Norfolk both dodged a financial bullet and saw high sales tax income growth last year.
Sales tax revenue increased 6.41% from the 2019 to 2020 fiscal year. This is more than double the average growth of 2.9%, said Randy Gates, the city’s finance officer.
This outcome didn’t seem likely during the early days of the COVID-19 pandemic, though. Gates said sales tax income was down by 11.5% in April.
“Nobody knew what to expect, really. Nothing like this had happened in any of our lifetimes,” Gates said. “It looked pretty scary at first. We didn’t know if it was going to keep going down or come back.”
But in May sales tax revenues were down only by about 1.5%, and afterward they began to rebound, Gates said.
The growth in sales tax income despite the pandemic is probably the result of construction in Norfolk and online sales revenue, said Andy Colvin, city administrator and economic development director.
“I would say that it’s probably a combination of a lot of things. Certainly, construction is a huge part of this,” he said. “Throughout the pandemic, people likely traveled less, so when they’re spending, they might be spending money here. Or if they purchase it online and they have it delivered to their home and they’re from Norfolk, Norfolk gets that sales tax.”
Cities have been collecting sales tax on online sales since 2019, Gates said. Construction and online sales helped Norfolk stay afloat during the pandemic, but both will probably level off in the near future.
“Whether or not we can continue like that forever, I kind of doubt that,” Gates said. “And the internet sales will start to level off. That’s not going to see a big jump.”
Colvin agreed that continued growth at this level is unlikely, he said.
“I think some of that (growth) is going to be a short-term spike,” Colvin said. “I would expect the trend to continue for at least the next year, possibly more.”
The sales income Norfolk can collect from online sales doesn’t make up for the loss of income caused by online sales, Gates said.
When people from other communities come to Norfolk stores and businesses to shop, the city receives sales taxes from their purchases. When they shop online from their homes, it doesn’t. So while the city can now get sales taxes from online purchases made by Norfolk residents, it is still losing income from online sales, Gates said.
“Even with the new law, we’re probably only getting about half of that back, but that’s still helping tremendously,” he said.
The high growth helped Norfolk through a tough year, even it it’s not long-term.
“I’m sure our sales tax would have grown much more without the pandemic. How much? I can’t say for sure,” Gates said. “At least it’s grown. Some states have actually had a long period of declining sales tax. ... Our economy has generally been good.”
The city has not had to cut back on any of the services it provides since sales tax revenue didn’t fall, Gates said.
Additionally, sales tax revenue has been high for so far for 2021, too.
SALES TAX revenue is important because it makes up about 40% of the city’s general fund revenue, Gates said.
“I think it’s important to remember that sales tax is the primary source of revenue for the city to operate,” Colvin said. “I think it’s just important to remember that the more strong we are on sales and commerce and business taking place in Norfolk and growth, that’s going to translate to tax relief.”
As a comparison, the city receives 14% of its general fund revenues from property taxes, according to Norfolk’s 2020 annual report. And the more money the city can collect in sales tax , the less it needs in property tax, Colvin said.
“The more sales tax we can have, the more we can offer the community. The more investments we can make in the community and hopefully keep our property tax levies stable,” Colvin said. “That is the ultimate goal, we want to see more increases in sales tax.”
Norfolk gets another 19% of its income from the lease with Nebraska Public Power Department. Gates said this income also remained mostly stable during 2020.
The city is the third-largest consumer of Norfolkans’ property tax dollars, taking 13%. Norfolk Public Schools is the largest, taking 58%, followed by Madison County, which takes 19%.