Trump's tariffs creating uncertainty for Elk Grove's sales tax revenue
https://www.elkgrovenews.net/2025/02/trumps-tariffs-creating-uncertainty-for.html
During their Wednesday, February 26 meeting, Elk Grove Mayor Bobbie Singh-Allen and her city council received a report that President Donald Trump's economic plans might already be affecting municipal sales tax revenues.
During the mid-year fiscal year 2025 budget review from city budget manager Nathan Bagwell, the mayor and city council learned that sales tax revenues are below budget. Sales taxes are the largest source of the city's general fund revenues.
Bagwill said the sales tax revenues are off by $2 million. The budget for fiscal year 2025, which the mayor and city council approved last June, forecast $38.1 million, but the new forecast is $36.1 million.
"Inflation, higher cost in general, they are affecting our local economy," Bagwill said. "Specifically we are seeing data that supports folks are staying in their cars longer waiting for interest rates to come down."
Sales at the Elk Grove Automall account for a significant portion of the city's sales tax revenues. Bagwill also noted the economic uncertainty of Trump's economic policies, which are based on imposing large tariffs on imported goods.
"It is also unknown how the economy will react to the new administration in DC," he said. "Tariffs and geopolitics will all be factoring in."
Municipalities like Elk Grove derive substantial revenues from local sales taxes on high-value items like automobiles. Although higher car prices from tariffs could boost per-unit tax collections, the forecasted decline in volume, which some have put at seven to 10 percent nationally, is expected to reduce tax receipts overall.
A Standard and Poor's Global report noted, "A US universal tariff policy could, however, lead to an aggressive trade war. In that case, it's likely that inflation go up, while interest rates will not decrease as much as expected."
Another side effect of higher interest rates would be the construction of the proposed $300 million Elk Grove-Sacramento Zoo. As reported last year, financing of that project is predicated on decreased interest rates for the $114 million bond Elk Grove will issue.
When discussing zoo construction financing last year, former Elk Grove finance manager Matt Paulin predicted stable interest rates. Since then, interest rate uncertainty has increased, and Maulin has been separated from his employment with the city.
While higher interest rates are hurting consumers and retail sales, Bagwill noted that they benefit the city by increasing returns on investments in the city reserve cash. The higher interest rates generated an additional $1.35 million in investment income.
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