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Sales tax revenues dip in May

The vicissitudes of an uncertain economy were evident in Tuesday’s Colorado Department of Revenue report for local sales tax revenue receipts in May, which showed sales tax revenues down 5.64 percent from the same month last year.

A 4-percent sales tax is collected on almost all goods and services in Archuleta County and that tax is then split evenly between the town and county. As such, sales collections are a leading indicator of the strength of retail, wholesale and service sectors of the economy.

Last month’s report indicated the best economic news in over a year — April sales tax receipts up 5.97 percent from the same month last year.

April’s numbers represented the first substantial increase (over a percentage point) in sales tax revenues since January 2009 when the area saw a 5.71 percent increase over the same month the previous year. In December 2008, sales tax revenues increased 7.15 percent from the same month the year before.

According to Pagosa Springs Town Manager David Mitchem, May’s numbers were not a surprise, “As we had a talk with the merchants and they all felt that it was down for the month.”

However, Mitchem remained positive when discussing the report on May’s sales tax numbers. “Still, on the year, we’re down less than six percent,” he said.

Earlier this month, the Town Tourism Committee (TTC) reported that lodger’s tax receipts were also down for May (relative to the same month last year), by 4.1 percent. According to TTC Coordinator Jennie Green, the decline in lodger’s tax receipts amounted to $880 in lost revenue for the TTC for 2010.

“It’s a good month to be down,” Green said.

Green added that, despite May’s slight decline, collections for May were still up relative to the same month in 2007 and 2008, with May 2009 up over 9 percent over the same month in 2008.

Despite May’s decline in sales tax receipts, Mitchem stated that he would most likely recommend returning to a 10-percent cut in the town’s budget (based on 2008 expenditures) at the July 22 Town Council meeting.

In late May, the Pagosa Springs Town Council agreed to cut the town’s budget by 5 percent, going from the 10-percent cut in its budget (where the town had been for more than a year) to a 15-percent cut, responding to a dismal performance in sales tax revenues during the first quarter of 2010.

In November 2008, council approved a flexible budget policy responding to diminishing sales tax receipts (which account for more than 70 percent of the town’s revenue stream) over a two-month period with incremental cuts to the budget. For instance, two months of receipt decreases of 5-10 percent mandated a 10-percent decrease in expenditures.

By March 2010, year-to-date sales tax receipts were down 7.64 percent from last year; in 2009, that year-to-date figure was down just 4.63 percent from the prior year, an indication that the recession had deepened in Archuleta County. Further, sales tax collections were down an average of 12.59 percent during February and March, and down an average of 11.86 percent since the first of the year. By budget policy, that average 11.86 decrease necessitated a 15-percent cut to the town’s budget.

In fact, averaging May and April’s numbers, receipts show a .33 percent increase over the same period last year and, by the town’s budget policy, that two month average suggests bringing the town’s budget back down to a 5 percent cut — 5 percent less than what Mitchem will most likely recommend to council.

With Tuesday’s report not showing great numbers, the analysis is anything but dire. Furthermore, both Green and Mitchem expressed optimism regarding next month’s reports (of June figures) in light of two large bike tours visiting town. Mitchem reported that, anecdotally, merchants were reporting an extremely brisk month for sales in June.

Nationally, the U.S. Commerce Department reported that overall retail sales were down 1.1 percent for May, relative to the same month last year. A preliminary Commerce Department report indicates that June sales will be up 4.8 percent over June 2009 but that 2010 has shown an overall decline in retail activity, year to date, and a slight decrease in consumer confidence.

One primary concern affecting consumer confidence is continued unemployment and its impact on the economy. A Gallup poll conducted earlier this week indicated that 70 percent of respondents felt unemployment was a bigger issue than budget deficits.

Currently, national unemployment stands at 9.5 percent.

In February, the White House released projections that this year’s budget deficit would exceed $1.5 trillion, 10.6 percent of the country’s Gross Domestic Product (GDP). According to projections released by the International Monetary Fund in April, only Ireland (with a deficit at 12.2 percent of GDP) and the U.K. (11.4 percent of GDP) are the only major industrialized nations running larger deficits.

In the same poll, 71 percent say the economy is still in recession with another 13 percent saying the economy will fall back into recession.

A CBS News poll released the same day indicates a majority of Americans displeased with President Obama’s performance on the economy and majority support for electing Republicans in November as a check on the administration’s economic policies. While still over four months away from the election, those polling numbers could spell trouble for the Democrats.

While no scientific polling exists for views on the local economy, an online survey conducted by The SUN (published June 24, 2010) indicated that 54 percent of respondents did not believe that the local economy is improving, with only 16 percent saying it is improving and 30 percent responding that it is “too early to tell.”

However, Mitchem stated that he is confident that, at least for the next two months, the local economy (as gauged by sales tax revenues) is improving and would most likely ease spending constraints in the town’s budget.

“We’re going to take a close look at that,” Mitchem said as far as sales tax revenues for June and July and their implication on budget policy.

“We’re still down less 6 percent year to date.”

jim@pagosasun.com