Like many municipalities, sales tax serves as one of Turlock’s largest sources of revenue, but the coronavirus and its sudden attack on the community’s health and the economy could create an even bigger hole in the City’s already-struggling budget.
The U.S. Census Bureau reported this week that nationwide, retail sales fell a seasonally adjusted 8.7 percent in March from February — the largest monthly decline on record. While Assistant to the City Manager for Housing and Economic Development Maryn Pitt says we won’t know the full impact of COVID-19 on Turlock’s retail sales for months, it’s likely to have an impact.
Sales tax serves as the second-most profitable stream of revenue for the City budget behind property tax, bringing in $14 to $15 million annually through the sale of a wide variety of products, from retail building materials to food served in restaurants. With a General Fund of about $40 million, sales tax makes up a “big chunk” of Turlock’s livelihood.
The City’s most recent data, which provides data on sales tax revenue for the third quarter of 2019, shows that Turlock collected just over $3.9 million in sales tax — but since the city only receives a small portion of that revenue for its General Fund, every dollar counts. Prior to the coronavirus pandemic, the City Council was looking at a potential one-cent sales tax increase to help fund public services in the midst of dwindling coffers.
While the social distancing impacts have devastated restaurants and non-essential retail businesses, local markets and grocery stores are seeing a big boost in sales, Pitt said.
“Right now, what we’re being told is that our grocery stores are doing two times what they were averaging prior to this,” she said. “It just goes to show you how far the California lifestyle has gone away from the grocery store as their primary source of food.”
The only problem? General food sales are non-taxable, meaning the City is seeing very little of those inflated grocery purchases. In addition, many shoppers are now buying non-grocery items from out-of-area online companies, like Amazon.
It could be worse, however, as Pitt pointed out. When it comes to Turlock’s list of the top 25 sales tax generators, only four are completely closed because of the coronavirus pandemic: Kohl’s, Ross, TJ Maxx and Dick’s Sporting Goods. Together, the 25 businesses produced 52.6 percent of the City’s sales tax revenue as of the most recent report.
Top producers that are still open include stores that have been deemed essential, like Costco and Target, as well as Turlock’s home improvement centers, auto dealerships and gas stations. Dust Bowl Brewing Co., the only restaurant on the list other than McDonald’s, is still open but only offering curbside pickup for its food and beer.
“We’ve got a few on that list who have had to modify things, but everyone else other than those four are open,” Pitt said.
It will likely be months until the City knows how much sales tax revenue was generated in the first quarter of 2020, which ended March 31, meaning the pandemic could potentially be over by the time Turlock feels the impact of COVID-19 on the City’s budget.
Across the country, the outlook is bleak. The federal government’s March sales report saw nearly all types of brick-and-mortar retail establishments sustain loss and projections predict that sales tax collections will remain depressed throughout most of 2020.
Turlock may have a leg up on other cities due to the fact that about 45 percent of its citizens live and work in town, however, contributing to essential companies like Blue Diamond and Valley Milk that in turn support the community by purchasing manufacturing equipment — another top source of sales tax revenue for Turlock, along with wholesale building supplies.
“All of those industries are still running,” Pitt said. “It will hopefully trickle down into the local economy, and we’ll fare a lot better than other places, certainly, because of what we produce. A lot of people here don’t have the luxury of staying home.”
