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COVID19FISCALIMPACTS

FOR63UTAHCITIESFY2019-20&2020-21

PerformedfortheUtahLeagueofCitiesandTowns

ByEconowestAssociates,Inc.

April2020

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COVID19SalesTaxImpactson63UtahCities

Summary

BecausetheCOVID19hasnoprecedenceithasbeendifficulttotrackandforecast.ThesimplemodelsweuseinthisreportutilizerecentU.S.surveydatatoapproximatetheimpacton63citiesfortheperiodbetweenMarch2020andFebruary2021.Thenwecalculatethesefactorsintofiscalyears2019-20and2020-21.Overall,weestimatethatthetotalforthesalestaxdistributionsofthe63citieswilldecline3.5%and5.4%infiscalyear2019-20.Growthrateswillrangefrom-7%inVernaltopositive11%inEagleMountain.

Nextyear,weexpectanotherdropindistributions,butonlyby2.5%.Quarterlypercentagechangesinshouldimproveattheendofthefiscalyear2020-21(-20%,-10%,5%and15%)whentheywillcomparefavorablytothesecondhalfoffiscalyear2019-20.

Whenwefirststartedthisproject,wethoughttherewouldbemuchbiggernegativeimpacts,butbecausethefirsteightmonthsoffiscalyear2019-20distributionsweresostrong,theytooktheedgeoffthe-25%to-36%declinesthelastfourmonthsthelastofthefiscalyearwillprobablybring.

BythisNovember’ssalestaxdistributionwewillgetabetterhandleonthetrajectoryofthepandemicinfiscalyear2020-21.Ofcourse,citiesaretryingtocreatebudgetsrightnow.

TheStrongEightMonthsBetweenJuly2019andFebruary2020HelpSoftenTheBlowofCOVID19

TheCOVID19pandemicisunprecedentedinrecenthistory.Wecertainlydon’thaveanymagicbulletstoforecastthiseventwithourcurrenteconomicmodels.Theapproachwetakehereistoestimatetheimpactineachcity’seconomicsectorfromrecentcalendaryear2019datafromtheTaxCommission.Thedurationoftheimpactisforanentireyear.ItisbasedonsurveydatafromvarioussourcesthatsurveyedU.S.consumersalesinMarchandApril2020.OursourcescomefromtheU.S.CensusBureau,EarnestResearchandtheUniversityofMichigan(Table1).

Basedonthesesurveys(Table1)andourexperiencewehavemadereasonableestimatesattrendsinspendingforanentireyear,probablytheyearfromMarch2019throughFebruary2020(whilethisdoesn’texactlyconformtothecities’JulytoJunefiscalyear,wemodifyourresultstoformfiscalyearestimates).

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Table1.RecentTrendsinU.S.ConsumerSpending

RetailCategories Direction SourceVehicles -11% UniversityofMichiganVehicles -35% EarnestResearchVehicles -24% U.S.CensusBureauHomes -21% UniversityofMichiganLargeHouseholdAppliances -46% UniversityofMichiganGroceryStores +29% U.S.CensusBureauClothingStores -51% U.S.CensusBureauGasolineStations -18% U.S.CensusBureauRestaurants -45% EarnestResearchSportingGoods,Toys,Books -23% U.S.CensusBureauSportingGoods,Toys,Books -65% EarnestResearchNonstoreRetailers–InternetandCatalogue

+10% U.S.CensusBureau

DepartmentStores -45% EarnestResearchElectronicStores -33% EarnestResearchLodging -85% EarnestResearchTheatersandEvents -95% EarnestResearchHealthCare -25% EarnestResearchDrugStores -24% EarnestResearch

Foraboutonefourthofthe63citieswestudied,theimpactofthepandemicfitsveryclosetotheStateofUtah’simpact.ThosecitiesrespondingsimilarlytotheStateare:

1) Draper2) Hurricane3) Layton4) Lehi5) Midvale6) NorthSaltLake7) Orem8) Price9) Richfield10) SaltLakeCity11) Sandy12) SouthSaltLakeCity13) SpanishFork14) Taylorsville15) WestValley

Table2presentsOrem’sfiscalimpactsby38economicsectors.Orem’spatternofdeclinesaresimilartotheStateofUtah’s.ForOrem’s$2.63billionintaxablesales

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lastyear,aModerateScenariodeclineof-11.7%ispossible.ThePessimisticScenariopredictsanear30%dropintaxablesales.ThiscomparescloselytotheStateofUtah’s-11.6%ModerateScenariodeclineand-28%PessimisticScenariofall.ForOrem,largedeclinesmaybefeltinWholesaleDurableGoods,MotorVehicleDealers,Clothing,GeneralMerchandise,andFoodServices.TheFoodandBeverageStoresalesincrease14%willpartiallyoffsettheabovedeclines.

Therestofthe63CitiesindividualimpactsareintheAppendix(Appendix–COVID19FiscalImpactonEachCity.pdf).

Table2.OremCOVID19FiscalImpact

Largerdeclineswillbefeltincitieswithheavytouristspending,orcitiesthatdrawinneighboringconsumersintotheirretailers.Morethan25%declinesmaybefeltinthelastfourmonthsoffiscalyear2019-20inthefollowingcities:

1) Farmington2) Kanab3) Moab4) ParkCity5) Riverdale6) SouthOgden7) Springdale8) WestBountiful

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ThePlusesandMinusofLaggedDistributionData

Thelastfourmonthsoffiscalyear2019-20canbelookedattwoways.Onthedownside,distributionlagsfromactualsalesbytwomonthspreventusfromseeingpandemicimpacteddatauntilMay20thandJune20thforMarchandAprilspending,respectively.Thismakesforecastingmoredifficult.

Onthepositiveside,significantCOVID19relateddeclinesinMaythroughAugust2020distributionswillbemitigatedbythestrongdistributionsfromSeptember2019throughApril2020,whichwereup7.1%forthe63cities.

CurrentYearEstimates

Weestimatefiscalyear2019-20salestaxgrowthinTable3.Thisisbasedonthefirsteightmonthsof“harddata”fromthedistributionsthatare“inthebank”andourestimatesfortheremainingfourmonthsofMarchtoJunesales(MaytoAugustdistributions,underGAPP).Weuseda80%PessimisticScenarioweightinganda20%ModerateScenarioweighting.

Becausethefirsteightmonthsofthecurrentfiscalyeargrewveryfastata7.1%rate,themomentumtakestheedgeoffanestimated25%declineinthelastfourmonthsoffiscalyear2019-20.Duringthefirsteightmonthstherangeofdistributionchangesranfrom-3%inRoosevelttopositive21%inEagleMountain,averaging7.3%forthe63cities.

Overthefinalfourmonthsoffiscalyear2019-20,weexpecttoseesignificantdeclines–closetothePessimisticScenario.Ifweusean80%weightforthePessimisticScenario,thedeclinewillbealmost25%forthelastfourmonthsofthefiscalyear2019-20.Thefirsteightmonths,weightedat66.67%(8/12thsofayear)contributes4.9%growth.Thisgrowthisoffsetbya-24.8%inthelastfourmonths(4/12thsofyear)equaling-8.3%.Thesumofthesetwoamountsequalsa3.5%declineforthecurrentfiscalyearforall63cities(lastrowinTable3).

Becausethemodelisdynamicwecancalculatetheimpactsofdifferentscenarios.Ifthelastfourmonthscomein20%worsethanthePessimisticScenario(-36%),thecitieswouldseea5.4%declineindistributionsforfiscalyear2019-20.

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Table3.FY2019-20COVID19SalesTaxImpactfor63UtahCities

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Chart1.

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FiscalYear2020-21Forecast

Atthispoint,theviewoutintonextfiscalyearismurky.Weassumeagradualreturntopositivegrowthmaynotoccuruntilthesecondhalfoffiscalyear2020-21(Table4).

Table4.

1%SalesTaxDistributions(YearoverYearPercentageChanges)

FY2019-20

1stquarter +3.5%actual

2ndquarter +10.0%actual

3rdquarter -10.0%estimate

4thquarter -25.0%estimate

TotalFY2019-20 -3.3%to-5.5%

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FY2020-21

1stquarter -20%

2ndquarter -10%

3rdquarter +5%(thiswouldbe+5%overthe-10%prioryear)

4thquarter +15%(thiswouldbe+15%overaverynegativefourthquarterFY20)

TotalFY2020-21 -2.5%