Linn, Johnson see sales tax surge after flood

DES MOINES - Home centers, contractors and convenience stores all posted big gains in taxable sales during the months following historic flooding in Linn County reflecting the initial surge in flood recovery efforts.

In Johnson County, sales tax numbers grew after flooding there, but the big gains appear to have been fueled as much by the beginning of the fall term at the University of Iowa as flood recovery efforts, according to a preliminary study of sales tax receipts conducted by the Iowa Department of Revenue.

In some cases, the increases in taxable sales for the June through September quarter were staggering. Receipts from electrical contractors shot up 139 percent in Linn County and 62 percent in Johnson. Furniture sales in Linn jumped 72 percent, matching the increase for drywall, insulation and tile contractors, according to the report that looked at taxable sales from the June 2007 quarter through the end of September 2008.

In Johnson County, the largest percentage gains were posted by carpentry and floor contractors -- 96 percent-and 84 percent for electronic shopping and mail order houses.

The increases, which are typical of the period after a natural disaster, may have been enough to delay the arrival of the national economic recession in Iowa, Iowa State University Professor Dan Otto said Tuesday.

"One of the ironies of natural disasters is they have a stimulative effect," said Otto, who teaches economics and studies regional, urban and rural economies. "There's a loss of wealth, but retail sales and spending shows up as a surge." The money comes from a combination of outside dollars - state and federal disaster recovery funds and insurance -- and people drawing down their savings.

"So the individual balance sheet may look worse, but regional economic indicators look good."

Otto and Mike Lipsman, manager of the Iowa Department of Revenue tax research and program analysis section, cautioned that the numbers they compiled are preliminary and haven't been updated since the quarter ending Sept. 30.

All told, Linn County posted a healthy looking 12 percent gain in taxable sales over the year - a $55 million increase to $508 million, according to the research done by Mike Lipsman, manager of the revenue department's tax research and program analysis section, and Iowa State University economist Dan Otto. Johnson County's growth came in at just under 10 percent -- $34 million increase to nearly $377 million in taxable sales.

Corridor business and government leaders like to describe the Iowa City-Cedar Rapids business community as the state's second largest economic engine. That engine was super-charged in the months after the flood. The Linn-Johnson County share of the state's total taxable sales more than doubled from 6.3 percent in the June 2007 quarter to 14.7 in the June 2008 quarter. Lipsman noted that while sales tax receipts were high in the Corridor, the state recorded a decline of 0.5 percent in December.

Many questions remained unanswered. Perhaps the most important is whether the sale tax surge will continue. Based on an assumption that recovery efforts will pick up with spring, Lipsman thinks it's a matter of how long it will continue.

Otto isn't as optimistic.

"I don't think it will hold up because the private side is tapped out," Otto said. Much of the federal money yet to be received will go to public infrastructure, he speculated.

In that case, Lipsman said, as construction workers flood into the area there's likely be an increase in payroll withholding taxes in the Corridor as well as a secondary sale tax effect as they rent hotel rooms, eat at local restaurants and fill their gas tanks.