June 22, 2022

Inflation hit 8.6 percent in May, the largest year-over-year increase since 1981, and the city’s budget is starting to feel it.

“We are not immune to the impacts of inflation,” director of finance Shawn Pritchett told the Sioux Falls City Council on Tuesday in his monthly financial report.

Inflation largely is being driven by the energy sector, which is up 34 percent in May, and food, which is up 8.2 percent. Removing them, overall inflation was at 6 percent.

The city is experiencing impacts primarily in its construction and fuel budgets, Pritchett said.

With fuel, “we’ve been monitoring the market over the last five months, but within the last month, prices have increased significantly,” he said.

The city has expended 41 percent of its yearly fuel budget through May, when typically it would be tracking at 26 percent to 28 percent.

“Those summer months is really where you have those heavier spends or heavier uses of those,” Pritchett said. “We’re going to try to manage to the budget in terms of what we have available to cover some of those overages, but there is a possibility we may need to supplement the budget come fall.”

Every time fuel goes up 50 cents per gallon, it costs an additional $135,000 from the city’s annual general fund, or $210,000 across the scope of the city including other funds.

While it’s not a large portion of the city’s budget, it reflects what consumers are experiencing in daily costs going up, he said.

The city also has seen some movement in the labor force, with a 2.8 percent increase, while employment is up 3.9 percent, compared with the same time last year.

“You see the employment growing faster than the labor force, which to me says you’re seeing people returning to the labor force,” Pritchett said.

Sales tax revenue grew 10.1 percent year over year in May, but factoring out inflation, the true growth rate was more like 1.5 percent, he said.

“That, when you look at previous years, is not out of line with our expectations,” he said.

The rolling 12-month average growth at 18.8 percent is coming down, “and we expect that but overall still very solid gains and not inconsistent with prior years,” he said.

The entertainment tax was up 10.9 percent, driven primarily by restaurants.

“Again, this is very positive,” Pritchett said. “To continue to see this robust activity is positive … people going out to eat and using some of those restaurant services is certainly impactful for us.”

The lodging tax is up 22 percent over May of last year and is outperforming other area communities, Pritchett said.

“Some of the policy actions taken during the COVID time gave us an opportunity to rebound a lot faster,” he said.