NORMAN, Okla. — Norman’s dependence on sales tax to fund everything from operating expenses and capital projects to public safety, libraries, swimming pools and parks could have repercussions in the near future.
With the city three years into a depressed economy, city leaders say they’re likely to find themselves in a tough spot down the road, as the city struggles to meet voter-approved mandates associated with dedicated sales taxes.
On Nov. 9, Norman received $6.06 million from the Oklahoma Tax Commission, compared to $6.18 million last November. For the city’s general and capital fund accounts, that’s a 1.54 percent decrease from 2016 numbers.
It’s the fourth month in a row that revenue from city sales tax has not met budget predictions or kept pace with last year’s receipts.
“It is a concerning trend,” Norman Finance Director Anthony Francisco said. “I think it reflects both a continuing downturn in the local economy and our consumer attitudes locally.”
Francisco said Norman’s sales tax highlights the shift toward online purchasing “to the detriment of our local brick and mortar businesses.”
Use tax, based on point of delivery rather than point of sale, is another type of sales tax and represents primarily construction and online sales.
“Our use tax collections are up significantly,” Francisco said.
• Three years toll on dedicated funds: Use tax is helping close the gap by bringing Norman’s total sales and use tax receipts into line with last year, but it’s still a flat, no-growth picture. And it gets worse.
“We’re comparing to a year that was down,” Francisco said.
Current tax receipts are running below 2015 levels.
That’s a problem for Norman’s dedicated tax funds like the half-percent Public Safety Sales Tax, which was designed to support 41 police officers, 30 firefighters, 13 school resource officers, four dispatchers and two emergency vehicle mechanics.
“We have significant fixed cost for personnel services in the Public Safety Sales Tax that grow at a faster rate than the projected rate of growth for sales tax, and certainly faster than our actual rate of growth for sales tax that we’ve experienced over the last two to three years,” Francisco said.
Union-negotiated pay increases during the first 11 years of employment require a 4 percent per year increase.
“Even if we have our 4 percent growth rate, it would not be enough to maintain the cost side of the expenditure because it’s so personnel driven and our personnel costs have some automatic inflation factors in them,” he said.
PSST supports retirement funds, health insurance and other related costs for those added employees.
Additionally, public safety positions in fire and police are on defined benefit statewide pension systems.
“There is a state statute mandated contribution rate for those contribution systems,” Francisco said. “The city has to contribute 13 percent for police and 14 percent for fire of salaries for each employee to those systems.”
Pension funds are subject to the same economic fluctuations that private investment funds are subject to, making defined benefit plans more costly than defined contribution plans. Most private employers and cities, including Norman, now use defined contribution plans, with public safety being the exception.
“We have budgeted the targeted number of [PSST supported] positions,” Francisco said. “I’m not sure if they’re filled right now. The mandate is to budget for the positions, but there are things like retirements and minimum number of recruits required for the academy that might leave some positions open.”
The intent, however, was to add those positions and have them filled, he said.
PSST was approved by voters in 2008 as a temporary tax. In 2014, the tax was made permanent to support the extra fire and police positions it created.
The tax also supports capital improvement projects including a communications systems for fire, police and other emergency responders and a $6.5 million Emergency Operations Dispatch Center.
On the most-needed list from the Norman Fire Department was $6.8 million to replace fire apparatus, including five fire engines, a heavy rescue truck, a ladder truck and an air supply truck. Another $3.5 million is designated to relocate Fire Station No. 5 to an area that would better serve east Norman.
Francisco said there are no plans to delay construction of the new operations center or the replacement of the radio communications system currently underway.
“Project managers will continue to be diligent to keep costs within available resources,” Francisco said. “The problematic thing is the expenditures continue to outweigh revenues.”
At some point, the city council might have to decide whether to make a project smaller or move money from somewhere else to cover the costs of capital projects, if there isn’t enough money.
“If we continue on the course that we’re on, some difficult decisions will have to be made,” Francisco said.
For the fiscal year ending June 30, PSST expenditures exceeded revenue by $3.8 million.
• Funding options: When PSST was adopted as a permanent tax in 2014, the plan was to pay for the itemized capital projects and eventually use the full amount of the half-percent sales tax to support the added positions. Eventually, even the full PSST amount would not be enough money on its own to cover the positions it created.
“That was always contemplated, and it was always contemplated that the general fund would be in a position to absorb those long-term costs,” Francisco said.
Because the general fund’s primary revenue source is sales tax, it also has been on a downturn, making department budgets tight and forcing belt-tightening measures such as staff hiring freezes, even as the city continues to grow. Also, massive numbers of capital projects including road projects, libraries and parks have put increased demands on city staff.
Norman relies on sales tax, in part, because of state laws that limit the ways municipalities can finance operations.
Council member and Finance Chair Robert Castleberry said voters tend to support some projects with general obligation bonds to pay for things like roads and schools, but some other items seem to be more easily supported as sales tax initiatives, but sales tax is historically more volatile.
“Those were the cards we [were] dealt,” Castleberry said. “The option is either to not spend money or to defer capital projects. The problem with deferring them is they get more expensive.”
Castleberry is hoping the city will have a stormwater fee proposal to bring before voters by late spring or early summer.
“We spend about $3 million a year out of the general fund for stormwater, and that number will be getting bigger every year as we meet our regulatory obligations,” Castleberry said. “If we provide a dedicated fund, that solves a lot of our problem.”
He said the other utilities pay for themselves.
“Once we solve that problem, as far as stormwater goes, that frees up $2 million or $3 million a year that we can spend on other things, whether it’s fire apparatus or a senior center or the animal shelter,” Castleberry said. “That’s why it’s so important that this stormwater utility gets fixed.”
He said the stormwater utility needs to raise enough revenue to cover its cost.
“We need to remove that subsidy from the general fund,” Castleberry said. “We don’t subsidize any other funds.”
• Visitor dollars: Despite the ongoing sales tax downturn, hotel/motel occupancy rates and average room rates have been solid this year.
“Year to date for September, occupancy is up 5.2 percent and revenue is just about even,” VisitNorman Executive Director Dan Schemm said. “Those are both good signs for hotel/motel guest tax, which impacts VisitNorman and also arts and parks, which get a portion of those dollars.”
Visitors are coming to Norman and staying longer for football this year than anticipated at the start of the season.
“Football has been better than we thought, with better match-ups than what they looked like on paper. We’re seeing our hotels full and able to charge better rates,” he said. “We’ve got some big groups coming in.”
Schemm said having night games and prime-time games versus 11 a.m. games also has helped keep people staying longer and spending more dollars in Norman.
