By Dave Ongie, News Editor
As Johnson City city manager Pete Peterson went over the proposed FY 2020 budget with members of the media last Thursday morning, he came to a pie chart breaking down the city’s revenue sources.
The chart was dominated by the slices representing property taxes and sales taxes, which combine to account for a little over 60 percent of the revenue that goes into Johnson City’s general fund. Peterson noted the importance of those two revenue streams before pointing out a shift that has taken place over the past decade.
“Sales tax and property tax is where the vast majority of our revenue comes from, and we always watch those two sources keenly,” Peterson said. “Historically, property taxes and sales taxes used to both run about 30 percent of total revenue. You can see that sales taxes are dropping off, and that is a direct reflection of online purchases.
“The percentage of property taxes, I think, reflects the amount of development that’s happening over time. That is a historical shift in what. Indeed, sales tax dollars now account for just under 24 percent of the city’s general fund revenue while money collected through property taxes now accounts for 38.5 percent.
There are, however, a couple of caveats to the shift Peterson pointed out. First of all, the city passed a property tax increase in 2016 – the first hike in 15 years – that obviously led to a spike in property tax revenue.
With that being said, property tax revenue has increased by 41 percent since 2010, and is projected to continue making modest gains through FY 2020. And while online shopping is clearly starting to take its toll on local retailers, sales tax revenue has increased 29.5 percent since 2010 without a boost to the sales tax rate.
Overall, Peterson said there was no need to panic despite the fact the 0.7 percent growth rate this year fell short of the 1.5 to 3 percent year-to-year increase in the general fund the city is accustomed to seeing.
“This is cause to pay close attention and to analyze further as to why this is occurring, what kind of investments we can make to ensure future years have better growth than this,” Peterson told the city commissioners last Thursday night as he gave them an overview of the proposed budget. “This is not cause for extreme alarm.”
Earlier in the day, however, Peterson acknowledged that online shopping has the potential to seriously impact Johnson City. A Supreme Court decision last year opened the door for states to collect sales tax from online retail transactions, but Peterson said that hardly mitigates the negative impact of online retail on a place like Johnson City, which has thrived for several years as a retail hub for the entire region.
“Twenty-five years ago, we could do a windshield survey at the mall and we would find hundreds of cars from out of state and out of county that were at our mall spending money,” Peterson said. “Now they can sit at home, and with 23 keystrokes, they can spend that same money and buy that same product, and we don’t get any of the sales tax off of it because it’s being delivered to their house wherever they live. That is what is going to create a shift, I think.”
With brick-and-mortar retail struggling to compete with online sellers like Amazon.com, Peterson said city leaders will have to keep a close eye on the situation and try to stay ahead of the curve. He said generating modest population growth by attracting young professionals to come to Johnson City to live and do business appears to be the city’s best hedge against the drastic changes taking place in the retail sector.
“Washington County is the only county in Northeast Tennessee that has experienced population growth for the last couple of years,” Peterson said. “If you’re going to keep a vibrant, growing economy, you’ve got to be cognizant of how to grow your population. Now, I’m not saying we need to grow from 70,000 to 170,000 people, but you’ve got to grow at a rate where you can sustain business and sustain the local economy.”