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Sales tax down, town considers budget

Economic trend lines continue a steady decline as a report released last week for local sales tax revenues indicated an 8.24-percent decrease in October 2009 from October 2008, and overall revenues down 8.74 percent year to date.

During Tuesday night’s meeting of the Pagosa Springs Town Council, Town Manager David Mitchem presented the sales tax revenue news to council, recommending that the town remain at a 15-percent expenditure reduction. However, that data was instrumental in illustrating current economic conditions and projecting future trends as council prepared to adopt its budget for the next year.

In his report, Mitchem pointed to several interesting statistics regarding sales tax revenue collections. Sales tax receipts, during the period of January through October 2009, were down 5.66 percent for restaurants and down 12.17 percent for retail trade. During the same period, however, grocery sales tax receipts were up 38.72 percent and wholesale trade was up 57.9 percent.

While the decline in sales tax revenues cannot be construed as good news, by any stretch of the imagination, the news was not as dire as it first appeared. The 8.74 percent year-to-date decline, while indicating a slightly increased drop from the 10-month average year-to-date decrease of 7.96 percent (due to last month’s 17.07 percent decrease in revenues relative to September 2008), it represents a fairly consistent trend line. Although that does not bode well for area businesses or for the Town of Pagosa Springs, it does suggest some stability in long-term declines that are significantly less than many communities are experiencing.

Nonetheless, with the decline, the town has taken steps to plan for a 2010 that promises to show diminishing revenues for the town. Currently, sales tax revenues account for about 72 percent of the town’s total revenue stream.

Given the trend, the Pagosa Springs Town Council has adjusted its 2010 budget from a previously proposed 5-percent reduction in expenses. While a preliminary budget, presented to council in October, based on a 5-percent reduction from 2008 levels, that budget was rejected as council recognized the trend of declining sales tax revenues. Given the trend, council directed Mitchem to return with a budget that reduced expenses by 10 percent.

However, the town is not locked into a 10-percent expenditure reduction and council could further slash expenses should the economy continue to worsen.

With a budget policy approved by council last November, the town has taken a flexible approach to current economic conditions. For instance, the town has been at a 15-percent reduction from the 2008 budget since April due to stipulations in that policy.

As accepted, 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 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 a presentation delivered to council by Mitchem in mid-November, a 22.99-percent drop in sales tax revenues this month would have led 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 push the budget back to a 10-percent reduction, it is unlikely that the town would back off its current 15-percent budget cuts as it has held to those levels even when revenues were such that policy suggested a return to lesser cuts.

It was in the milieu of a declining economy that Mitchem presented two options for a 2010 budget to council. According to Mitchem, the proposed budget has been predicated on a 10-percent reduction of 2009 estimated year-end tax collections. Given that reduction, Mitchem based 2010 revenue projections on 2009 cash flow rather than the 2008 budget. Mitchem said in his presentation that the town’s revenue projections are 7.3 percent below projections made by Archuleta County — $218,672 less than what county officials had projected.

In the first option, at a 10-percent reduction, expenditures would be reduced by $412,430, with $38,708 added to general fund reserves. At a 15-percent reduction, the town would reduce expenditures by an additional $153,406 (for a total of $565,836 expenditure reduction) and would need to tap $27,485 in general fund reserves (generated from expenditure reductions). Finally, at a 20-percent reduction, the town would reduce expenditures by another $153,408 (for a $719,244 total) and would need an additional $48,104 drawn from reserves — a total of $75,589 from reserves at a 20-percent reduction.

This past year, the town added over $550,000 to its total reserves and staff projects that the town should have about $950,000 in general fund reserves by the end of this year. With its total general fund reserves, Mitchem said that the town could operate just shy of six months on zero revenues — a highly unlikely scenario.

In the second option, the town would cut staff (FTE — Full Time Employee) by 2.53 FTE at a 10-percent reduction; one FTE from the police department, one FTE from the parks and recreation department, .2 FTE from the municipal court staff and .33 FTE from the community center, reducing expenses by $86,848. At a 15-percent reduction, the town would further reduce expenses $153,406 and would cut another .4 FTE from the town’s building and planning department (a savings of $20,080) and at a 20-percent reduction, the town would reduce expenditures by an additional $153,408 (a total reduction of $306,814 in expenditures) while cutting another FTE from the police department (saving $50,918).

In Option 2, savings from staff reductions would be moved from the general fund to the capital improvement fund for the purpose of funding road construction.

“I’m in favor of Option One over Option Two,” said council member Shari Pierce. Citing the possible burden placed on law enforcement by the elimination of police and court officers, and the need for parks and recreation to keep young adults out of trouble, Pierce added, “I’m not in favor of eliminating any of those positions.”

However, council member Darrell Cotton expressed that, while cutting staff would be an unpleasant — if necessary — evil, “I have a problem pulling money out of reserves.”

Having been presented with two options for the 2010 budget on Tuesday night, council will hold a public hearing on the budget during today’s mid-month council meeting in Town Hall at noon. Following public input (if any) council will most likely adopt one of the two options for its 2010 budget.