Sales Tax Revenue Shifts Could Force City Service Cuts In U.S.

Apr 12, 2017

Macy's at Bloomington's Eastland Mall closed because the chain came under pressure from internet shopping.
Credit Cristian Jaramillo / WGLT

The changing nature of retail is affecting cities' ability to provide basic services. As an increasing number of people discover the convenience of online shopping, cities are losing essential sales tax revenue, something internet sellers don't pay.

The technology trend has contributed to the announced closure of at least a half a dozen stores in the twin cities including some large department stores such as Gordman's, Macy's, and JCPenney.

Many cities rely heavily on sales tax as a primary revenue source. Bloomington-Normal is no exception. Normal City Manager Mark Peterson said U.S. cities will soon have to find new sources of funding.

"Places like Cleveland, Ohio are not going to plow residential streets any more. It's up to you to get to the collectors. They'll plow the collectors, but they can't afford to plow the residential streets. Colorado Springs, Colorado turned the streetlights off. They quit mowing their parks. If you want to enjoy the park, bring your mower," said Peterson.

Peterson said Bloomington-Normal is not yet in danger of losing basic services, but needs to come up with a solution.

Peterson said cuts become the go to option because raising revenue is difficult and politically unpopular.

"Radical things like that, cities are just saying we can't afford it any more. They close fire stations. We'd love to have a five minute response time, but we're going to live with eight," said Peterson.

Online retailers do not need to pay costs such as local utility bills or property taxes and often can price goods below those sold by brick and mortar establishments.

Although the internet is a contributing factor to declining sales tax revenue, Peterson said there might also be overall reduction in consumption. Peterson said people might be more careful with their spending due to concerns over the economy.

The head of the Illinois Retail Merchants Association said he spends a lot of sleepless nights thinking about the impact of technology. Robb Karr stopped in Normal to talk to the Economic Development Council (EDC).  Karr said it is easy to lose perspective. The fact is online sales were only eight percent of total retail last year in the U.S. Half of all retail sales were found in automobiles, gas stations, and grocery stores. E-commerce has not greatly eroded any of those yet, though Karr said grocery stores might be next. That would affect the remaining parts of brick and mortar retail disproportionately.

E-commerce is having double digit growth while brick and mortar retailers are flat to falling. Karr said in a decade, various growth projections have on line commerce amounting to between 21 percent and 32 percent of total retail sales.

 

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