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Local sales tax revenues down in March

Almost reflecting the local unemployment situation (10.9 percent in Archuleta County for March, as reported two weeks ago in The SUN), local sales tax collections fell 10.72 percent in March, relative to the same month last year.

Sales tax receipts amounted to $503,779.96 in March 2009, up .19 percent from March 2008, while receipts amounted to $449,768.52 this past March.

As of March, year-to-date sales tax receipts are down 7.64 percent; at the same point last year, that year-to-date figure was down just 4.63 percent, an indication that the recession has deepened in Archuleta County.

The unemployment and sales tax numbers stand in stark contrast to lodgers tax receipts which (as reported April 28 in The SUN) were up 16.4 percent in March 2010 relative the same month last year.

Lodgers tax receipts, reported by the Town Tourism Committee (TTC) are collected on occupied rooms — hotels, cabins, timeshares and other vacation rentals — and, as such, exist as a leading indicator of the number of visitors staying in Pagosa Springs.

Likewise, the sales tax receipts report is a leading indicator of how much is being spent with local merchants, reflecting the amount of economic vitality in the area. However, the almost inverse relationship between sales tax receipts and lodgers tax receipts raises interesting questions as to how much sales tax revenue is being derived from local dollars as opposed to money spent by visitors.

Last month, the TTC presented a report to the Pagosa Springs Town Council that suggested that visitors spent an average of $147 per day (on lodging, meals, gas, shopping, activities, etc.) — a sizable contribution to local coffers, with an additional 2.8 percent in overall sales tax receipts in 2009.

If the TTC estimates are correct, the overall decline in sales tax receipts would be an indication that county residents have been reluctant to open their wallets, at least to local merchants. However, a more problematic implication is the growing dependence on a single sector of the economy, i.e. tourism.

With the Town of Pagosa Springs relying heavily on sales tax (over 70 percent of its revenue stream), town council adopted policy measures in late 2008 in response to a volatile economic climate.

Indeed, the town has been at a 10-percent reduction from the 2008 budget since April 2009, due to stipulations in the town’s budget policy. As adopted in the November 2008 resolution, the policy responds to decreased revenue streams (based on revenue reports from the previous two months) with deeper cuts. Initially, the town responded to a drop in revenue in February 2009, with a 5-percent reduction in expenditures. In April 2009, varying decreases in revenues that averaged between 5 and 10 percent led to a 10-percent budget cut. The 2010 town budget was predicated on continued decreases in sales tax revenue and the budget that council passed in late 2009 for this year showed a 10 percent reduction from 2008 spending levels.

Based on the budget policy, the town would not face further budget cuts due to the March decrease. However, if April sales tax receipts show another double-digit decrease, the town could look at cutting expenditures to 15 percent, should council direct the town manager to make those cuts.

Negative economic news locally shows Archuleta County lagging behind the rest of the country slogging through a sluggish, but sustained, recovery. While national unemployment rose two-tenths of a percent last month (but still down from December’s high of 10 percent), GDP (a leading indicator of economic growth has hovered around 3 percent for the past three quarters. Furthermore, earlier this week the Commerce Department reported that new residential construction rose 5.8 percent last month, the largest increase since October 2008. Likewise, while retail and durable goods purchases have shown sustained increases over the past several months, the Commerce Department reported that business spending increased during the first quarter of 2010, with investments in equipment and software growing 10 percent over the same period last year.

In fact, in a report released on Monday, analysts at the Federal Reserve Bank of San Francisco predicted an economic rebound outpacing recoveries from the previous two recessions. While a minority view among economic analysts, it reflects a shift in thinking regarding how the recovery will proceed.

Previously, economic analysts had almost universally predicted a sluggish “U-shaped” recovery with GDP sustaining a 3-percent pace. On the other hand, “V-shaped” recoveries, in which GDP growth averaged about 5.5-percent growth, had long been assumed to be a thing of the past. However, the San Francisco Fed report on Monday suggested the possibility of a “V-shaped” recovery based on boosts in consumer spending (assisted by tax cuts and other stimulus spending), while low-interest rates sustained by flat inflation rates could see a boost in business investment.

The optimism of Monday’s report is tempered by the majority of analysts still predicting a slow recovery, along with the Commerce Department reporting that the number of building permits pulled last month fell 11 percent relative to March numbers (most likely in response to the expiration of the first-time homebuyers tax credit), an indication that last month’s boost in new housing construction could show a significant slow down in the months to come. For all intents and purposes, the current national recovery maintains a “U-shaped” configuration.

Unfortunately, sales tax collections indicate that the Archuleta County economy remains on a downwards trajectory, with no indication of a turnaround. While some analysts predict a “V-shaped” recovery for the U.S., businesses in Archuleta County would be content with a “U-shaped” recovery — or any recovery at all.