Tax receipt picture is murky here

By Don Bauder
Copyright 2001 San Diego Union-Tribune
Article date: October 10, 2001
 

The dent in retail sales and hotel tax receipts will hurt San Diego County cities, but estimates of the magnitude are only as good as estimates of economic growth.

To make such estimates, an economist has to read Osama bin Laden's mind, and make assumptions about his ability to pull off the deviltry occupying it. And there are other variables, such as that the U.S. economy almost certainly was in recession before the Sept. 11 terrorist atrocities.

But however difficult, forecasting is part of the budgeting process. Marney Cox, chief economist of the San Diego Association of Governments, believes that weak retail sales could result in a 5 percent to 10 percent drop in retail sales tax receipts around the county. The tax runs at 7.5 percent, and cities get 13 percent of it. People won't rush back to buy: "The ongoing uncertainty in both the economy and world affairs will constrain expenditures," and Christmas sales will be weak, he says.

TOT tax receipts could be anemic for a full year, he says. Initially, receipts will drop 25 percent to 50 percent; then, as airline traffic improves and hotels fill up, the decline will moderate substantially, he says. Tourism also will get a boost from visitors from nearby cities, as well as from San Diego.

Scott Barnett, executive director of the San Diego County Taxpayers Association, thinks that TOT may come in at $108 million to $110 million this fiscal year (July 1 to June 30), about flat with last year.

"We will probably lose the projected growth, but I am not sure it will fall below unless something bad happens," says Barnett.

He thinks sales tax receipts may inch up this year; auto sales, for example, could push them up. Indeed, Detroit reported yesterday that new car sales are suddenly running at a torrid pace, thanks to zero-percent financing.

The city has already dropped its expectation for TOT receipts in this fiscal year from 8 percent to 6 percent, says Lisa Irvine, financial management director. Sales tax growth estimates were dropped from 6 percent to 5 percent. Irvine says it's too soon to revise the estimates.

Cox notes that hotels are slashing rates to bring back tourists. However, this means the tax comes off a smaller base, he says.

Also, there have been layoffs at major hotels, such as at the Hotel del Coronado and the Hyatt at the waterfront, and those cut into consumer incomes and hence into retail sales tax receipts.

TOT receipts from then-unbuilt hotels were supposed to pay for the bulk of the projected new ballpark. The hotels have not been built, much less financed. "Many of us criticized the overoptimistic ballpark assumptions, saying they were Alice in Wonderland," says political scientist Steve Erie, director of urban studies and planning programs at UCSD. "Nobody had a worst case scenario." Now we have one.

Erie believes that TOT receipts will drop, but doubts that sales tax receipts will.

Jim Mills, former president pro tem of the California Senate and a longtime ballpark opponent, says both TOT and sales taxes will decrease, because he expects the economy to stay weak for some time. San Diegans were promised that ballpark financing would not come from money that would otherwise go to something else. "It was always a lie," says Mills, and is now even more so.

He, Erie, Cox and Barnett all warn that the state gets the bulk of sales tax receipts, and in recent years has plucked cities' pockets to fill its own coffers. And those coffers are low right now. "Cities are worried, and for good reason," says Barnett.

Don Bauder's e-mail address is don.bauder@uniontrib.com. His phone number is (619) 293-1523.
 

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