Sales tax figures down

Sales tax revenue figures for April 2009 were released last Thursday with an indication of a local economy that continues to slump.

The report showed a 13.68-percent decline in April sales tax revenues compared to the same month last year. Year-to-date, countywide sales tax revenues are down 8.6 percent compared to 2008.

As reported last week in The SUN, several local retailers have reported a decline in sales over the past few months. However, retail sales represent just a portion of county sales tax revenues, with other commodities such as food, alcohol and gas (among other items) taxed and included in overall revenues. Considering that gas prices increased 30 cents in April and would have led to a slight increase in total county sales tax revenues, the 13.68-percent decline probably represents a more dire picture of the local economy.

Likewise, local officials had hoped that liquidation of inventory from the closing of Circle-T Pro would boost sales tax revenues for April and May. The fact that a firesale at the largest local building supplier, along with a sharp increase in gas prices, did little to mitigate an almost 14-percent decline in county sales tax revenues, illuminates a broader malaise affecting the local economy.

Responding to declining sales tax revenues during the first quarter in 2009 — down as much as 25.46 percent in February — the town of Pagosa Springs implemented a 15-percent budget reduction at its May 21 mid-month council meeting. Coupled with a flat report on March’s revenues, the town pressed the reduction as a condition of budget policy. That policy, adopted in November 2008, legislated a 15-percent budget reduction with a 10-percent decline in sales tax revenues. As a result, the aggregate 12.5-percent decline in revenues (for February and March) found the town adhering to its fiscal policy.

According to Town Manager David Mitchem, April’s report, though showing further decline, will not recommend further cuts to the budget. “We haven’t reached that threshold,” he said, when asked about deeper cuts, “and we’ll most likely stay at 15 percent, even if we see a slight rise in revenues.”

The Pagosa Springs Town Council will hear Mitchem’s analysis of April’s sales tax revenues at today’s noon mid-month meeting in council chambers at Town Hall.

Whether or not increasing sales tax revenues are a probability during the summer season, traditionally the best months for sales and sales tax revenues, remains questionable. Overall, on the national and local level, forecasts and analysis indicate further economic decline through the summer, with only the most optimistic analysts predicting a flattening of the recession by year’s end.

Several factors, locally and nationally, do not bode well for the economy in general, and sales tax revenues specifically.

As reported last week in The SUN, the population in Archuleta county has appeared to be in decline during the last year. Fewer residents mean fewer dollars spent with area businesses. Furthermore, more residents leaving the county translates into a glut of housing inventory which, in turn, drives down the demand for new construction — and construction jobs.

In fact, new home construction is a major factor in the local economy and is, unfortunately, sensitive to conditions of the national economy.

On Friday, Fitch (an international financial analysis group charged with providing credit rating on companies — including banks and other lending institutions) predicted that, based on performance in the first quarter of 2009, home prices will fall another 12.5 percent nationally this year, and will most likely not level out until the second half of 2010. To date, national home prices have plunged a full 27 percent.

The nosedive in home values presents a multitiered effect on the local economy. Local homeowners forced to sell, who find that the value of their home is less than the mortgage, potentially find themselves in an untenable financial situation. Likewise, homeowners who have counted on equity as investment, faced with diminishing returns, have little incentive to spend as the value of their home continues to spiral downwards.

Finally, with a record number of homes on the market, construction of new homes falls flat, putting the brakes on a sizable portion of the economy while denying many local area services and businesses badly needed dollars.

However, a decline in home values does not, by itself, trash an economy and several other factors contribute to the total economic picture.

The recent closing of several local area businesses has not only added to the unemployment roles — restricting available dollars for area merchants as the unemployed struggle to pay bills — but has also had the obvious effect of subtracting revenues from the town and county tax base. In turn, a diminishing tax base has restricted the town’s ability to move forward with various capital improvement projects, denying local contractors and workers paychecks that could be used to pad the local tax base.

However, a glimmer of promise remains with the existing number of local timeshares. Considering that a dour economy is a nationwide affliction, visitors could see the Pagosa area as a value, a cheap alternative to more ambitious and expensive vacation plans.

“We’re hearing timeshares are keeping up with last year,” said town building official Scott Pierce, “and if people have already paid for those units, they might decide to go ahead and use them this year instead of going somewhere else. As far as tourism is concerned, we could have a good summer.”

Pierce did concede that his assessment was purely speculative and it was impossible to accurately predict if summer tourism numbers would indeed boost sales tax revenues.

Pierce did say that the number of building permits in town continued to remain flat, unchanged from a total of 11 permits for the year (six commercial remodels, two residential additions, and two new commercial projects permitted) that was reported in The SUN in mid-April.

Likewise, the county remains down in building permits for the year, with the county building and planning department reporting permit revenues off almost $60,000 from this year’s projections. The drop in new construction indicated by a dearth in new permits provides little hope for workers in the construction industry.

Given a depressed industry in construction and with local area businesses, a strong tourist season may be the only hope the town and county have for a boost in sales tax revenues.

“It’s a hope,” said Pierce. “It’s about all we have at the moment.”

jim@pagosasun.com