How to Use Sales Tax Data to Create Results for your Public Agency

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Scenario

I am a Finance Director/Manager in a City that like others is seeking to maximize revenues from existing businesses and find new revenues to help our city have sufficient revenues to provide quality services to our residents and the community at-large.  Here’s the problem.  The Finance Director/Manager is inundated every day with new reports that need to be filed, created, presented and completed.  These reports are required to be filed they are not discretionary.  He/she is inundated with new regulations, rules (think of the latest GASB regulations), new financial audit requirements, new CalPERS rates, assumptions, return rates and their impacts on the agency.  And on top of this is the daily requirements and needs to respond to questions from the City Manager, the City Council, department heads, staff, and the general public about a variety of financial matters concerning the agency.

Sound anything like your typical day?  So how does a Finance Director/Manager have time to think and use revenue data to help their community maximize revenues and find new revenues?


Today we are in in the 6th + year of the current U.S. economic recovery.  Most government agencies from the federal level to the states to local California municipalities are experiencing increasing revenues.  These include nearly all revenues and in particular the top two: property and sales taxes due to increasing property values and consumers opening their wallets to buy new cars and other goods.

And yet cities today are under unprecedented pressure to come up with sufficient revenues to provide core community services and deal with increasing health care and pension costs. This financial pressure is not new as cities have been grappling with such pressures for several decades and in particular since California voters passed Proposition 13 in 1978.  What is new is the continuing and much faster disruption occurring in the business world with traditional bricks and mortar stores increasingly impacted by the internet digital era, “the internet of things” and the ever greater share of the economy comprising services vs. goods.  These trends and have implications for city revenues.

Unless your city is one of the what we call the “1% ter” cities i.e., cities that are a regional metro retail hub, or one that has a strong business base with multiple sales offices or has an abundance of very expensive homes, you have to take time to use the data you get to effectively preserve the revenue base you have and look for opportunities to grow your base.

Nearly every California city has in place either an in-house system for monitoring tax revenues and or more common, they contract with a company to provide such services.  If contracted, these companies produce quarterly detailed reports typically given and presented to the Finance Director/Manager and others for review.   A sampling of what is typically in these reports includes the following for sales and use tax:

  • Summary of sales tax activity for most recent reporting period including: list of the top 25 producers, revenue comparison year to year, sales tax by major revenue group, sales tax trends, per capita sales tax figures, revenue by business group and a report on the top revenue business types including sales and percentage growth figures
  • Sales trends and economic drivers report
  • Regional county and major industry group sales data compared to state totals
  • Special reports (e.g., gasoline sales data)
  • Top 20 businesses detail sales data
  • Major industry group detail sales data
  • Top 25 and top 100 business types detail sales data
  • Top 40 deviating businesses (major changes in sales tax up or down)
  • Major industry group several quarters of history data and Agency trend data
  • Agency comparative per capita sales with comparable agencies and against county, region and state data
  • Agency special sales comparative data for sectors applicable
  • Sales tax allocation, budget data history and FY forecasts going out several years with trend line data including all necessary adjustments
  • Special issue updates (e.g., Triple Flip unwind)
  • Revenues by geographic areas

Summarizing, there is a wealth of data and data analytics in the reports to help agencies not only preserve their revenue base but also grow it.  Those agencies that really use and apply the data see markedly greater success in both areas.  The following outlines key questions and suggested strategies your agency may want to consider.

Taking Action to Protect and Create New Agency Revenues

Here are some ideas based on our experience with public agencies.

Do you really know who your business base is?

Every community is different.  Is your business base primarily retail and what kind of retail (e.g., small business retailers, commercial strip centers anchored by grocery stores (mostly nontaxable sales) or big box stores, automobile malls and perhaps even a regional mall.  If it is mostly non-retail and what kind (e.g., warehousing, manufacturing, office).  What kind of office (e.g., high rise office, mid-rise office, back office) or R&D.  This is important for several reasons as not all sectors are equal when it comes to generating revenues and revenue potential.

Some retailers produce significant revenues (e.g., automobile dealerships and big box) while others produce much less.   If your business base is industrial how many have a sales office at their location in your city?  Have you or any of the staff on your team worked with those businesses to ask where the company’s sales office is and why they do not have a sales office in your City?  Did you know that many supply houses (e.g., medical supplies, etc.), can generate significant revenues?  Have you ever thought of targeting this sector?  You need to know what you have to:

  • Focus your business retention and expansion activities to support businesses that produce city revenues
  • To assist in securing existing firms to locate their sales office to the city
  • To know where there are gaps in your business base you might be able to target
  • To know what businesses would be a good fit with others already there
  • To assist in knowing what suppliers your existing companies use all the time and to leverage them to help you work with those suppliers (sales tax generating companies) to locate to the city

Do you share your tax revenue reports with a team inside the City responsible for marketing the City to the business community and with those who maintain infrastructure and regulate businesses?

  • Economic Development Director/Manager (EDD/EDM)
  • Planner
  • Public Works Director/City Engineer

Information sharing ensures everyone is informed with real data not suppositions on the business gaps, what gaps can be realistically closed and developing plans, policies and methods to close those gaps.  For example, if your city is targeting food manufacturing companies do you have the capacity to serve them (e.g., water and sanitary sewer treatment systems).  If your agency is targeting retailers for mixed-use development do you have the necessary planning and zoning regulations in place to support this strategy? For the EDD/EDM to be effective in filling the existing economic gaps, they need to work with the data referenced above to establish a target list of companies. In short, it all starts with the data and sharing it with an internal team to ensure all are working in tandem on the City’s business retention, expansion and site location work and the City has the systems in place including development regulatory policies and the required infrastructure to support the strategy.

Do you use the data you have on business gaps, what businesses produce what revenues, and then develop strategies and tactics to reach those business sectors? The point is having a plan on how you are going to reach these businesses?

Do you know who to contact, who the key decision players are, where to get this data and information? If you do not have this information and have not contracted for it through a tax revenue audit firm, do you know where to get the data?  There are multiple resources that can help you get a started:

  • California Association for Economic Development (CALED) caled.org
  • Economic and planning consultants
  • International Council of Shopping Centers (ICSC) www.icsc.org
  • International Economic Development Council (IEDC) http://www.iedconline.org
  • Site selection advisory firms

Have you shared key information you have from the tax revenue data (non-confidential data) with external partners?

Many California cities have dedicated some resources to economic development.  For the fortunate agencies, they will have a person(s) dedicated to this function.  If you are not one of these cities, and many communities fit this bill, the Economic Development function will be assigned to the City Manager or combined with some other department head job.  Thus, most agencies need partners.

And they exist in abundance if you work cooperatively and share data with them.  This includes information you get from agency data such as major City employers, who is expanding, who is locating in the community and what plans the City has to bring in more companies.  And it includes the non-confidential data provided by the agency’s revenue audit firm.  Typically, these firms will not only provide data on your business base by sector and trends data but they will also provide data on what businesses are searching for sites, buildings, what revenue range they typically produce, what amount of space is their typical footprint and much more including demographic and mapping data.  Key partners you should start with include the professional business real estate community.  They are generally one of the first to know who is looking in the market for space to lease and or buy and who wants to build. They also have great data they can share with you and vice versa. If you work closely with them and develop relationships, and provide information about agency business targets and why (you have already looked at your data to focus your targeting) it will go a long way to them help and the agency get businesses that produce real city revenues.

Have you built relationships with all the available partners? This one is related to the above question. There are many many partners out there including but not limited to:

  • Local utility company (e., Pacific Gas & Electric, Southern California Edison, San Diego Gas & Electric and others)
  • If your agency does not provide water & sanitary sewer the local districts that provide services
  • Cable/internet/fiber providers
  • Where applicable airport, port and rail operators
  • Local and regional chambers of commerce or economic development associations

Have you shared with them your economic development strategy, plan, tactics and business targets you have developed based on the tax revenue data the agency has?  Can these partners provide services that meet your target company site selection criteria and needs?  Do they have the capacity?  Are their rates competitive?  For example, if your agency wants to attract a certain manufacturer with a sales office; and this same manufacturer uses a great deal of electricity to operate said plant does your agency know if the utility rates are competitive?

Have you developed a policy to address requests for incentives?

If you are going after tax revenue producing firms sooner or later you are going to get a request for a sales tax sharing agreement.  What is your city’s policy on such agreements?  Have you researched ahead of time?  If your agency supports such agreements do you have a written policy in place?  Your revenue tax auditing firm can provide sample agreements and information on this important area. As important has your agency considered and identified the list of incentives that cost your agency $0?  There are many incentives that cost the agency nothing.  A sample is provided here:

  • California Communities. This joint powers government agency offers several public finance programs that enable businesses/developers to pay fees over time (e.g., SCIP program) and finance public infrastructure. http://cscda.org
  • Development agreements (DA’s). These are agreements between the business/developer and the City.  The key terms include the business/developer locks in their entitlements and fees and the public agency gets a project that meets its public agency goals and objectives.   Where there are financial considerations it is suggested the agency get an Irrevocable Direct Pay Letter of Credit to secure performance by the business/developer with the DA terms whether it be jobs, revenues, both or more
  • Deferred fee agreements. These are agreements where the public agency allows a company or developer to pay back fees over time.  The timeframe can be as short as when they developer seeks to obtain a Certificate of Occupancy (COO) or longer.  The longer the time frame the greater likelihood the agency will require some form of security or collateral to back up the obligation
  • Development permit assistance. Many public agencies will assign a dedicated business/development project manager to help expedite necessary discretionary approvals and permits required for projects with major public revenue benefits
  • Employment training. www.etp.ca.gov. The State of California through the Employment Training Panel (ETP) offers employer training programs
  • Loans. sba.gov. The U.S. Small Business Administration (SBA) offers several loan programs to assist businesses with capital access
  • PG&E energy incentives (other utilities have similar programs). http://www.pge.com/en/mybusiness/save/rebates/index.page

Are you developing relationships with the agency’s top 25 revenue producers and property owners?

A troubling trend in recent years in California is the emergence of private firms that work solely to relocate firms producing revenues particularly sales tax revenue from one city to another for substantial fees. If your agency has large sales tax revenue companies, it should be assumed these private sector firms or others are trying to pry them away.  What can an agency do?   Agency staff should regularly meet directly with these top revenue producers and property owners. Agency staff should communicate how important the company/property owner is to the community, learn what issues/problems the company/property owner is facing and if practical, help them address those issues.  One example is you might find a company is thinking of expanding their facilities and or purchasing new capital equipment.  An agency could assist the company in securing low cost financing.

There is an organizational principal known as “plan your work and work your plan.” To do so effectively your agency needs data and the data analytics on your agency business base to be effective at keeping the companies you have and targeting new companies to your community.  We hope this article has given you some insights and ideas on how to use data to assist with your community’s economic health.

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