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Analysis bodes well for sales tax numbers

After a splash of cold water to the face — sales tax revenues in May were down 14.59 percent from the same month last year — a reexamination of those numbers shows a much more sanguine situation for sales tax collections.

And while a bracing douse of cold water might seem refreshing in the midst of a hot, dry summer, the shock and after-effect can be disconcerting.

Following an initial glance at a report of sales tax revenues for Archuleta County, released by the Colorado Department of Revenue (CDR) last week, it would appear that over the year collections presented a dismal picture of the economy. However, when taking into account extenuating circumstances, numbers for May were most likely up 5.32 percent — about 20 percent better than last week’s report indicates.

At issue is the Transportation and Warehousing market sector, one that Pagosa Springs Town Manager David Mitchem has called “extraordinary income” during numerous sales tax reports to the Pagosa Springs Town Council. In 2011, that market sector was subject to a series of audits that ultimately brought in an additional $267,854 for year-end sales tax collections, accounting for 4.2 percent of total collections by the end of 2011. Additionally, it was in May of last year that the first audit for that sector came in, adding $102,549 to that month’s collections or about one-fifth of that month’s sales tax revenues.

Obviously, that audit artificially inflated numbers for overall 2011 collections in general and for May of that year specifically. In previous years, that sector has amounted to (at most) around 1/2 of 1 percent of total collections. So far this year, that sector has shown $402 in total collections, about 0.02 percent of this year’s total collections.

So, after subtracting out Transportation and Warehousing revenues from reported 2011 and 2012 collections, May 2012 actually shows a 5.32-percent increase from the same month last year.

The effect of last year’s audits was not lost on Archuleta County Finance Director Diane Sorensen. In providing last week’s CDR report to various local officials, Sorensen wrote, “The decrease is mostly due to the Transportation and Warehouse revenue received in July 2011 in the amount of $102,549. That was the first month since 2009 that we received sale tax revenue from Transportation and Warehouse. I believe that amount represented several months of sales tax revenue, therefore distorting the month-to-month comparison.”

Sorensen went on to show that, with Transportation and Warehousing figures intact from 2011, year-to-date sales tax revenues for 2012 were up 1.38 percent over the same period last year. In response, Archuleta County Administrator Greg Schulte wrote, “Please note that while this is a decrease from the same month last year as Diane pointed out below, we are still tracking to what we budgeted for fiscal year 2012 and, in fact, are tracking ahead about 3.7 percent.”

What neither Schulte nor Sorensen pointed out was that, after subtracting out revenue from last year’s Transportation and Warehousing audits (along with that sector’s revenues from this year), year-to-date sales tax collections for 2012 show an increase of 6.35 percent.

While revised May numbers appear to provide an overall positive sales tax revenue report, June numbers (due to be released during the second week of August) will almost certainly show revenues down over the year, mostly due to a boost in June 2011 Transportation and Warehousing revenues (a reported $72,495 in additional revenues from that sector during that month).

However, owing to factors that range from local to global, a June report could also indicate a stalled economy for the month. The Little Sand Fire may have discouraged some tourism in Pagosa Country (a sector which accounts for almost a third of the local economy) while numerous wildfires throughout Colorado not only led to decreased visitor numbers for areas directly affected by fires, but also reportedly resulted in visitor cancellations throughout the state.

Nationally, the same climate conditions that set conditions for those wildfires have begun putting the brakes on U.S. economic growth. Earlier this week, the U.S. Department of Agriculture declared a national disaster in parts of 1,000 counties and 26 drought-stricken states (more than half the country is in the middle of drought), with a third of the nation’s corn crop damaged by heat and drought.

While U.S. corn farmers had expected this to be a record year when they planted, sowing 96.4 million acres (the most since 1937), after months with little or no rain and extreme heat in large portions of the Corn Belt, the USDA revised that estimate down by about 14 percent.

The result has been an increase in prices for some commodities, which in turn will raise the cost of food for consumers.

Furthermore, a report released Monday by the U.S. Commerce Department indicated that consumer spending in June fell in nearly every major category — from autos, furniture and appliances to building, garden supplies and department stores—– with overall retail sales falling 0.5 percent from May to June. That’s the third straight month for consumer spending declines since the fall of 2008 (the height of the financial crisis).

Monday’s Commerce Department report also revised April sales downwards, suggesting that Americans spent less that month than had been previously thought.

That report was released the same day economists from the International Monetary Fund lowered their outlook for global growth over the next two years, with U.S. fortunes anchored by concerns over the so-called three E’s – the economy, earnings and Europe.

The same report placed the blame on a European economy that is flailing from the effects of austerity measures brought on by high government debt, policies that have sharply curtailed the demand for U.S. imports. On Monday, those economists warned that the outlook could dim further if policymakers in Europe do not act with enough force and speed to quell their region’s debt crisis.

Unfortunately, the U.S. is not alone in feeling the drag from the European debt crisis, and on Monday the IMF said that emerging market nations, long a global bright spot, were also being hampered by Europe. Likewise, exports in these countries would combine with earlier policies meant to prevent overheating, slowing growth more sharply than hoped, IMF officials stated in the report.

As a result, while the IMF left its 2012 global growth forecast unchanged at 3.5 percent, its prospects dimmed for 2013, with those projections decreasing to a modest 3.9 percent from the 4.1 percent that was forecast in April.

Given a decline in consumer spending during the past three months as well as Monday’s IMF report, some analysts have reduced U.S. growth estimates for the April-June quarter, from a 1.7 percent annual rate to a 1.5 percent rate.

With the U.S. growth rate insufficient to lower high unemployment (in June, the unemployment rate climbed to 8.2 percent) — employers created an average of just 75,000 jobs a month in the second quarter (only about a third of the monthly job growth during the previous three months) — the national economy is not projected to show substantial improvement in the near term.

In the end, another splash of cold water might not be good news during the dog days of August. With both the global and national economies appearing to mire down as inter-continental spending policies become more penurious, history has shown that Pagosa Country will likely experience some effect.

jim@pagosasun.com

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