A Mobile City Council committee voted to recommend extending for five years the sales tax increase funding the city’s capital improvement program.
The ad-hoc committee chaired by Councilman C.J. Small and including Councilman John Williams and Councilman Joel Daves voted unanimously to recommend the additional one-cent sales tax be extended until Sept. 30, 2023. Other councilors in attendance at the meeting on Tuesday were supportive of the move as well.
The five-year extension would help the administration plan for projects in the future, Executive Director of Planning and Urban Development Dianne Irby said. Although whether the tax was extended for three years or five years wouldn’t make too much of a difference.
“You’re going to have a rolling plan anyway,” Irby said. “It’s helpful if you know you have money available for grants.”
Executive Director of Finance Paul Wesch told councilors he expects sales tax revenues to remain flat for the next few years. He added that there would be pressures on those revenues, though, from both natural and unnatural forces.
“The future is a little bit uncertain,” Wesch said. “We’ll do our best to ensure tax revenues are not eroding. I anticipate we would be able to hold our own over the next couple years.”
One concern is the impact online sales could have on revenue. At Tuesday’s council meeting, Wesch used Tuscaloosa as an example, saying the college town has experienced revenue loss due to internet activity, forcing cuts to every department budget by 5 percent.
“We can expect that unless we make sure unnatural erosion doesn’t take place,” Wesch said of the effects of online sales. “We have not seen any erosion from last year to this year.”
There is growth in Mobile, Wesch said. Job growth and other activity is filling some holes left by lost sales tax revenue, he said.
With an eye to the future and with concerns over the availablilty of sales tax revenue, councilors discussed bringing back an ad-hoc committee on taxation to review the possibility of other forms of revenue.
Previously, an ad-hoc committee chaired by Councilwoman Bess Rich came up with a proposal for a hybrid, which used a decrease in sales tax, an increase in property tax and usage fees to make up revenue shortfalls.
Mike Johnson, a member of that committee, told councilors the concept is still good. As an example of declining sales tax revenues, Johnson said the city collected $142 million in sales tax revenue in 2006. Ten years later, the city only collected $1 million more total, without the benefit of the additional penny.
“The sales volume didn’t increase over 10 years,” Johnson said.
In comparison, property tax revenue went up 50 percent during the same period, he said.
Wesch also brought up the possibility of use fees for local residents and businesses.
An increase in property tax would be a hard sell to residents for typical CIP funding, like ditch closures and street repavement, “as opposed to large infrastructure projects.”
In order to use an increase in property tax to fund capital projects, the city would have to get the state Legislature to approve it. It would then go to a referendum.
Wesch told councilors to consider service fees. Fifty years ago the city used service fees instead of sales tax as its main form of revenue, Wesch said. A few years back, Wesch said, the council passed a fee ordinance to pay for drainage repairs. The council never actually enforced the fees, though, and the state has capped fees to make it harder for the city to use them.
Wesch added that Mobile is the only city beside Mountain Brook and Alabaster that doesn’t charge a garbage fee, he said.