When the Pagosa Springs Town Council voted to approve policy for the budget last November, it certainly hoped it would not be asked to use the policy.
Unfortunately, with local economic conditions running almost parallel to a doleful national situation, council was faced with tough decisions regarding the 2009 budget during its February meeting Tuesday night. An 11.7-percent drop in sales tax revenues for November, compared to the same month in 2007, had been reported at the Jan. 15 council meeting. However, in a report made before council by Town Manager David Mitchem, the average decline in sales tax receipts over a two-month period was only a negative 3.155 percent.
Policy, as accepted by council in November, had already mandated a 5-percent reduction in the 2009 budget relative to the 2008 budget. Moreover, the policy also stipulated monthly monitoring of town revenues in order to recognize fluctuations in those revenues. Given a significant dip in the revenues (based on reports from the previous two months), the town would respond to a 5-percent drop in revenue with a 10-percent reduction in expenditures. Furthermore, a 10-percent drop in revenues would lead to a 15-percent budget cut, and a 15-percent drop would lead to a further 20-percent reduction in expenses.
Although the two-month decrease of 3.155 percent failed to meet the 5-percent threshold spelled out in the policy, the November sales tax numbers were deemed dire enough to warrant a response from staff and council, with Mitchem recommending that the town go above and beyond reductions previously set out in the 2009 budget, by instituting a 10-percent reduction in spending.
“Based on discussions with our town auditor,” said Mitchem, “I recommend a ten-percent reduction so that we won’t find ourselves upside down.”
Council member Mark Weiler asked, “Is that 10 percent from 2008, not 10 percent from 2009?”
“I believe it’s sufficient for now,” answered Mitchem, “ We can adjust as needed. In light of our current situation, in light of discussions with the auditor, and in light of our cash flow, I believe that if, instead of keeping it 5 percent below last year’s budget, we keep it at 10 percent, that should be enough to prevent us from having to dip into our reserves ... a situation we don’t want to get into.”
As an aside, Mitchem added that the Town Tourism Committee (TTC) asked for an exemption to the 10-percent cut. “Since their revenues come from lodging taxes, not sales tax, since they’re not seeing a drop in revenues, but rather saw an increase (up 15.7 percent in November compared to the same month last year), and since they need money to promote tourism, they’ve asked to be exempt from this budget cut.”
Unwilling to wait for a report on December’s sales tax figures (due mid-month), council voted to approve Mitchem’s recommendation (but not the TTC exemption), with only Weiler opposing the measure.
“Thank you for showing the courage to be a leader,” Weiler said, “But I don’t think you’re being aggressive enough.”
Later in the meeting, Weiler continued his discussion regarding budget and departmental expenditures. During the town manager’s report, Weiler asked Mitchem to explain $13,000 in legal expenses accrued by the town during the month of January.
“That’s substantially more than 8 percent of what was budgeted for 2009 — how will you address that?”
“We had annexation and geothermal issues,” Mitchem explained, “Most of this is related to projects already underway from 2008, as well as the LUDC (Land Use and Development Code).”
“What I want to do, going forward,” Mitchem continued, “is start having legal expenses billed to the developers.”
“It’s real easy,” Weiler responded. “You ask the developer how much they think the legal bill will cost. If it’s $20,000, you ask them to cut us a check for $20,000 and then after the bill is paid, if there’s anything left, we’ll give you the difference.”
Weiler again took issue with staff when building official Scott Pierce presented the Building Department report to council. “You claim the department is self-sustaining, but you just said that the building department brought in just over $120,000 while the budget shows the building department costing $198,000. How do you explain that?”
Council member Shari Pierce attempted to clarify the numbers by saying, “I think the budgeted amount is for the building department and planning department.”
Pierce reiterated the council member’s point, “That figure does include planning. The building department’s budget in 2008 was $110,000 and building permits brought in just over $120,000 in 2008.”
However, with the building department’s report providing a grim forecast for development in 2009, it remains questionable whether or not building permit fees will bring in enough revenue to fully fund the building department. “Again,” said Mitchem, “We need to do a more thorough analysis of the situation.”
“It’s nice to know,” added council member Stan Holt, “that we could do it (fund the building department with building fees) in 2008. In 2009, all bets are off.”
Whether council’s approach to the economic future of the town arrives from well-founded anxieties or erroneous assumptions, it’s clear that there is reason to be concerned. Even though December sales tax revenue numbers are not due for another two weeks — likewise, the town auditor’s report — national economic numbers continue to deteriorate. The Labor Department reported late last month that the number of Americans continuing to claim unemployment insurance for the week ending Jan. 17 was a seasonally adjusted 4.78 million, the highest on records dating back to 1967. It is an increase of 159,000 from the previous week and worse than previous expectations of 4.65 million. Furthermore, those figures don’t include about 1.7 million people who have received benefits under an extended unemployment compensation program authorized by Congress last summer, meaning the total number of recipients is actually closer to 6.5 million people.
Likewise, the Commerce Department reported that the economy shrank at a 3.8 percent rate toward the end of 2008. The report indicated the worst showing for the economy in over a quarter-century, as the deepening recession led to a decrease in both consumer and business spending. In fact, the same report showed that orders for durable goods fell 2.6 percent in December, signaling a slump in business spending that will most likely deepen and prolong the recession.
How national conditions will affect the local economy remains to be seen, but even the most optimistic prognostications suggest that things will continue to get worse before they get better. With council taking the lead on budget cutting, the question might not be why the board took the initiative, but how much more it will have to do.