Low auto sales sink cities' tax revenues

Even as Chrysler LLC rolls out new advertising touting its efforts to "Build a New Car Company," Mayor Gerald Sherratt wonders why Cedar City isn't invited along for the ride.

The automaker recently announced it's terminating franchise agreements this week with 10 Utah dealerships — stretching from Tremonton to St. George — as part of bankruptcy reorganization plans. Separately, General Motors, which filed for bankruptcy last week, also has announced plans to trim its national dealership network in the fall of 2010. GM's cuts, yet unspecified, will include additional Utah dealers.

"Somebody in Detroit made a big mistake," Sherratt says of Chrysler's rebuff of a trio of dealers in his city. "I keep wondering who these guys are that make these decisions?"

While some Utah auto dealers getting the cold shoulder from Detroit now and in the future is stinging to community pride and likely to have localized fiscal impacts, it takes a back seat to the greater budgetary maelstrom engulfing municipalities statewide following months of slumping auto sales.

Year-over-year fourth-quarter auto purchases dropped from 10.3 percent to 8 percent of the state's total gross sales between 2004 and 2008, according to Neil Abercrombie, a policy analyst for the Utah League of Cities and Towns. More unnerving is the drop in sales between Q4 2007 (9.8 percent) and Q4 2008 (8 percent). Furthermore, raw data comparing Q1 2008 with Q1 2009 suggests even greater softening of sales.

By statute, cities share 1 percent of the state sales tax. One-half of the 1 percent stays in the community where a sale originates, and the remaining one-half percent is distributed among all the cities in the state based on population.

"This is going to be an ongoing problem for local governments to deal with. The auto industry figures to struggle for some time while it retools," cautions Ken Bullock, the league's executive director. "Automakers and other businesses are being forced to go on a diet, and cities will have to do likewise.

"Leaner is the future, and that makes it imperative that local governments educate their residents about how their taxes are being spent," Bullock said, noting that all local revenue sources are under recessionary pressures.

Declining sales tax revenues have already caused havoc in places like St. George where auto purchases make up the largest slice of the city's sales tax revenue pie.

Assistant city manager Marc Mortensen said St. George is collecting about $90,000 less per month in sales tax revenues from auto purchases compared to two years ago. Overall, the city generates sales tax revenue between $4 million and $5 million annually.