Sherman anticipates 14 percent sales tax revenue increase

heralddemocrat.com

When the final tallies are made, Sherman is projecting it could see about a 14 percent increase in its sales tax revenues over the previous year. The sales tax forecast was discussed as a part of one of the city council's first budget talks last week in the leadup to the 2022-2023 budget season.

These discussions represent some of the first looks at what the budget could look like for 2022-2023 amid ongoing economic impacts from the COVID-19 pandemic, incoming growth and significant development across the region and the impacts of the announcement that Texas Instruments will build a new $30 billion facility in Sherman over the coming years.

With that in mind, city leaders are working to draft a budget while anticipating growth and revenues unlike the city has seen before.

"It seems difficult for us...to budget for a double-digit sales tax revenue increase next year because who would have thought, right," City Manager Robby Hefton asked last week. "We are usually in the 3, 4 or 5 percent range, but I can make a stronger case for us to need to be budgeting 10 to 12 to 14 percent than I can for 6 percent."

For the current year, city officials budgeted for about $21.49 million in sales tax revenues. However, they are now projecting to see nearly $24.06 million in sales tax revenues. By comparison, the city is projected to see about $11.82 million in property tax revenues — about $125,000 above what was budgeted.

Hefton attributed the growth in sales tax to several factors including historically high inflation and strong sales in Sherman that have been higher than historically expected for the past two years. While the city anticipated a budget shortfall in2020 due to the COVID-19 pandemic and the closure of many businesses, Hefton said Sherman instead saw an increase in its sales tax revenues for the year. This has continued into 2021 and 2022, he said.

Hefton estimated that current inflation sits at about 9 percent, but did not go into how much of an impact this had throughout the year on the city's tax revenues.

With the higher-than-expected revenues, city officials are projecting that the city's reserves will close out the year with about $14.9 million in the general fund. This will put the fund at about 115 days or reserve funding, on the higher end of what is recommended for reserves. 

With that in mind, Hefton said he felt safe recommending that the city invest some of its excess reserves on one-time expenses

"We don't need to be carrying 120 days of reserves in my opinion. If we have excess reserves, we should be funneling those over to one-time expenses like the general improvement funds or helping offset the cost of building roads and everything else, he said.

Hefton also anticipated that property tax rates could go down in the near future thanks to a combination of tax rate limitations that were put in place by the state legislature in recent years and sales tax collected in lieu of property taxes.

Looking forward at the future, Hefton said he expected that the upcoming budget would have sales tax revenues increasing by double digits, but the full scale has yet to be determined. He also cautioned that the impacts of inflating would not be permanent and those increases couldn't be counted on long term.

"So, what you will likely see next year is us making some assumptions about sales tax that are double duty growth with the big asterisk that we don't know what the economy is going to down to 5 percent or whatever it came from, but to me you kind of have to budget for that because that's the information we have today," he said. "The best information we have today is that this trend will continue based on where we are with current inflation, based on the growth that we see based on the impacts of things like TI coming in with at least a portion of their real estate being added."

The city is expected to hold its annual budget retreat in early June.