Staff recommends conservative sales-tax budgeting and larger reserves, citing volatility

City finance staff told the council that sales tax is the single largest revenue stream in the proposed budget and recommended conservative forecasting and larger reserves because of the revenue’s volatility.

Staff said sales tax will account for roughly 39.88% of the proposed budget and that staff used a conservative approach by annualizing roughly six months of prior-year receipts and half of the current fiscal year’s receipts to set an initial sales-tax forecast of approximately $60 million; staff noted an annualized figure could reach just above $62 million but emphasized caution. “Sales tax accounts for 39.88% of our budget this year. We did use a conservative approach... that equated to approximately 60,000,000,” a presenter said.

Because sales tax is volatile, staff recommended the council consider a larger working reserve than the industry-recommended three months. The presentation summarized industry practice of holding at least three months of operating expenditures in reserves, but staff recommended a six-month target for the general fund and other large funds because of the local economy’s swings. Staff said they consulted financial advisors and industry leaders before recommending the six-month target.

Staff also described how they budget for peaks and valleys in the sales cycle and noted the city is up roughly 7.84% from the previous year on sales-tax receipts as of the data they cited, but cautioned that short-term spikes can be followed by downturns. The recommendation is presented as guidance for council consideration as the budget work proceeds.