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Sales tax picture shows improvement

A report last week from the Colorado Department of Revenue seemed to indicate some good news regarding 2010: an increase in sales tax revenues for the second straight month (compared to the same months last year), up .15 percent in December, and an increase shown in four out of the last five months.

In fact, for a year that began down 12.83 percent in sales tax revenues (from the previous year), some might conclude that 2010 could be called a good year, finishing down just 2.28 percent for the year (relative to 2009), vastly improving over a dismal start to the year.

Unfortunately, final 2010 sales tax revenue collections were the worst in five years: down 1.3 percent from the next lowest year for collections, 2005, and down 7.11 percent from a five-year average of sales tax collections.

In an interview last week, Pagosa Springs Town Manager David Mitchem expressed optimism regarding the trend in 2010.

“We’re seeing some stability in the sales tax receipts and we’re encouraged by that,” said Mitchem.

“We’re just glad they didn’t go down in December and stayed relatively flat,” he added.

Mitchem went on to express a sanguine view of what he hopes will be a turnaround in 2011.

“Talking to merchants in town, they’re saying they had a good December and January, so we’re hopeful that we’ll see positive or flat numbers this next round of reporting,” Mitchem said.

Regarding 2010 results in sales tax revenues, Mitchem said, “We had budgeted for a ten-percent downturn, so we’re pleased we were down just a little over two percent,” and added, “that certainly helps us replace some badly needed equipment.”

Mitchem was referring to computer systems and vehicles (for the police and parks and recreation departments) — purchases that he’d advocated for during a December Pagosa Springs Town Council meeting.

In late 2008, the town adopted a flexible budget policy approach to answer local and national economic distress, leveraging a 10-percent reduction (from 2008 expenditures) after a 5-percent decrease in sales tax revenues, a 15-percent reduction after a 10-percent reduction in sales tax revenues, and so forth.

That budget policy was revised slightly in late 2010, such that the town is now at a 7-percent reduction from 2008 expenditures.

Last Thursday, Mitchem presented those sales tax revenue numbers during the February mid-month meeting of the Pagosa Springs Town Council.

Mitchem’s report indicated that sales tax collections were down 3.19 percent averaged over the past two months and down 4.54 percent when averaged over the past three months, compared to collections averaged from 2008 and 2009.

Based on those numbers, Mitchem told council, “Policy calls for no further reduction in budgeted expenditures.”

Addressing council, Mitchem again said, “This seems to represent some stability in sales tax revenues,” while anecdotally reporting that, “January appears to be looking good, so far.”

“The trend line deviations over the past few months has been smaller and smaller,” Mitchem told council, adding, “Should we see a large downturn in January, staff is prepared to make immediate cuts.”

While presenting a rosy picture of the local economy and assuring council that more cuts to the budget would not be needed, Mitchem failed to mention that 2010 year- end receipts were the worst they have been in five years.

Nationally, many Americans are reflecting Mitchem’s optimism: on Tuesday, The Conference Board’s Consumer Confidence Index reported that confidence among U.S. consumers rose in February to the highest level in three years.

That rise far exceeded economists’ expectations. The confidence index rose to 70.4, up from 64.8 in January. Last month, economists had projected just a slight uptick to 65.5 for February.

The index suggests that a rise in confidence could result in increased consumer spending, which accounts for 70 percent of the U.S. economy.

Unfortunately, mounting foreclosures nationwide, along with unemployment over 9 percent for the past two years, could restrain consumer spending throughout the country.

However, while a majority of economists project that job growth will not occur until the latter part of this year, they are projecting a national economy growing at a rate between 3 and 4 percent over the next year.

Unfortunately, the same cannot be said about the local situation. As reported last month in The SUN, December unemployment hit 10.9 percent in Archuleta County, with 2010 finishing with the worst unemployment numbers in 24 years. Grimmer still, the trend for the past 34 years (when the U.S. Bureau of Labor Statistics began compiling reliable unemployment numbers for the county) suggests that unemployment will increase in the county through March.

If Archuleta County sales tax revenues track with projected national economic growth rates — between 3-4 percent — 2011 could result with year-end revenues similar to those in 2009 and best 2010 revenues. Certainly, an improvement in unemployment numbers would most likely help in adding consumer dollars to local coffers.

January unemployment numbers for Archuleta County (due out on Friday) may be an indication of how 2011 may shape up as far as economic growth.

jim@pagosasun.com

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