Pandemic's drag on Sioux Falls economy evident in latest sales tax numbers

Government coffers are beginning to feel the strain of the COVID-19 pandemic and the economic slowdown that came with people working from home, not going out and some businesses shutting down.

The amount of revenues generated through purchases in the city of Sioux Falls in March were down 2.6% compared to the year prior, reported in April sales tax figured released this week by Mayor Paul TenHaken's office. And because businesses didn't start sending workers home and altering operations until mid-March, the slide in sales tax revenues is expected to worsen in the months ahead.

More:Effects of pandemic begin to show in state tax revenue numbers

"This provides our first glimpse into a partial month of COVID-19 revenue impacts," TenHaken wrote in a finance briefing sent to city councilors Friday. "Our initial modeling has predicted sharper revenue reductions in the months ahead."

In actual dollars, the 2.6% drop amounts to about $6.1 million less being spent in the community in March 2020 compared to March 2019. And in terms of city tax revenues, that's about $200,000 less than what rolled into city coffers during the same month a year ago.

The sales tax slide will hinder the city's ability to execute capital projects and expenses like road projects, park expansions or equipment purchases.

Sioux Falls Finance Director Shawn Pritchett said the city is preparing for up to a 20% reduction in sales tax revenues by year's end, and is working to identify projects and cash sources that could free up as much as $14 million in the 2020 budget.

"What we saw was within the parameters of what we expected," he said. "The next set of numbers will be deeper yet."

A look at South Dakota Department of Revenue data shows some industries are feeling the strain of the pandemic more than others. Movie theaters in Sioux Falls, for example, show a 71% drop in sales compared to March 2019, and bars and apparel stores both saw 49% reductions. Hotels and lodging businesses reported a 43% slide.

That's a drag on not only the sales tax revenues coming into the city, but also the entertainment tax fund, which brought in 24.3% fewer dollars in March than the year prior.

Some Sioux Falls industries , however, are thriving during the pandemic. State data shows grocery store sales are up 15%, gas stations 32% and liquor stores 46%.

"A lot of that is being driven by substitution," Pritchett said, referring to more people buying off-sale alcohol because fewer on-sale alcohol establishment options in the community.

Online sales, which the city began collecting sales tax on in late 2018, were up 50% in March.