction in revenue this year. The general fund is $56.2 million.
The Finance Director hopes this is a “worst-case scenario,” created by estimating a smaller return than expected in every month since the beginning of the pandemic.
Other than sales tax, Puyallup is bracing for the impact of other financial losses, like the cancellation of the Washington State Fair, which means $865,000 in revenue for Puyallup. There has also been a drop in gambling, permits and recreation programs, meaning less tax revenue.
Puyallup has taken measures to account for the financial impact of COVID-19. Fifteen city employees have been furloughed, and the city has delayed new equipment for IT and vehicle replacement, saving $2.9 million.
Street projects originally scheduled for this year have been delayed, including the Safe School program to improve walkways to schools.
Lopez said the city will have to dip into reserves, but expects that less than $500,000 will be withdrawn.
“If ever there is a good time and reason to responsibly use reserves, it is now during a pandemic,” she said.
Puyallup council members have a target reserve balance between 8% and 15% of revenues. The end of the year is estimated to be 9.7 percent of revenues.
Car dealerships
The River Road car dealerships are a “big chunk” of the city’s sales tax revenue, Lopez said. Of the sales tax revenue, car sales account for 28%.
For every car purchased, the city collects 3.4%.
John Hall, President of the Korum Automotive Group, said when car dealers were shut down by the stay-at-home orders from Gov. Jay Inslee, services and parts sales paid the bills.
Compared to last year, Hall’s dealerships have brought the city $300,000 less in sales tax from March to May, but a strong January and February meant the city has only seen $200,000 less than the first half of last year.
Hall believes that those sales will be entirely recovered, but some who still need to buy a car will push their purchase down a few months.
“Anytime you have buyers who need to buy, and there is an event like snowmageddon in 2019, people couldn’t buy because they had to stay home, but they bought cars in March,” he said.
“If they have a need to buy a car, they are still going to buy.”
