SIERRA VISTA — While the COVID-19 pandemic was causing widespread financial harm to families and businesses across the country, it appears that Sierra Vista came through it in a good financial place.
New information from the city shows that its sales-tax revenue for the first two quarters of calendar year 2020 was up compared with the same two quarters in 2019 and 2018. That coincides with the height of COVID-19, when the city and much of the country shut down or dramatically reduced activity.
Further, information just made available for July shows a 12 percent increase year over year, according to City Manager Chuck Potucek.
“So our actual sales-tax numbers look very healthy through this time, which wasn’t what we were expecting when we put our budget together because we expected revenue losses,” Potucek said. “It’s a good-news story.
“Our budget is actually in very good shape because our costs did go down during COVID, in terms of our operations, moving employees around and not having to replace them right away, and, of course, our facilities weren’t operating fully so we weren’t experiencing the expenses associated with that.”
In the first quarter of this calendar year, Sierra Vista took in $5.1 million in Transaction Privilege Tax, or sales tax, funds, compared with $4.9 million over the same period in 2019 and $4.8 million in 2018.
In the second quarter of this calendar year, the city took in $5.4 million, compared with $5.1 million in 2019 and $4.9 million in 2018.
“So that was quite a pleasant surprise,” Potucek said.
Sales tax revenue is among the city’s main sources of income.
Accordingly, Potucek said that no budget shortfalls are projected in the current fiscal year, which began July 1 and runs through next June 30, and that no cuts are foreseen at present. In fact, he said, the city gave 2 percent pay raises for 2020-21.
“We have to compete with the Valley (metro Phoenix) for talent, so that helps us do that,” Potucek said.
The main reason for the surprising result is the presence of Fort Huachuca, according to the city manager.
“Being a federal workforce, military, none of those people were affected by layoffs, so revenue streams from our major employer were consistent throughout,” Potucek said.
Also, a significant population of retirees, especially federal retirees, in Sierra Vista did not have their income levels impacted by COVID-19.
That’s not to say there aren’t problems. The motel-hotel industry (extended stay), the restaurant-bar industry and small businesses that were shut down during the pandemic took significant income hits, in turn generating less sales-tax revenue for the city.
Prime contracting and utilities also took big hits.
Those losses in sales tax were more than offset by huge gains in retail sales, online sales, retail food for home consumption and use-tax purchases.
“It seemed like the spending shifted over to the major retailers, and as a result, our overall numbers surprisingly and pleasantly went up instead of down,” Potucek said. “We do tax groceries. Some communities have the option but we choose to do that to expand our base. So people were eating at home and there was quite a bit of hoarding going on. I don’t think that was unique to us.”
Locked-down Sierra Vista shoppers were more inclined to shop local and not drive to Tucson, for example.
“We certainly do experience out-shopping to Tucson, but Tucson has been pretty well locked down throughout this, too, and I don’t think a lot of people are even really considering going to Tucson,” Potucek said. “Fort Huachuca had travel restrictions on their personnel during this time. They needed to stay around locally. A lot of things worked together to help our overall situation.”
So did the so-called “Wayfair Tax” on internet sales, which has kicked in.
On June 21, 2018, the U.S. Supreme Court ruled in favor of South Dakota against internet-sales giant Wayfair Inc., overruling a longstanding requirement that businesses must have a physical presence in order to be taxed. The ruling requires remote sellers to collect and remit sales tax.
Beginning Oct. 1, 2019, online retailers were required to pay sales tax if their annual gross retail sales or income exceeded $200,000 in 2019, $150,000 in 2020, and $100,000 in 2021 and thereafter. Sierra Vista received its first payment from the state for online sales in January of this year. Sierra Vista took in $418,925 in internet sales tax through the first six months of 2020. That’s new money that it could not collect before.
“Reducing the retail leakage, along with collecting TPT for internet sales, has helped the city meet and even exceed its revenue projections for the first and second quarters of 2020,” said Sierra Vista Chief Financial Officer David Felix.
Through the pandemic, the city maintained its AA bond rating from Moody’s Investor Services.
Sierra Vista typically budgets conservatively. As final preparations were being made for the 2020-21 fiscal budget last spring during the height of the pandemic, the budget was leaned out even more, Potucek said. For the current fiscal year, Sierra Vista cut its budget by nearly $1 million, to $85,873,456, with reductions across every department.
“Not knowing how this was going to turn out at the time, basically we tried to make our best estimate ratcheting down revenue losses we thought we were going to take, which primarily involves our sales tax – our Privilege Tax – as well as whatever state-shared revenue reductions that may result,” Potucek said. “We aim our budget toward a lower revenue amount. What that means to us is that maybe projects we were going to try to implement this fiscal year might move back two or three years. Or, we might focus on engineering and design before taking on the cost of construction.
“There are a combination of budget techniques that we use,” he added. “We are very conservative in our budgeting here. Always held us in good stead, and certainly came into play this year. That absolutely pays off. We have to balance our budgets, and being conservative not only in a time of pandemic but all the time is helpful because that’s how you’re able to build your reserves and make sure you’re not running costs too high.”
Sierra Vista has a general-fund reserve, but it did not have to use any of that to balance this year’s budget, according to the city manager
“We did receive CARES Act funds through the Governor’s Office,” he said. “That had to be specifically used for police, fire and public safety expenses. That gave us some extra cushion to work with because initially we thought the impact of the pandemic would go on two or three years.”
Sierra Vista received $4.9 million in CARES Act funding. It also received Housing and Urban Development Funds for emergency relief.
“Ten or 11 businesses took advantage of that,” Potucek said. “We just got another allocation of $239,000 and we’re putting that toward emergency relief: individuals who are having rent problems, or problems paying utility bills, buying food – more toward the social side. We will be recommending to Council that they extend that program.”
Editor's note: A previous version of this story underreported the amount the city had collected in internet sales tax in 2020.