Officials still cope with lagging sales tax revenue
March 19, 2017 at 10:48 p.m.
Updated March 20, 2017 at 6 a.m.
City of Victoria and Victoria County officials are preparing for more of the stagnant economy caused by the oil industry downturn - a trend that has taken a swipe at their annual budgets and sales for several regional businesses.
The two governments have been coping so far by postponing employee pay raises and cutting back on capital improvement projects. They expect their fiscal 2018 budgets could take yet another hit - this time by at least $1 million from the previous year.
Since the downturn of the oil industry in 2014 and 2015, the county's and city's sales tax revenue, which contributes to their general funds, has been declining. Although the oil industry has slowly started to pick up, it has not yet had a positive impact on sales tax revenue, said Gilbert Reyna, city finance director.
"How long it will be down, we're not too sure yet," Reyna said. "We saw the trend still going on. Until recently last month, the bottom is not here yet."
Through the low sales tax revenue, the city has been able to weather the storm, said City Manager Charmelle Garrett.
"To the public, there has not been any slowdown of service," she said. "If you call 911, the fire or the police will still come. We're providing services. We continue to do road projects. The parks look good."
Sales tax revenue for the county has been on the decline for the past two years, said Victoria County Judge Ben Zeller.
"What was harder to anticipate was the duration of the decline and how sharply it's fallen recently, like in the last three months," he said.
Zeller said the economy and the oil industry are cyclical, and the area has seen bad times before and has always crawled out of them.
"Given growth that we've seen, I think we'll see that money start to roll back in and the economy picking back up," he said.
Reyna said he doesn't see sales tax revenue increasing anytime soon to where it was three years ago during the oil boom, which allowed city officials to budget for $17.9 million.
"An oil boom could happen again, sure, but that would take a while," Reyna said. "It's going to be hard to get that dollar from the oil of $50 to $100 a barrel. I don't think that will happen for a long time."
From 2016 to 2017, the county's general fund dropped about $700,000 and is now about $37.3 million, Zeller said. In fiscal year 2015-16, the city's general fund was about $16.6 million, and they budgeted $16.2 million for the following fiscal year, but the city is $400,000 under budget, Reyna said.
"We expect for this fiscal year, we're going to be OK even though we're going to have a drop down in our revenues," Reyna said. "Last year's expenses came in under."
February's sales tax revenue for the county was down 21 percent from February 2016, Zeller said. County officials anticipated the decline and planned for it by building up the reserve fund that is about $18 million, more than 50 percent of the general fund, he said.
City and county officials said they have to find the new norm for sales tax revenue now that the oil industry downfall is over.
Although sales tax revenue shows that local sales are down, Tommy Taylor, general manager of Atzenhoffer, said he and his employees were able to strategize to keep steady traffic during the oil industry downturn.
When the oil industry dropped off, Taylor said he noticed a significant decline in the sales of fleet trucks used in the oil industry. To offset the loss, he and his employees marketed more toward individual consumers rather than oil companies.
"We continued to market to other buyers," he said. "Not that we were ignoring those businesses, but we had to continue to do business and look for ways to sell and service on our customers' terms. We spent our advertising dollars in a different way to get more regular retail customers in the door."
With the oil industry stabilizing, Taylor has seen fleet truck sales pick up again, he said.
"We also forecast we'll see growth in all sales over 2017," he said, "and it will be a great year in the automobile business. We feel like the economy is getting stronger."
Taylor did what Joe Humphreys, the University of Houston-Victoria's Small Business Development Center executive director, suggests business owners do when sales are down. When sales are lacking, business owners should figure out whether they can control the situation.
If they can control it, business owners should change their marketing strategies or product line to attract more customers, Humphreys said. If owners can't impact the outcome of their sales, they need to redo their budget and cut costs as much as possible, he said.
"If it's going to be a long-term trend that will affect overall business in the region or state, then you have to look at costs fast and change your cost structure because you're going to have less revenue," he said. "You need to bring the cost down in your business, so you're still making money off of less sales with less expenses."
Crossroads residents can help offset low sales tax revenue by shopping local, said Randy Vivian, president of Victoria Chamber of Commerce.
"If you live in a community, you need to invest in your community," he said. "We have local folks who have local businesses we need to support. Shopping there would help those businesses."
The economy is on the path to get better, Vivian said, especially because the oil industry has slowly started to pick up.
"We're still very based on oil in this community," he said. "As we see the price of oil stay over $50 a barrel, we'll see more economic activity here locally. The more people in town with the oil industry will increase sales. When you increase sales, obviously that increases the take that the city gets from sales tax."