After experiencing double-digit growth in recent years, sales and use tax revenue collections in the City of Boulder are leveling off, according to recent revenue reports.
This stagnation is prompting city officials to warn councilmembers that recent increases in city spending are “unsustainable,” according to a city staff memo. It’s unclear how the city will continue funding safety net programs created with federal stimulus money during the Covid-19 pandemic.
Sales and use tax collections are the single-largest revenue source for the city’s $515 million budget. The flattening in this revenue stream will complicate the Boulder City Council’s efforts to respond to urgent community needs, such as rising homelessness, in the coming years.
In 2023, the city’s sales and use tax collections came in below the inflation rate, despite overall collections being about 2.6% higher than in 2022, according to the December 2023 revenue report. Heightened tourism and the uptick in CU-branded merchandise purchases driven by Coach Deion Sanders have seemingly not turned the tide.
“The city believes there were some positive impacts to the city’s tax revenues, as well as the greater economy, during 2023 from what is being called the Prime Effect,” James MacDonald, a tax manager in the city’s Finance Department, told Boulder Reporting Lab in an email. “However, the direct fiscal impact to the city was … not enough to materially offset the general flattening we have experienced in sales and use tax.”
This plateau follows double-digit growth in sales and use tax collections in the years after the pandemic. The post-pandemic economic boom allowed the city to invest in new programs, such as an encampment removal team and a non-police alternative for 911 calls related to mental health crises.
Meanwhile, the city also received about $20 million in federal stimulus money under the American Rescue Plan Act. This funding supported safety net programs like peer support for homeless people, child care subsidies and a guaranteed income pilot project. It’s unclear if the city will be able to sustain these programs long-term.
One factor contributing to the slowdown is the national decline in job and income growth, among other drivers, according to Brian Lewandowski, executive director of the Business Research Division at CU Boulder’s Leeds School of Business. The school provides economic forecasts for the city’s budgeting process.
“We’re seeing some slower economic activity,” Lewandowski told Boulder Reporting Lab. “We’re sort of back in the normal bounds of growth.”
Moreover, the number of people working from home has nearly doubled since the pandemic, according to a city survey. The result is fewer people working downtown and spending money at restaurants and local shops. The office vacancy rate in the City of Boulder is about 30%, according to the most recent market report from Dean Callan, a Boulder-based research firm.
The flattening of sales tax revenue is partially offset by growth in other areas, although these sources are historically volatile. In 2023, revenue increased from both the construction use tax, paid with building permit applications, and the motor vehicle use tax, paid when registering a new vehicle.
Some business sectors and areas of the city are faring better than others. In 2023, tax receipts for apparel stores and restaurants increased over 2022. General retail, however, saw one of the steepest declines. Downtown, Pearl Street, University Hill and South Boulder showed an increase in sales and use tax receipts compared to 2022. Businesses in North Boulder, by contrast, reported less sales and use taxes.
The Boulder City Council is scheduled for a study session this week on the city’s finances. It will begin setting the 2025 budget this summer.
Why do all governments assume that spending must increase every year?
Why do they spend at all without accounting for the costs?
Spending $3 million a year on homeless camp removals, which merely moves the homeless round and round, not only is a huge waste of money, but steadily destroys their mental and physical health, rendering our good programs for the homeless far less effective. It’s a double waste of money.
The City should quit wasting money screwing around with the streets.
The tax and spend Democrats cannot sustain the constant increase in spending. We now have one of the highest tax rates in Colorado and we have a 30% retail office space vacancy and still they are trying to add more programs we cannot pay for. The parking in Boulder is a nightmare and yet they want to build thousands of housing unit with insufficient parking. The pipe dream that they will all walk or bike is insanity. Look at the destruction of our country caused by these liberal policies and Stop.
Wouldn’t you think somehow the city could figure out how to make some creative use out of that 30% empty office space? The glass half empty mentality is thick in Boulder. I wonder if the grossly inflated commercial rents have any impact on that (sarcasm). Maybe private equity investors and every other greedy corporate landlord could suck it up for once and lower their outrageous rents that drive many small and interesting businesses out of Boulder along with all the character that made Boulder interesting. And why would businesses want to rent insanely expensive office space if they can have their staff work remotely. Makes sense doesn’t it? And that was a hilarious reference to staff taking into account the Coach Prime effect like he would be able to save Boulder!
Downtown Boulder is too expensive particularly given what is available in surrounding communities.