As our team works toward May 23, the greatest threat we face is the digital economy. Tuscaloosa, as most municipalities in Alabama, is sales tax and business license dependent as it relates to revenues. The good news is that we are extremely well managed and exercise fiscal discipline that allowed us to move forward during the Great Recession, and cash flow tens of millions of dollars following the April 27, 2011 tornado without borrowing money or raising taxes. We are part of an elite group of cities who have received credit upgrades in the past few years.
Our city sales tax, which is two percent of the county-wide nine percent, is the lowest of any city in Alabama (tied with Northport). For example, Mobile receives five percent and Birmingham, Huntsville, Auburn, Decatur and Dothan receive four percent or higher.
In our fiscal year 2017 general fund budget, city sales tax represented 25 percent of our revenues and 40 percent of our discretionary revenues. Business licenses, which are calculated based on gross sales, represents 14 percent of our 2017 general fund budget.
Although our City is growing, our sales tax and business license growth struggles to keep pace. Since 2005, our population has expanded by 29 percent, with the majority of that growth coming from industrial expansion and UA student enrollment increases. These two growth areas come with high disposable income thresholds that should be creating a windfall for sales taxes and business licenses. However, from 2005 to 2015, City sales taxes have grown by 28 percent, which is one percent behind the population curve. Why? The primary reason is found in the digital economy. The majority of economic reports related to municipal financing estimate that internet sales are eroding between five to 10 percent a year in gross sales for local businesses. For Tuscaloosa, this places our revenue losses from $2.7 million to $5.5 million annually. With this background, in the next month’s edition of the Mayor’s Minute, I will outline our strategy to maximize this new economic environment.