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Town council retains 15-percent budget reduction

Keeping a close eye on the local and national economy, the Pagosa Springs Town Council decided last Thursday to remain at a 15-percent budget reduction (from 2008 spending levels) despite a recommendation from Town Manager David Mitchem to return to a 10-percent reduction.

Council also discussed the possibility of returning to a 100-percent fee reduction for building and impact fees as a means to encourage development in the town. While voting to remain at a 15-percent budget cut, council did not vote on the proposed fee waiver.

During the July mid-month meeting, Mitchem reported to council that while sales tax revenues were down 4.57 percent relative to collections over the past two years, that decline was not enough to support a continued 15-percent reduction as mandated in the town’s budget policy.

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, relative to collections during the previous two years during the same period, with incremental cuts to the budget. For instance, two months of receipt decreases of 5-10 percent mandates a 10-percent decrease in expenditures.

Local sales tax revenue receipts in May showed sales tax revenues down 5.64 percent from last year, while 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.

Compared to the previous two years’ collections, May was down 7.33 percent and April down just 1.81 percent. With an average decline of 4.57 percent, policy would suggest a return to a 10-percent budget reduction and it was that suggestion Mitchem brought to council.

“I am closely monitoring a number of economic trends,” Mitchem told the board, “and I will hold off on reducing to ten percent for a week.”

However, council did not see the need to move from a 15-percent budget reduction, citing uncertainty with the economy as a primary concern.

“I would be in favor of leaving the budget where it is,” said council member Darrell Cotton. “One month does not a trend make.”

Citing the inevitable seasonal downturn in the town’s economy during the fall and winter months, council member Shari Pierce said, “I agree with trustee Cotton.”

However, it was council member Jerry Jackson who took a broader view of local conditions, saying, “I personally don’t think the national economy has hit bottom, yet.”

Jackson is not alone in his pessimism. On Tuesday, the U.S. Consumer Confidence Conference Board reported that the consumer confidence index fell to 50.4 this month, down from an upwardly revised 54.3 in June.

The conference board also reported that expectations and present situation indices also fell in July. The result of those findings portends a slow retail season, just in time for back-to-school purchasing, as consumers tighten their belts behind fears of continued high unemployment (see related Page 1 article) and a bleak economic outlook.

The result of less spending by consumers not only decreases retail profits — which could lead to deflation as retailers cut prices in an attempt to attract customers — but would likely lead to further unemployment as businesses cut payrolls in response to decreased consumer activity.

Furthermore, the U.S. Commerce Department reported yesterday that durable goods orders fell a full 1 percent in June, a surprise as most analysts had predicted the opposite — 1 percent growth. It was the second straight month for declining durable goods orders and the largest drop in 10 months.

Behind yesterday’s news from the Commerce Department, the stock market was down slightly, the second straight drop in trading. The market was also down slightly on Tuesday, due to the Conference Board’s report.

However, not all economic news was bad this week, as home sales rose an astounding 24 percent in June while home prices rose 1.3 percent from April to May.

Unfortunately, sustained high unemployment could continue to hamper an economic recovery as workers struggle to provide basic needs, much less put more money back into the economy.

Apparently attuned to the negative economic news on the national level and its effect locally, council voted unanimously to remain at a 15-percent budget reduction.

Likewise, during an earlier discussion with Archuleta County officials at a joint town/county meeting, as well as during the later council meeting, the idea of providing a 100-percent fee waiver on building and impact fees was floated.

Currently, both the town and county offer a 50-percent reduction of building and impact fees in an effort to encourage development.

In a plan hatched last summer and known as part of “A Portfolio of Economic Development Incentives,” the town and county offered a 100-percent waiver of building and impact fees. That portfolio also offered partial rebates for materials purchased locally, as well as hiring locally.

The fee waivers and rebates were incrementally reduced starting 2010. In January, during a joint town/county meeting, Mitchem proposed extending the 100-percent fee waiver from 2009 into this year. However, at that time Archuleta County Administrator Greg Schulte explained that since the county had budgeted for a 50-percent fee reduction, the county would not be able to accommodate a 100-percent fee reduction this year.

The county is statutorily restricted in its budget flexibility.

Later that same day, council decided that it should not try to undercut the county and stay with the plan as formulated the previous summer.

That attitude of cooperation appeared to have changed on Thursday, however, as council discussed the possibility of reinstituting the 100-percent fee waiver at the first possible moment.

“So could we go back to the one hundred percent today?” Jackson asked Mitchem.

“Yes we could, if we wanted to,” Mitchem replied.

Nonetheless, council agreed to bring the matter up at a later meeting. However, as of press time Wednesday, no proposal for a 100-percent fee reduction was on the council’s agenda for its Aug. 3 meeting.

The fee reduction discussion most likely came up as a response to a moribund local economy. However, as discussed during the joint town/county meeting, the economic development incentives had a nominal effect throughout 2009 and into the middle of this year.

In town, no applications have been submitted to take advantage of rebates for local materials or local hires. According to town building official Scott Pierce, about $1,500 in fee waivers have been granted this year and, according to Mitchem, none of those were granted for new construction (all were for home improvements).

On the county side, about $1,000 in rebates have been granted in 2010 while, according to Archuleta County Commissioner John Ranson, about $34,000 in waivers had been granted.

While concurring that the waivers and rebates were offered during (arguably) the worst part of the recession, both town and county officials seemed eager to pursue those same incentives to greet an economic rebound. Nevertheless, neither board made a decisive move to extending those incentives last Thursday.

Still, even if council did not vote to extend and expand incentives, it did respond to the economy by taking a more austere approach to its budget policy by staying at a 15-percent reduction.

June’s sales tax report is due in two weeks and will be discussed at the Aug. 26 mid-month town council meeting.

Council meets again Tuesday, Aug. 3, at 5 p.m. in Town Hall.

jim@pagosasun.com