Sales tax growth cools; staff projects FY26 modestly above projected FY25 year‑end but below recent boom years

Budget staff presented sales tax as the general fund’s second‑largest revenue source and described a multi‑year pattern: record collections in recent post‑pandemic years have moderated, and FY25 collections were tracking below the adopted budget. Staff told council they are budgeting conservatively for FY26.

Why it matters: sales tax is a major portion of general fund revenue (staff showed property tax at roughly 54% and sales tax at about 33% of general fund revenue). Because sales tax has been unusually strong the past few years, staff said it would be prudent to base future operating plans on a more modest expectation of sales‑tax growth.

What staff reported: gross county‑wide sales tax collections were down about 1.3% year‑to‑date in FY25 and staff projected roughly $2.7 million less in FY25 than had been budgeted. For FY26 staff recommended a budget that is lower than the adopted FY25 budget but about 2% higher than staff’s estimate of FY25 actuals — in short, modest growth from expected FY25 year‑end results but well below the extraordinary increases of prior years. Staff also noted that distribution arrangements such as the interlocal agreement (IOA) with Durham County remain in place and that sales tax budgets for the county and city are often influenced by timing and methodology differences.

Council members asked whether the city could obtain more detailed point‑of‑sale data to better understand which sectors were weakening. Budget staff said they had received only allocation totals from county collections so far and can pursue more detailed information but that statewide patterns show the same leveling off in many jurisdictions.

Staff emphasized that conservatism in sales‑tax projections was a driver of some of the proposed property‑tax above‑revenue‑neutral allocations in FY26.