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March: Sales tax on the rise

Mirroring, and outperforming, the national economy, the county continues to show gradual improvement as sales tax collections in March exceeded numbers from the same month last year by 5.06 percent, the seventh straight month of positive growth in those numbers.

Furthermore, the Town Tourism Committee said last week that March receipts for lodgers tax were up 14.27 percent, reporting the ninth straight month for record collections, with collections for the first quarter of 2012 up 13.33 percent over the same quarter last year.

While both sets of figures hint at a positive economic outlook for the first part of this year, caution should be applied when broadly interpreting those numbers.

Reported last week by the Colorado Department of Revenue (CDR), March’s sales receipts indicated a trend of economic growth . Indeed, the county has not seen seven consecutive months of positive collections since mid-2006.

With March collections, the county is up 4.08 percent on year-to-date collections, showing the strongest first quarter since 2007. In 2010, first-quarter collections were up just 2.42 percent, an indication that the local economy was beginning to show a rebound, especially since local hiring ramped up later in the year, apparently in response to increased demand for local goods and services.

Recent sales tax collection trends in the county correlate with the fortunes of local workers. In early 2007, when the county logged record sales tax collections and was still in the midst of a housing boom, local unemployment stood at historic lows.

While 2007 showed record collections for the year, receipts began to diminish during the last two quarters, trending downwards in line with the national economy.

In 2008, unemployment numbers for the county began showing a steady rise as sales tax collections exhibited a converse drop.

What is interesting is that local unemployment numbers show a several-month lag following a significant drop in reported sales tax receipts. Likewise, the recent trend in rising sales tax collections has been followed with an improvement in local unemployment numbers.

The relationship between the two numbers stands to reason. As the recession hit in late 2007, almost exclusively caused by a global banking collapse driven by inveterate bets on ill-conceived housing loans, the construction sector of the local economy (which had accounted for more than 15 percent of local income prior to 2008) ground to a halt. As a result, area builders, contractors and construction workers found themselves without a paycheck — and unable to sink dollars into the local economy.

With fewer dollars circulating in the local economy, many area merchants and service providers responded to decreased demand by trimming their workforce (or, in the worst case, closing their doors altogether), further adding to unemployment roles and showing diminished receipts for sales tax collections.

The opposite is true as a boost in the number of local paychecks leads to an increased demand for local goods and services, which, in turn, adds more jobs to the economy as area businesses hire extra help in response to that increased demand.

That correlational trend of increasing sales tax collections and decreasing unemployment numbers began in mid-2011, following more than two-and-a-half years of extremely hard times in the area.

Meanwhile, the TTC’s reported rise in lodgers tax collections may or may not have had an effect on the recent trend in increased sales tax collections: Dollars collected on overnight stays in the area have proved a mixed bag when held up in relation to sales tax revenues reported by the CDR.

For instance, this month’s CDR report shows sales tax collections for the Accommodation and Food Services sector in March up 14.87 percent, a figure that’s extremely close to the TTC’s lodgers tax. Lodging establishments pay a 4-percent lodgers tax in town (2 percent in the county) on top of the 4-percent area sales tax, with the former funding either the TTC (from town revenues) or the visitor center (from county revenues).

However, as reported in the April 19 edition of The SUN, a 19.14 percent increase in lodgers tax reported by the TTC was accompanied by a just 0.96 percent increase in the Accommodation and Food Services sector reported by the CDR, with sales tax up just 0.53 percent from the same month last year.

By the same token, the Retail Sales sector was up just 1.1 percent in February over the previous year, while, in March, that same market sector reported a 5.67 jump.

In fact, while sales tax receipts have been up the last seven months and lodgers tax receipts have shown nine months of record collections, on a month-to-month basis, the two numbers exhibit a relationship only during one month (October 2011), where both stand at around 6 percent.

Conversely, a 29-percent increase reported by the TTC last December well exceeded the 9.54-percent increase in sales tax for that month — a month that also saw almost $50,000 in additional revenue from previously uncollected taxes in the Transportation and Warehousing sector. Subtracting out those collections, November would have been down 1.37 percent relative to the same month in 2010. That same month showed a 7.68 percent increase in the Accommodation and Food Services sector, more than 21 percentage points lower than the numbers reported by the TTC.

Nevertheless, the TTC has persisted with claims regarding a relationship between the increase in lodging and a boost in sales tax collections.

In recent months, the TTC has presented plans for developing recreational amenities on Reservoir Hill (see related article), with the primary goal being (as the TTC has stated in numerous presentations of the plan) to increase overnight stays in the area. In those presentations, the TTC has claimed a substantial financial benefit to the town due to increased overnight stays and that increase would result from tourists electing to extend their visits due to the recreational amenities offer on Reservoir Hill.

According to the TTC’s numbers, “expected results” of ramped-up tourism resulting from those amenities would provide an additional 8 percent in sales tax revenues to government coffers.

CDR reports appear to contradict the TTC’s assumption. While last year’s 6.07 increase in lodgers tax (relative to 2011) closely matches the 6.84-percent increase in year-end sales tax collections (up only 2.31 percent if subtracting out Transportation and Warehousing), a direct relationship between increased tourism and sales tax can only be made if it is assumed that other market sectors saw almost no growth in 2011.

That assumption would be dead wrong, however, as 11 out of 21 sectors in the area charted by the CDR showed growth — some substantially — during the past year.

While there is little doubt that tourism not only provides a financial benefit to the area but commands a sizable slice of the market sector pie (along with employment, support and other factors), claims made by the TTC are not only unsubstantiated, but appear overstated when held up to numbers provided by the Colorado Department of Revenue.

Relative to the sales tax and lodgers tax reports delivered since late-2007, March numbers presented by the CDR and the TTC suggest a glimmer of sunshine for a local economy that has struggled for several years in the shadow of recession. However, while both lodgers tax and sales tax have shown a positive trend for two to three quarters, connecting the two remains problematic as far the assumed benefit of tourism on the local economy. While Pagosa Country doubtlessly benefits from its sizeable tourism industry, the extent of that impact remains in question.

jim@pagosasun.com

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