Anatomy of a tax dollar

When you spend $1 in the city and the register rings up $1.09, do you ever wonder what happens to that 9 cents?

 “Shop Vestavia Hills” — you hear it all over town, and that 9 cents is why. The power to create change in your community might be most evident on your ballots, but it’s also in your wallet. 

While ad valorem, or property tax, is the City of Vestavia Hills’ largest, most stable source of revenue, a sizable portion never reaches the annual budget. It’s shaved off and delivered to the Vestavia Hills Board of Education.

Rather, the city relies on sales tax revenue to support its general fund, and that fund serves as the foundation for city functions. It provides operational expenses for just about everything — from patrol cars to concession stand receipt paper. And it’s distributed according to the wishes of the Vestavia Hills City Council along guidelines set in the budget.

“When you look at priorities, you look at what do we have to do, what would be nice to do and the more ambitious list of what we would like to do,” City Manager Jeff Downes said. “The growth of our sales tax revenue will help your elected officials consider as much of that list as we possibly can.”

So, spending more in Vestavia Hills might not guarantee a new sidewalk on your street, but it does help your local leaders make the decision. If the money is there, they might concrete every right-of-way in town. But if it isn’t, they can’t.  

However, growing sales tax revenues for the general fund isn’t an easy task. Currently, of the 9 percent tax, the State of Alabama collects 4 percent and Jefferson County collects 2 percent. Of the remaining 3 percent, the city divides 1/12 between the Board of Education and its Reserve Fund.

Specifically, if you spend $100 on groceries in the city, your contribution to its operations is about $2.74.

 Vestavia Hills’ budget for fiscal year 2014 projects approximately $36 million in revenues. About one-third of that — $11 million — is slated to come from sales tax. Reaching that mark means administration is projecting about $390 million in total transactions would take place in the city before Sept. 30, 2014. 

It might seem like a mountain, but the projection follows the trend. 

“What drives any projection is historical information and a consideration of the national economy,” Vestavia Hills Finance Director Melvin Turner said. “Take the current year — ad valorem revenue is projected to be down as the market is still recovering, but we were a little more aggressive on sales tax projections as we’ve been growing exponentially the last few years.”

Since 2010, the city has seen sales tax revenues jump more than 22 percent, and Downes said that healthy growth has allowed the city to maintain and even increase employee salaries and benefits, as well as embark on an aggressive capital improvement campaign. 

“It allowed us to accomplish a number of priorities,” he said. “We replaced several fire engines, we built up reserves through conservative fiscal management, and through that, we learned in October that Fitch Ratings has given us a rating of ‘AA+’ with a stable outlook. That is a huge thing.”

Fitch Ratings, Inc. is a company renowned and respected in the financial markets for assessing risk. Its ratings are only opinions, but they carry weight.

According to a release from Business Wire about the ratings, Fitch’s AA+ for Vestavia Hills comes with confidence that sales tax revenue will continue to increase.

“The city has budgeted a 4.8 percent increase in expenditures for the fiscal year beginning Oct. 1, reflecting its expectation of strong sales tax receipts and permit fees in fiscal year 2014,” the Business Wire story reads. “Fitch would generally consider the projected 7.8 percent growth in sales tax as optimistic, although recent robust increases in this revenue source somewhat mitigates this concern.”

Vestavia Hills believes its residents will continue spending, and Fitch agrees.  

For his part, Downes is aggressively working to drive the kinds of economic development results that citizens expect. He encourages residents to shop local whenever they can, as those resources will only help the city accomplish its long-term goals and objectives faster. 

“When an outside independent assessment firm like Fitch comes in and gives us the highest rating in the state of Alabama, that tells us we are doing something right,” Downes said.