City Financial Future on Shaky Ground

‘We Don’t Know What’s Coming’ City of Gillette Officials Say Amid Ever Decreasing Sales Tax Revenue

Uncertainty looms behind inconsistent sales tax revenues as crippled energy markets and a slowed economy continue to drive the City of Gillette’s income millions of dollars below previous years, officials say.  

Since fiscal year 2015, city sales and use tax revenues have fallen from between four and five million dollars to just over 2 million in fiscal year 2021, according to a financial report presented to the Gillette City Council by Henderson Jan. 26. 

Nearly 21,000 jobs were lost across every industry in Wyoming during the third quarter of last year with 31% of those jobs in the mineral extraction industry, according to a December 2020 report from the Wyoming Department of Administration and Information’s Economic Analysis Division (EAD). 

Unemployment, while currently improving, is higher than it has ever been in recent memory with the decline in coal, oil and natural gas, and the COVID-19 pandemic, Geno Palazzari, City of Gillette communications manager, said Feb. 8.  

Statewide unemployment rates in 2020 increased significantly from 7.1% last July to 4.8% last December, according to the U.S. Bureau of Labor Statistics, and was 1.5% lower than the national unemployment rate 

At the end of 2020, only four oil rigs were operating in the state compared to more than 30 the year prior, according to the Wyoming State Geological Survey. 

Decreasing operations in the mineral extraction industries means fewer equipment rentals and leases from Gillette businesses which, in turn, means less revenue for the city that claims a portion of those equipment rental fees in the form of sales tax, according to Michelle Henderson, city finances director 

“It’s all over the board,” Henderson said Feb. 8.  

With the mild winter, energy demand from the city was down as well as residents did not run their heat as much as would be expected during the winter months, Palazzari added.   

At the end of 2020, the city faced a $952,000 deficit in its sales and use tax fund, with $300,000 of that shortfall accounted for within the General Fund and the rest within the Optional One Percent sales tax, according to Henderson 

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It’s a scenario the city has not contended with since 2005. Then, with the city’s population standing 10,000 residents fewer than what it is now, it wasn’t a particular cause for concern, Palazzari said.  

This time, it’s completely different, Palazzari noted 

The current sales tax outlook has the city as an organization seeing a ghost of 2016, where talks of drastically changing operations because of falling revenues translated to a significant reduction in force for city employees.  

“That was the last time we went through the current scenario in terms of having to look at drastic changes,” Henderson said.  

Now, falling sales tax revenue has again kicked off the circulation of the term “changing operations,” this time within the office of the city finance director.  

“We would take the low hanging fruit first,” Henderson said, which could include, among other things, cutting travel and training for city employees in favor of virtual training options to ensure those employees remain current in their respective fields.  

The city could also look at halting premature equipment replacements, potentially opting instead to run equipment to the point of failure rather than replacing them on a regular, planned basis, Henderson said.  

Cutting personnel would be a last resort, Palazzari added. More likely, he said, the city would be looking to reduce employment costs through attrition, which means not immediately filling positions left vacant by employee retirements.  

“When you’re talking about a reduction in force, which is what we went through in 2016, the effect that has on operations takes a very, very long time to bring back,” Palazzari said. “To hire somebody, to train them, you may end up actually costing yourself more money than if you had just hung on to that employee.” 

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But talks regarding employee cutbacks are premature at this point, Henderson said.  The city still has six months of sales tax revenue to collect which could push the revenue line either way.  

“Depending on which way that line goes, we can make it up in a month, or we can lose another $300,000 in a month,” Henderson said. “There’s just no way to know.” 

She indicated that the city will be looking to start talking about its revenue picture in about a month’s time, which would let the city have more sales tax data available to accurately budget for the coming fiscal year.  

Already, the city has seen a $533,000 surge in its monthly sales tax dollars recently that came in above the organizations budgeted sales tax revenue of around $1.4 million for the third time this fiscal year, according to the most recent sales tax earnings report released Feb. 12.  

The revenues halfway through fiscal year 2021, however, are 17% below revenues seen last year at the same time, according to the report.  

But isolated spikes in sales tax revenues are nothing new with the city recording sudden increases every few months for the last six years, according to a financial report presented to the Gillette City Council by Henderson Jan. 26.  

Comparing the annual trends end to end, isolated spikes do not indicate an improving sales tax revenue picture, according to City Administrator Patrick Davidson, who addressed the council Jan. 26.  

“It’s a downward trend, and it’s been a downward trend with some high points for six years,” Davidson told council members. “It is reasonable to assume that this trend will continue.” 

Isolated spikes in sales tax revenues can be identified, in good years, systemically, especially around Christmas time when residents are holiday shopping, he noted 

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“But it’s not enough that I feel comfortable saying that next year, at that time, we would have an uptick in that same way,” Davidson said. “It’s just not consistent enough to draft off of.”  

He likened the process used by the city to budget sales tax to someone living off a job with unknown hours, an unknown salary, and an unknown pay schedule while still attempting to pay necessary bills and expenses.   

“If (the trends) do tell us one thing, it’s that we don’t know what’s coming,” Davidson said.