How Stable is Durham's Revenue?
Note: I originally wrote this before Tom Bonfield announced his upcoming retirement. He should get a lot of credit for the state of the budget examined below.
COVID-19 has affected our health, first and foremost. But it has also affected our psyche and our economy. A few months ago, I came across a study that examined city budgets. Where do different cities get their revenue? Some rely more heavily on sales tax, some have their own income tax, and many rely on property tax.
The article presenting the study comes from the Brookings Institute and can be found here. It argues that cities that rely heavily on sales tax and income tax were likely to be hit the hardest, right away (this study was written back on March 31st, so these were predictions).
It makes sense. The economy shut down and people were buying less locally and as a result, weren’t paying local sales tax. Additionally, vacation and business travel were expected to be down, which means outsiders wouldn’t be spending money and being taxed on those purchases as well. Meanwhile, people were losing their jobs, so next year’s income tax will likely be affected. In other words, depending on what sources of revenue your city relies on, you could be better or worse off post-pandemic.
In the study, there is a large interactive map and Durham is included on it. The Bull City is listed as “Longer Term”, meaning that the effects of Covid-19 would take longer to hit our city’s budget because it was less reliant on sales tax and income tax. The study gave Durham the best outlook of any major city in North Carolina (with Asheville not being included on the map, due to population, I assume).
I decided to take a look at our 2019-2020 estimated budget (adopted last year) to get a better sense of where Durham revenue comes from. This is what I found:
| General Property Taxes | $ 187,254,083 | 39.2% |
| Other Local Taxes | $ 73,463,828 | 15.4% |
| Intergovernmental | $ 24,405,858 | 5.1% |
| Licenses and Permits | $ 10,090,077 | 2.1% |
| Rental and Other Income | $ 4,318,916 | 0.9% |
| Charges for Current Services | $ 27,693,068 | 5.8% |
| Operating Revenues | $ 127,275,643 | 26.6% |
| Transfers from Other Funds | $ 2,445,400 | 0.5% |
| Appropriation from Fund Balance | $ 16,612,730 | 3.5% |
| Other Revenues | $ 4,228,385 | 0.9% |
| Total | $ 477,787,988 | 100% |
Note that Durham does not have an income tax (which most of you probably already know from dealing with taxes every year).
I wanted to re-categorize the budget to see which sources would be more stable during the pandemic and which ones less stable. Here are the categories that I came up with, based on reading the article above:
Stable
- Property Taxes
- Intergovernmental Transfers
- Charges for Current Services
- Operating Revenues (minus exceptions outlined below)
- Transfers from Other Funds
Somewhat Stable
- Licenses and Permits – people still need these, but I imagine this revenue will drop a bit
- Appropriation from Fund Balance – as this is depleted due to COVID-19, over time, this source may dry up.
- Rental and other income – can tenants of the city pay their rent? I am not sure, so put this in the middle category
- Other Revenues – this is a smaller category and I couldn’t get a sense of what it entails, so again, I put it in the middle category
Unstable
- Sales/Hotel Tax
- Operating Revenues from:
o Transit
o Parking Facilities
o Ballpark
o DPAC
With those categories, you see the following breakdown of the budget:
| Stable | $ 359,086,845.00 | 75.16% |
| Somewhat Stable | $ 35,250,108 | 7.38% |
| Unstable | $ 83,451,035.00 | 17.47% |
| Total | $ 477,787,988.00 | 100.00% |
Honestly, that looks great to me. According to the Brookings report, Columbus, OH is inverted, with 75% of its revenues coming from “elastic” or unstable sources and almost all other cities studied have a worse outlook than Durham does with regard to revenue sources.
Sitting from the vantage point of someone who can afford his property taxes, I am happy to contribute to a more stable Durham that is resilient to a shock like this. Of course, we need to think about supporting homeowners for whom taxes are a large burden, but overall, perhaps a strong financial structure is one reason why Moody’s predicted that Durham is one of the best positioned cities in the country to bounce back after the pandemic.
Note: The Brookings report also has an appendix that lists “Share of General Fund Revenues from Elastic Sources, 2019” for Durham as 0.0%. Since Durham does have an occupancy tax and uses a sales tax as part of its budget, I am not sure how they landed on that number. Regardless, the outlook for Durham city finances is a positive one.
Durham recently adopted its new budget for 2020-2021 and news outlets have understandably focused on the spending side. I have not been able to see the complete budget packet to be able to compare directly with the 2019-2020 budget, but it looks as though the budget is staying fairly consistent, with even less reliance on elastic or unstable income sources.
Thoughts? Join the conversation in the forum!
