Sales Tax Slump Threatens City Budgets

PLANO, Texas - Cities all over North Texas got some rough news this month.  Judging by the sales tax being collected, the long-hoped-for recovery has not materialized.

Many people are familiar with Dallas' woes as the city council struggles to bridge a $190 million budget gap.

But other cities with a reputation for fast growth and strong sales tax revenues are hurting.  Compared to May 2008, Frisco's sales tax collections were off by 11 percent in the same month this year.

In Plano, the city collected a staggering 40 percent fewer sales tax dollars in May.  While Plano says part of that drop is a fluke, part of it is legitimate.  And that doesn't bode well for city jobs and services. Sales tax foots the bill for a third of the city budget.

Shortfalls of any kind force cities to make some tough decisions.  "We're looking at a $13 million budget deficit," says Plano budget director Karen Rhodes-Whitley.

While the city has been cutting jobs and services for nearly two years, she says, city leaders are still reluctant to increase spending.

The 40 percent drop isn't as bad as it might seem, Rhodes-Whitley says.  A goof in sales tax collection means Plano has to turn over $1.4 million in collected taxes to another municipality.

"This retailer or this business was actually paying sales tax to the City of Plano when it should have been reverted to another city," Rhodes-Whitley noted.

The one-time adjustment puts Plano's yearly sales tax collection down roughly 10 percent.

The news doesn't get much better as cities study property values.  Many homes have failed to hold their value during the nationwide housing slump.  In Plano, city officials say residential property values are off by 5 percent.  But economy-watchers have long warned about a commercial mortgage crisis.  Plano is planning for that, too, but a larger-than-expected drop could force city leaders to wield the budget axe with more authority.

As far as Plano is concerned, a full recovery isn't likely until 2011.