DOWNTOWN — Apparently it doesn’t take Black Friday deals to get Santa Monicans and visitors to open up their wallets.
Sales tax receipts from the second quarter of this year — April to June — were up nearly 16 percent from the same period last year, the result of Santa Monica Place reemerging as a shopping, and now dining, destination, higher prices at the gas pump and increased consumer spending on everything from cars and clothes to furniture and appliances.
All major business groups were up — especially general consumer goods at roughly $840,000 — except for building and construction, resulting in an actual sales gain of 15.9 percent compared to an increase of 8.4 percent in Los Angeles County and 9.7 percent statewide, according to an update to City Hall published by The HdL Companies earlier this month.
“A big chunk of that has to do with Santa Monica Place coming online, but even if you were to take that away you still have a pretty healthy gain, but probably be more in line with the county,” said Dave Carr, City Hall’s treasury administrator in charge with collecting revenues.
The mall, which re-opened in August 2010 after a two-year, $265 million renovation, boasts two of the top 25 sales tax producers in the city — Bloomingdales and Nordstrom. Other major contributors to the tax base include the Apple store; Beachbody, the makers of trendy fitness DVDs like P-90X; H&M clothing; Lexus Santa Monica; and Shutters on the Beach.
“Santa Monica does have a very diversified tax base, more so than a lot of other cities, which primarily rely on property taxes and sales tax,” Carr said. “Some cities may see 50 to 60 percent of revenues or even more generated by those two sources. In Santa Monica’s case with this current year’s budget, property and sales taxes account for nearly about 28 percent of General Fund revenues.”
Other sources include the transient occupancy tax or hotel bed tax (about 12 percent of the General Fund), a utility users tax (roughly 11 percent) and business license taxes (from 9 to 10 percent), Carr said.
And diversity doesn’t just apply to City Hall’s revenue streams. Julia Ladd, the senior property manager of Santa Monica Place, said the mall is performing well because of the mix of retail and dining options available. Visitors can shop at luxury retailers like Louis Vuitton and Burberry or take it down a notch and shop at Hot Topic, Skechers and the Disney Store.
“We are drawing in new customers who may have not been here in the past,” Ladd said.
Speaking of new customers, Santa Monica is attracting a record number of tourists with hotel occupancy rates hover around 87 percent and the average room rate at $266, a 10 percent increase, said Misti Kerns, president and CEO of the Santa Monica Convention & Visitors Bureau. “The role our hotel industry plays in our local community is important one and one we take very seriously.,” Kerns said. “Hotels offer our city general funds a large amount of tax dollars and we are on pace for that revenue source to grow again this year and are hoping to see it hit a record-breaking $40 million — up from $32 million last year — dollars collected.
“That offers our residents a reduction of nearly $900 annually on property taxes and helps to ensure the retention of city-provided services we have all grown to depend on.”
The increased spending can be attributed to the easing of consumer credit, sales incentives and pent up demand, according to HdL Companies.
And while the numbers look good, economists are predicting little to no growth in the months ahead. The cause is a shift to an “hourglass economy,” characterized by a large and expanding group at the top with high skills and high incomes offset by an expanding group at the bottom with low skills and low pay.
The middle, traditionally composed of skilled or semi-manual workers in good paying jobs, continues to decline, hence the term “hourglass.”
The 2010 Census revealed that most Americans’ inflation-adjusted incomes were either stagnant or in decline. The proportion of people living in poverty now at 15.3 percent, while 24 percent of the nation’s wealth is concentrated in the top 1/10th of 1 percent.
Retailers are reacting to the shift, offering more high-end and lower-end goods while reducing offerings for the disappearing middle class, HdL said.
Economists say the dependency on just a small portion of the buying public for increased spending limits the potential for future growth and fosters more boom and bust cycles.
“It seems like there is some improvement in some sectors of the economy, but I suspect that more than anything else, most consumers are still rather confused by the economy,” said Lars Perner, Ph.D., assistant professor of clinical marketing at the USC Marshall School of Business. “There are so many factors that enter into economic performance, and in the news, we seem to hear both good and bad things. I am not sure what the net effect is likely to be.”
City officials are planning accordingly, Carr said. Projected growth rates are conservative and certainly lower than just a few years ago when the city experienced some of its best years.
That said, Santa Monica has in the past bucked the trend and recovered faster from other economic downturns than the state and country, in general, Carr added.
The second quarter report is the first to include spending habits since a half-cent sales tax increase approved by voters was put in play. Carr said it is difficult to tell what impact the tax has had on consumers and would like to see more data. However, in conversations with other cities that have approved similar increases, consumer spending was not negatively impacted, he said.
“I don’t think there’s any evidence so far [that the tax increase] has affected consumer habits at all,” Carr said. “It looks like revenues we’ve received are actually higher than what we projected.”