April 17, 2024

Sioux Falls city government ended 2023 with a budget surplus, but slowing sales tax growth could pose a threat this year.

Revenue exceeded expenses by $7.6 million, driven by strong licensing, permit and liquor licenses revenue and investment income.

“Overall, another strong growth for the city’s revenues,” assistant director of finance Tom Huber said Tuesday in a presentation to the Sioux Falls City Council.

Budget savings also tracked higher than expected in part because of personnel savings from vacancies.

Through December, sales tax revenue grew by 3 percent, compared with 4 percent that the city had budgeted.

“If we take a brief look forward, 2023 results of 3 percent put us a couple percent behind for meeting the 2024 budget, as we budgeted for 5 percent growth in the capital plan for 2023,” Huber said.

“The net result is, to make the 2024 budget … we need 7 percent growth in sales tax. … This isn’t meant to try and scare anyone. It’s early in the year, but it rather just creates an awareness that the city is cognizant we have a little bit of a hill to climb.”

The growth is the slowest since 2017 other than 2020 during the pandemic.

Through March, sales tax revenue is tracking about 4 percent higher than last year, he said. If trending doesn’t improve enough, the city typically has used some of its reserve fund balance at the end of the year to cover the shortfall and has reprioritized spending.

After accounting for some restrictions in the surplus funds, the city was able to add $3.2 million to its general operating reserve fund, which is used to help cash flow throughout the year in addition to helping absorb increases in operating expenses such as staffing new fire stations or handling heavier-than-expected snowfall. The city’s target has been to keep at least 25 percent of the general operating fund in reserve.

For 2023, the entertainment tax grew by 6.4 percent but lagged behind on a year-over-year basis in the final two months of the year.

The fund supports the Denny Sanford Premier Center complex and Washington Pavilion.

“As we start to anticipate possible future investments with the entertainment tax fund, we’re trying to make sure we have good mechanical reviews of each our facilities, understand what’s coming up for replacement, understand what it’s going to take to take care of these facilities,” Huber said.

“Revenues continue to move along better in the entertainment tax, so I wouldn’t be surprised to build up balances a little bit, but we have some big projects coming through as well.”

Looking by categories, restaurants, along with miscellaneous retail stores and department/general merchandise stores, saw the biggest increase in sales to end the year. Home furniture, furnishing and equipment stores saw the biggest drop, along with lumber, hardware and garden stores.

“The city is in a strong financial position to meet existing service demands, adapt to the fast pace of growth and deliver on some great future opportunities that lay ahead,” Huber said.