Sales tax (charged)
Sales tax revenues continue to fall in the city of Ukiah, the region’s retail hub, and Mendocino County as a whole, posing new challenges for local government agencies.
Ukiah city officials said they expect a $1 million sales tax shortfall this year from what was originally projected.
“This year’s budget will focus more on needs than wants,” said deputy city manager Shannon Riley.
The latest sales tax report shows that the city’s total sales tax revenues fell a sharp 9.5 percent year-on-year in the fourth quarter of 2022, indicating a sluggish local economy still buffered by inflation and large declines in spending related to the county’s struggling cannabis industry.
For example, sales in gardening and agricultural supply businesses fell 12.6 percent in the city and 11 percent nationwide, compared to an average drop of 5.4 percent statewide, according to the latest sales tax update provided to city and county officials. and county officials. An even sharper drop in spending on sporting goods and recreational stores was recorded at 18.2 percent in the city and 17 percent in the county, compared to a national average of 4.4 percent.
The weakening economy of the North Coast region was underlined by the fact that there was only one reported increase in sales tax revenue for the city of Ukiah and only two countywide – gas stations and drugstores – compared to eight sales increases statewide in the 10 spending categories followed.
The city recorded only a single sales tax increase, and that came from local gas stations. It was a meager 0.6 percent increase compared to 1.4 percent for the province. The local numbers paled in comparison to a 7.5 percent increase at gas stations statewide.
The sales tax updates cover the last three months of 2022, typically the largest spending period for consumers.
The updates show that a local economic slowdown is continuing at a rate greater than the entire North Coast region at large and statewide, according to statistics from HDL Companies, a Southern California company that specializes in compiling sales tax revenue for government agencies statewide.
HDL noted in its latest report to the City of Ukiah that even sales taxes in the city had fallen in all but one category, statewide local sales and use tax receipts for sales during the months of October through December 4, 7 percent higher. than in the same quarter a year earlier.
Statewide, HDL found that “a quarter before the holiday season, the most consistent sales period of the year, delivered solid results that drove revenue to local agencies across the state.”
But not in Ukiah and Mendocino County.
HDL found that actual sales in Ukiah were down 5.9 percent, and taxable sales nationwide were down 6 percent over the same period. Neighboring counties suffered a 3.6 percent drop, according to HDL.
HDL said the local and state outlook for the rest of the year looks bleak.
“Heading into 2023, additional rate hikes along with declining consumer confidence about the economy predict minimal change from California taxable sales in the coming months,” the report concluded.
Mendocino County’s overall budget status is murky, and it’s unclear how declining sales tax revenues affect its financial status. County officials are mired in confusing budget delays, uncertainty about the accuracy of revenue forecasts and a sharp downsizing of the local cannabis industry over chronic questions about a local regulatory framework.
City officials are more confident. Deputy City Manager Riley said Ukiah generally “tends to weather economic situations well because of our diversified tax base and the fact that we are a regional hub for such a large geographic area.”
“Even in difficult times, people come to Ukiah for medical needs, education, legal and business services, and general needs,” said Riley.
Riley said the city has been fiscally conservative for several years and has healthy cash reserves to withstand any financial crises.
Still, Riley said there’s no doubt that the “crash” in the local cannabis industry is taking its toll across the board in retail pot sales, gardening and farming supplies, and auto sales.
“The Emerald Triangle is experiencing a very different economy than the state at large,” Riley said.
HDL researchers stated in a special report entitled ‘Cannabis Supply and Demand in 2023’ released two weeks ago: “The California cannabis industry is not dead and not dying. It’s just realizing that the market isn’t big enough to support everyone hoping to get a piece of the piece.
“With every new market come inevitable corrections. The cannabis in California is not dying. It’s just not as big as people thought,” HDL told his clients.
HDL said the current situation reflects a hard fact that small cannabis growers on the North Coast face fierce competition from large companies elsewhere.
HDL said based on “rough estimates, the top 20 farms are capable of producing more than 2.6 pounds of (cannabis) flowers a year, enough to supply the entire state market.”
“This is not unique to the cannabis industry,” HDL concluded.
HDL said there are more than 11,000 wineries in the US, but the 50 largest companies alone account for more than 90 percent of domestic wine sold by volume. The same goes for the brewing industry. There were 9,247 breweries nationwide, but most of them share only 13 percent of the total market, according to HDL.
“California’s cannabis industry is shaped by the same free market forces that shape other industries, with the predictable result of concentrating market share in the hands of a few large companies,” HDL said.
In short, HDL found that “it is likely that independent small (cannabis) companies will continue to struggle as they compete for a small percentage of the market.”
