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Gains in Sept. sales tax revenues

Some good news tempered with news that makes one go, “Hmmm.”

The good news is that the Colorado Department of Revenue (CDR) reported last week that sales tax revenues were up 14.43 percent in September for the county relative to collections the same month last year. September shows the second largest increase this year.

However, as with the three months in 2011 that have shown double-digit increases over those same months in 2010, the CDR data appears artificially inflated due to inconsistent collections in the “Transportation and Warehousing” sector, where collections were reported for that sector during those months.

However, year-to-date collections are up 6.45 percent from 2010, indicating a slightly positive trend in the local economy, even with anomalous reporting data appearing to skew overall collections for this year.

Collections for the “Transportation and Warehousing” sector skewed tax revenue reports during May (up 24.38 percent), June (up 13.16 percent) and for September, the three months in 2011 with double-digit improvements over the same months last year.

Subtracting “Transportation and Warehousing” from 2011 year-to-date collections shows this year up just 1.5 percent from September year-to-date collections in 2010. That same subtraction shows collections up 6.8 percent relative to September 2010.

However, several important local market sectors also showed significant improvement in September.

Nevertheless, subtracting “Transportation and Warehousing” collections from September 2011, numbers still show the month up 6.9 percent from the same month last year.

Despite the apparent inconsistency in sales tax collections (zero dollars were attributed to the “Transportation and Warehousing” sector in 2010), other market sectors have done quite well relative to last year, indicating a slight turnaround in the local economy, mostly in what has been growth sectors for the past decade.

As reported in last week’s edition of The SUN, service sector jobs accounted for 41 percent of jobs in the county and 39 percent of employment income. In that sector, the retail trade sector provided 15 percent of the jobs and 17 percent of employment income.

Since the decline of manufacturing since the 1970s, the service sector has taken over a vast majority of the county’s economy. In 2011, the retail sector alone accounted for 43.9 percent of sales tax collections, with “Accommodations and Food Services” accounting for another 17.3 percent. Combined (with other service-oriented market sectors), over 75 percent of county tax collections were provided by the service sector in 2011.

The largest portion of the service sector — retail — exhibited substantial growth in September. Up 5 percent from August, retail sales tax collections increased 9.6 percent from the same month last year.

“Accommodations and Food Services,” on the other hand, was down 9.6 from August 2011 and down 7.19 percent from September 2010. Interestingly, the Town Tourism Committee reported that lodgers tax collections (a separate tax paid by hotels, vacation rentals and time share accommodations) were up 6.5 percent from the same month last year.

It is unknown if restaurants had a bad month in September or if some establishments had not reported sales tax. Due to statute making tax data confidential, it is impossible to determine why lodgers tax receipts would be up but overall sales tax collections for that sector would be down.

The fastest growing sector in the county, manufacturing, once again posted growth. Now accounting for 5.1 percent of sales tax revenues, that sector has grown steadily since 2004, when it accounted for just 2.21 percent of revenues. In September, collections from manufacturing were up 1.8 percent from the same month in 2010.

Town officials might do well to consider the steady, significant growth in manufacturing. After all, sales tax revenues account for over 70 percent of the town’s annual budget and the expansion of a manufacturing base would provide additional revenues.

Three years ago this month, the town adopted a flexible budget policy in response to an economy that was clearly in a tailspin. That policy instituted automatic budget cuts (from 2008 expenditures) such that a 5-percent reduction in revenues (averaged over two months) would engage a 10-percent cut to the town’s operating budget.

That policy, incrementally applied to sales tax revenue reductions, eventually led to a 15-percent decrease in the budget during several months in 2010. The town eventually returned to a 10-percent reduction in late 2010, where it has remained ever since.

In early 2008, the town’s auditor, Mike Branch, presented a report to council indicating that the town needed to end spending patterns it had exhibited the previous year (when expenditures outstripped revenues). Branch also suggested that the town adopt an aggressive fiscal policy that would build up operating reserves: three months worth (with zero revenues during that time) at minimum, six months at most.

Earlier this year, Branch lauded council for meeting the six-month reserve threshold. At that time, year-to-date sales tax revenues were .66 percent above 2010, but down 2.1 percent from average receipts for the previous two years. Following Branch’s report, council voted to remain at a 10-percent reduction from 2008 expenditures.

Obviously, that ongoing 10-percent budget reduction has allowed the town to continue to accumulate reserves beyond the six-month threshold. On Monday, Pagosa Springs Town Manager David Mitchem confirmed that the dollar amount in town reserves had, in fact, exceeded what would be necessary to keep the town operating should the impossible happen — six straight months of 100-percent revenue reductions.

When asked if, given recent revenue reports (especially over the past six months), the town would pull back from a 10-percent budget reduction, Mitchem responded, “I would not make that recommendation, and I highly doubt council would approve that.”

Mitchem said that the town would continue to build reserves ($2,830,567 total between the General Fund and Capital Fund, as of Nov. 3), not to answer the unlikely event of zero revenues but to leverage match dollars for potential capital improvement grants.

“We’re trying to invest rather than spend, and I think we’re doing a pretty good job of that,” Mitchem said.

Mitchem cited completion of the town’s Riverwalk (with an additional pedestrian bridge), proposed Reservoir Hill capital improvements and the Town-to-Lakes Trail (among others) as potential candidates for grants that the town could leverage with its increasing cash reserves.

“It’s unlikely we’ll get every grant we apply for,” Mitchem said, “but the more we apply for, the better chance we’ll have at least getting one or two of them. And that could mean four-to-five times the money we put up for the initial match.”

Given the state of the national economy, as well as the picture of a local economy that appears flat (year-to-date sales tax revenues are down 6.5 percent from where they were September 2008), the town’s fiscal strategy could be the best bet for not only weathering potential ly rougher economic seas, but for securing state and federal dollars.

jim@pagosasun.com

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