Leaders in region consider impacts of tax revenue in 2022

By Sam Easter

It’s hardly a technical term, but for budget-makers and accountants at city halls and statehouses around the upper Midwest, 2022 was certainly a very odd year – with big changes on both sides of the ledger.

The tail effects of the pandemic were still roiling supply chains. Inflation surged, as did labor costs. Interest rates, on their steady march upwards, drove the cost of credit. But revenues grew, too, as many communities saw boosts in sales and property tax.

That invites tough questions about the future, as many communities are grappling with whether income or spending is winning a 2023 inflationary race to the top.

“I think they’re going to be in really, really close competition,” Fargo City Administrator Mike Redlinger said, pointing out that labor costs in particular are rising as public payrolls try to keep up with rising public sector pay.

One example, he said, is equipment operators with specialized licenses, who can easily job-hop into new roles and for whose retention competitive pay is important. “In that case, we really found that we needed to do some mid-year adjusting for that kind of tactical work.”

Rising property tax revenues and state aid have been a big help, Redlinger said, but added that Fargo will have to be strategic with new spending and stay “disciplined” with discretionary spending. There have been pinches in other places, too. Shawn Pritchett, the city of Sioux Falls’ director of finance, said he’s watched sales tax revenues rise quickly, but added rising prices have been notable, too.

“In a variety of areas, we saw bids coming in significantly over budget. We had one recently that was almost 100% over budget… and some of that is inflation. Some of it is just product availability.”

And some of it, Pritchett, points out, is contractor availability, which owes to Sioux Falls’ rapid expansion, with projects keeping builders busy. That’s a good kind of problem – but there are, nonetheless, snarls with purchases and procurement that have come as the economy readjusts in the wake of so much change in so many places beyond city limits. There’s maybe no better example than a recent vehicle purchase.

“We were informed that our order was canceled by the manufacturer, and we had just a couple of days to reorder,” he said. “We had to do an emergency proclamation to avoid public bid issues in order for us to order vehicles in the hopes that we might get them in 2023 at a cost of $4,000 more per vehicle. So that’s just as one example of some of the challenges we’re dealing with.”

Already, there’s talk at City Hall about which projects need to be delayed in the hopes of a “better environment” in the future. Not everywhere is feeling the pinch. North Dakota’s budget office has had a sunny year, with revenues from sales tax to oil taxes likely leaving legislators flush with extra spending ability for the current two-year spending cycle. Joe Morrissette, who heads the state budget office, said that makes it easier for legislators in this cycle to answer questions about pay parity and operating costs.

“We’ve gotten those cost drivers pushing things up on the spending side, but then inflation also raises the cost of the goods and services continued on page 23