It was a bad month at a bad time for sales tax revenue in Lawrence.

According to the August report recently released by the state, sales tax revenues in Lawrence fell 5.3% year over year. This decline was significantly higher than the statewide average, which recorded a 2.1% decline for the August reporting period.

But the more troubling number is Lawrence’s year-to-date sales tax revenue. With this recent decline, Lawrence’s total sales tax revenue for 2024 is up barely. Lawrence’s sales tax revenue is up 0.7% year-to-date.

Taking into account a special type of sales tax called the use tax, which is levied primarily on online purchases, Lawrence’s revenue increased by 0.84 percent over the year.

And that’s where the bad timing aspect comes in: Lawrence city councilors will be asked next month to approve a 2025 city budget that assumes sales and use tax revenues will be 2.7% higher in 2024 than last year. With each month that passes, that projection becomes less and less likely. That could lead to another budget deficit.

There are only four reporting periods left in 2024. For Lawrence’s tax revenues to end the year up 2.7% — and stay on budget — the city needs to have some really strong year-end months. How strong? Each of those months needs to bring in about 6.5% more revenue than the previous year. In other words, a switch needs to flip in Lawrence’s economy to go from consumers spending about the same amount as the previous year to spending about 6% more than the previous year.

It’s not impossible that could happen, but such outcomes are complicated by the fact that Lawrence will not host KU home games in 2024 due to construction on the stadium. That means millions of dollars in revenue that will be generated not in Lawrence this fall, but in Kansas City – the temporary home of KU football games.

City councilors will have to decide in the coming weeks whether to stick with that sales tax projection for 2024. The decision could impact both the 2024 and 2025 budgets. If the city sticks with the projection and sales tax doesn’t pick up in 2024, the city will likely end the year with a budget deficit. How big is it? If growth continues at that 0.84% ​​pace, the city would have a budget deficit of just under $1 million for 2024.

That would be a shortfall beyond what the city has already recognized. The city realized earlier this year that sales tax revenues would be about $8 million below its original budget, which was prepared in the summer of 2023. It revised its budget downward by about $8 million based on its assessment of the market. In reality, it may have had to revise it downward by $9 million. The next four months will tell.

The city has reserves to cover any additional deficit that may arise. However, the city administration is concerned about the drastic use of these reserves.

The problem in 2024 could create a budget problem for 2025. The city bases its estimates for sales tax revenue in 2025 on the amount of revenue it expects in 2024. For example, the city expects sales tax revenue to increase by 3.2% in 2025. To get an actual dollar amount for the budget, the city takes the expected sales tax revenue in 2024 and adds 3.2% to that number. Therefore, the 2025 budget number is only as good as the 2024 forecast. If the 2024 forecast is off by $1 million, the city’s 2025 budget is already in a hole from the start.

That presents city councilors with a dilemma. Do they want to cut the city’s 2025 sales tax projections by $1 million? That would make the tight budget even tighter. Where would they cut spending by $1 million?

Or do they want to make no changes and hope for the best? The best case scenario is that the economy takes off and grows about 6% for the rest of the year and the city finishes the year as expected. Then it only needs to grow about 3% through 2025 and everything will be fine.

However, if the recovery does not happen in 2024, things will get tricky in 2025. If 2024 ends similarly to this year, consumers would have to increase their spending by about 5% in 2025 for the city to stay within its budget. That’s not impossible, but it’s no small feat either.

As I said, it’s difficult to predict the future, but that’s exactly what the city is concerned with when it comes to sales tax budgeting. A major failure in sales tax projections is a big reason the city is considering the largest property tax increase in at least 50 years.

Whether the city finds itself in a similar situation next year may depend on budget decisions commissioners will make soon.

For those of you keeping track at home, here’s a look at year-to-date sales tax totals for some of the state’s largest retail markets.

• Shawnee: up 1.8%

• Kansas City: up 1.5%

• Olathe: up 1.1%

• Lawrence: up 0.7%

• Topeka: up 0.4%

• Lenexa: down 0.6%

• Merriam: down 0.6%

• Salina: minus 1.5%

• Sedgwick County: down 1.7%

• Nationwide: +0.6%