A report released Monday by the Colorado Department of Revenue (CDR) may seem like an early Christmas present for town and county officials — this one, without strings attached.
Sales tax collections are the leading indicator for the economic health of the town and county.
The CDR report showed October sales tax revenues up 5.93 percent from the same month last year, with total year-to-date collections up 6.4 percent.
September collections (as reported in the Nov. 17 edition of The SUN) were up 14.43 percent relative to collections the same month last year. However, as with the three months in 2011 that showed double-digit increases over those same months in 2010, the CDR data appeared artificially inflated due to inconsistent collections in the “Transportation and Warehousing” sector, where collections were reported for that sector during those months.
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 in October indicates revenues up 1.95 percent from the same time period last year.
Furthermore, October’s CDR report did not include any additional “Transportation and Warehousing” revenues, indicating no inflation of October’s figures, representing a true 5.93 percent increase in sales tax collections.
October’s sales tax numbers represented good news for Archuleta County Administrator Greg Schulte.
“Overall, the indicators look positive,” Schulte said on Monday. “Hopefully, we’ve hit bottom and we’re seeing a turnaround.”
Schulte pointed out that the 2011 budget, based on a seven-year average of previous sales tax collections, was performing well above projected revenues for the year — almost $100,000 above what had been projected last year when county officials approved the budget.
Sales tax collections account for less than 30 percent of the county’s overall revenues.
However, the town of Pagosa Springs is much more reliant on sales tax collections, with those monies constituting over 70 percent of the town’s revenue stream.
Indeed, as reported in last week’s edition of The SUN, the town’s budget policy is entirely predicated on sales tax collections. That policy states that a 5-percent decrease of, “the average revenues collected for the same period in the preceding two fiscal years,” during a two-month period calls for a 7-percent reduction in expenditures (with a 10-percent drop calling for a 12-percent reduction and a decrease of 15 percent calling for a 17-percent reduction).
However, the budget policy passed by the Pagosa Springs Town Council earlier this month only addresses expenditure reductions; no part of the policy stipulates when expenditures are returned to previous spending levels, presumably following an improvement in sales tax collections.
Previous iterations of the town’s budget policy in fact called for a return to previous expenditure levels (the town is currently 10 percent below 2008 expenditures) when sales tax receipts are equal to or exceed receipt amounts calculated from the two-year average taken during the same months.
September and October receipts are more than 10 percent higher than the two-year average for those same months in 2009 and 2010. After subtracting “Transportation and Warehousing” revenues added in September’s CDR report, 2011 is still 1.94 percent better than the same two-year average.
Overall, year-to-date receipts are up 4.87 percent from 2009 and 2010 year-to-date averages, up .47 percent if 2011 “Transportation and Warehousing” revenues are subtracted.
Nevertheless, the town remains at a 10-percent reduction, having trimmed department expenditures and services. Thus, over 10 percent of revenues is socked away into reserves.
As also reported last month in The SUN, over the last two years, the town has accumulated reserves that exceed its goal to be able to operate for six months in the highly unlikely scenario that it would see zero collections for half a year.
During discussions of the town’s budget policy, Pagosa Springs Town Manager David Mitchem explained that additional reserves would be accumulated to provide match dollars for potential grant applications.
Regarding Monday’s report, Mitchem said, “Of course, we’re very pleased with those figures. However, we’re still going to finish the year relatively flat.
“The upshot of doing the analysis and applying (the budget policy) is that there will be no change to budgeted expenditures.”
Mitchem added that revenues realized from audits would be considered a windfall and not part of the overall revenue stream for 2011.
“The extraordinary income we just put into reserves,” Mitchem said. “Council has appropriated a portion of reserves for economic development.”
Mitchem made it clear that those appropriations would not be drawn from the current operating reserves. He also made it clear that, despite no significant drop in sales tax revenues during 2011, either relative to last year or the average of the previous two years, that the town would remain at a 10-percent reduction of 2008 expenditure levels.
When asked if town staff had become accustomed, over the past three years, to working with cuts to the budget, Mitchem responded, “Certainly, it’s been a challenge to operate with these cuts to services and operations, especially as staff tries to maintain the highest level of service it can. Let me just say, our departments have done a fine job figuring out how to work with less.”
At noon today at Town Hall, Mitchem will present his analysis of Monday’s CDR report during a special council meeting. Presumably, Mitchem will explain to council why the town should continue to pursue the policy of austerity that has slashed expenditures over the past three years.
The more interesting discussion, however, will be whether or not Mitchem sees Monday’s report as a portent for an improved economy during the next year.