EDITORIAL: Considering the Pagosa Springs Town Budget, Part One
The Pagosa Springs Town Council will consider approval of its 2018 budget tomorrow, December 5, at their regular “first Tuesday” meeting in Town Hall, with a proposed total of $10.7 million in expenditures.
A few excerpts from the introduction to the proposed budget, written by Town Manager Andrea Phillips:
The local economy continued to show steady growth in 2017, and 2018 is anticipated to be healthy as well. The primary measures of economic activity for the Town of Pagosa Springs (Town) are sales tax, lodger’s tax, the unemployment rate, and the number of building permits issued. All items are on track to be record amounts, or at least equal or better to numbers from prior years…
While economic indicators continue to be strong, in order to be fiscally prudent should the local economy experience another downturn, the Town Council has continued its policy requiring Town expenditures to be reduced in direct proportion to the reduction in sales tax revenues and that expenditure reductions should take into account the relative value of specific programs or services provided to the community. This policy has been in place for several years and was continued by the Town Council on January 3, 2017 in the form of Town Resolution 2017-01.
Ms. Phillips is new to the community, as of last summer, and many of the priorities in the 2018 budget are essentially carry-overs from the work done by former Town Manager Greg Schulte between 2014 and 2017. One of the policy items, mentioned above, pre-dates both Mr. Schulte and Ms. Phillips, however — namely, Town Resolution 2017-01, which reaffirms a six-year-old Town Council intention, that the Town live carefully within the fiscal limits of its sales tax revenues. The Resolution requires the Town to cut its spending by a certain percentage whenever sales tax revenues show a drop of more than 5 percent. Additional cuts are required if the decline is more than 10 percent.
I don’t know how local governments operate in other communities, but I believe the Town of Pagosa Springs is the only Archuleta County government agency that has an established, written policy to help it live within its means.
Based on U.S. Census data, I am estimating that most of us here in Pagosa Springs have lived in the community less than 25 years, meaning that we’ve been through — at most — two “boom and bust cycles.” A boom cycle took us from about 1992 to 2002, at which point the local economy took a brief but noticeable downturn, resulting from a serious drought and related forest fires that discouraged visitors to southwest Colorado. The fires were in addition to the previous events of September 11, 2001, which also discouraged tourism. The economy did a slight turn-around in 2005, and things looked bright on the horizon, as housing values began to skyrocket during the inflation of a real estate bubble. The bubble began deflating, however, in late 2007, and then got popped as a result of the Great Recession.
That’s when the Town’s sales tax revenues took a big hit, resulting in staff layoffs and various other budget-cutting techniques. And resulting also in a policy resolution by the Council, to continue to reduce spending if the Recession deepened. Or if it returned.
Ms. Phillips’ 2018 budget document contains several graphs showing the revenue trends over the past ten years. Like this one:
I believe this is the first time a Town budget has included these types of “trend-line” graphs — a big help to those of us who see the world visually. Here we see the sales tax revenue dropping in 2008 and hitting a low point in 2010, and then taking a bit of a leap upward when the Walmart store opens its doors.
Unfortunately, they are only “trend lines.” They aren’t able to fully predict the future.
Here’s a similar graph, taken from the Archuleta County Budget, that illustrates the disturbing and unexpected financial roller coaster that took everyone — the Town and County governments and all other government agencies in the community — on a wild ride before and during the Great Recession. This particular chart shows the revenues collected from automobile registrations in the county:
Obviously, this chart is the flip side of the sales tax chart Ms. Phillips included this year’s Town budget narrative.
A few more excerpts from Ms. Phillip’s budget narrative:
As stated above, two important barometers of the economy for our community are the sales tax and the lodger’s tax and both continue to trend upward. To date, sales tax revenue in 2017 continues to show growth. Other general fund revenue sources such as property tax, charges for services, licensing and permit fees and mineral and severance taxes are expected to remain close to 2017 levels….
The Town has a total of six separate funds and each is accounted for separately. The governmental funds are reported using an accounting method called the modified accrual accounting method. For all six funds, the total expected revenue for 2018 is $13.75 million and the total expenditures for the six funds are $10.74 million. While the Town is utilizing significant reserves for capital projects in 2018, the total projected year end cash reserves for all six funds are $3.0 million. From an overall standpoint, the Town continues to be in a healthy financial position…
The Town made it through the Great Recession without creating too much taxpayer debt — only about $3.9 million. All of this debt was created, however, without voter approval, using “Lease Purchase Agreements.”
We would probably agree with Ms. Phillips that a small-town government with $3 million stashed away in six accounts would normally be classified as “financially healthy.”
On the other hand, we might note that, according to the proposed budget, four of those account balances are going to end up at their lowest level in the past four years. Note the “Year End Cash Reserve” at the bottom of this summary chart…
In particular, the Capital Improvement Fund reserve will be at only 24 percent of where it currently sits… and only 18 percent of its 2016 level…