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Town considers budget reduction

Given economic trend lines — an 8.79 percent decrease in sales tax revenues from last year — and no indication of better times in the near future, the Pagosa Springs Town Council directed Town Manager David Mitchem to look beyond the mandated 5-percent reduction in the 2009 budget (from 2008 expenditures) and consider a 10-percent reduction in the 2010 budget.

While presenting September sales tax revenue figures to council during last Thursday’s mid-month meeting, Mitchem reported that September showed a 17.07-percent decline in revenues from the same month last year. It was during that presentation that council member Mark Weiler asked Mitchem why the current budget didn’t reflect immediate economic realities.

“Why aren’t we cutting along trend lines?” Weiler asked. “Why not start the cuts at 10 percent?”

The preliminary budget, presented to council last month, was based on a 5-percent reduction from 2008 levels. Furthermore, with a budget policy approved by council last November, the town has taken a flexible approach to current economic conditions.

It is important to understand the difference between the town’s budget and its budget policy. While the town’s budget is static, the budget policy is flexible. In short, while the budget would remain at a 10-percent reduction from 2008 spending levels, even if a miraculous economic recovery began pumping surplus revenues into town coffers, the budget policy is in place to answer for further revenue reductions. As such , the town could go far deeper in spending reductions should it continue to see declining sales tax revenues.

Indeed, the town has been at a 15-percent reduction from the 2008 budget since April due to stipulations in the town’s budget policy. As adopted in last year’s resolution, the policy responds to decreased revenue streams (based on revenue reports from the previous two months) with deeper cuts. In previous months, the town responded to a 5-percent drop in revenue last February with a 10-percent reduction in expenditures. In April, a 10-percent drop in revenues led to a 15-percent budget cut.

Should the drop in revenues show a 15-percent decrease, the town would automatically go to a 20-percent reduction in expenses.

Based on figures in Mitchem’s presentation, a 22.99-percent drop in sales tax revenues next month would lead to a 20-percent reduction while a 12.99-percent drop would maintain current levels of spending cuts. Although Mitchem’s report indicated that a 2.65-percent reduction in revenues could push the budget back to a 10-percent reduction, it seems unlikely that the town would back off its current 15-percent budget cuts, as it has held to those levels for most of this year, even when revenues were such that policy suggested a return to previous reduction levels.

It is safe to say that the town has maintained a conservative approach to expenditures.

Given that conservative approach, the council was unanimous in its consensus, suggesting to Mitchem a 10-percent cut in expenditures for the 2010 budget. “Now is better than later,” said council member Shari Pierce.

Although Mitchem had proposed another resolution to deal with the economic downturn, proposing to expand budget policy to compare revenues against an average across two year’s revenues (as opposed to just the previous year’s numbers), council felt that starting with a 10-percent reduction would be sufficient, sidestepping Mitchem’s proposal.

“Why complicate it? There’s no reason for it (Mitchem’s resolution), we should just start at a 10-percent reduction,” Weiler said, “That way we’ll have a roadmap of where we start the journey.”

When asked how town departments would handle proposed cuts that dig deeper into their budgets, Mitchem replied, “Department heads are prepared with development of the initial budget.”

In fact, department heads have (given current economic realities) proceeded with developing several budgets that figure in various levels of expense reductions.

With most economists predicting a slow start to next year’s economy, the town has taken an even further conservative approach to its expenses in 2010. By most estimates, it is an approach that, while not desired, is probably necessary.