Beginning in 2009 the Town implemented a system of monitoring the Town’s revenues on a monthly basis and reporting fluctuations from prior year’s revenues to the Town Council…
— from Resolution 2020-01, “A Policy to Enhance the Town’s Fiscal Stability” approved by the Pagosa Springs Town Council on January 7, 2020.
The Pagosa Springs Town Council held a scheduled work session on Thursday, March 26, via the Zoom videoconferencing platform. Although the work session had been scheduled a few weeks ago, the topic of discussion — the impacts of COVID-19 on the Pagosa community — was perhaps more timely than other possible topics related to the maintenance of our community.
Five of our seven Council members participated in the work session discussion, and from what I could tell from the Zoom interface, about two dozen additional participants — including a handful of Town staff members — had logged to listen or share information. No decisions were made; no votes were taken. Mayor Don Volger, in line with his typical pattern during work sessions, did not ask the general public to offer comments during the meeting.
Most of the participants chose to mute their microphones and turn off their video feeds, and did not enter their names into the Zoom interface, so we were shown mostly dark boxes and phone numbers on the screen. This made the meeting feel a bit awkward; I’m used to open public meetings where we can all see one another, and observe a person’s face when he or she is speaking.
The Council’s COVID discussion touched on two basic questions.
What impact will the “stay at home” orders and closed businesses have on the Town’s sales tax revenues? Our Town government operations rely heavily on sales tax revenues — unlike the County government, which has multiple income streams, most notably including property tax revenues.
The second question — only vaguely related to the first question — was: What can a Town government do with its roughly $4 million worth of reserves, to help get us through these next few weeks or months of quarantines and unemployment and closed businesses and a decimated tourism industry?
The Town’s savings accounts grew following the Great Recession, as the economy slowly turned around. Like many governments impacted by that recession, the Town of Pagosa Springs felt a need for hefty reserves in case another financial meltdown were to take place, and they’ve indeed managed to sock away a bit of cash.
And indeed, another meltdown is now taking place.
Back in 2009, in the midst of the Great Recession, the Town Council created a definite policy whereby staff was required to reduce its spending levels, whenever there was a drop of more than 5 percent in year-over-year sales tax collections. The required spending reductions, according to the policy, became more onerous if the sales taxes fell by 10 percent, or even (heaven forbid) 15 percent. This policy has remained in place since 2009, having been renewed at the beginning of each subsequent year.
From the 2009 policy:
Implementation shall include apprising department heads of the shortfall and working with department heads to conduct a review of all budgeted programs and services and categorize each into the following levels of service: 1) Essential Services; 2) Highly Desirable Services; and 3) Non-Essential services. The town manager shall initiate budget cuts or expenditure freezes eliminating Non-Essential Services based on their priority ranking. The town manager shall review departmental staffing patterns with primary focus directed toward reducing or eliminating part-time and temporary employment expenses. The town manager will determine which position will be filled on a case by case basis…
As with most governments, the Town’s primary expense is staff salaries, so any reduction in Town spending is almost certain to include layoffs or salary reductions.
Can we expect sales taxes to drop during 2020, compared to 2019? Well, yes. But by how much? Town Manager Andrea Phillips shared a rather curious chart with the Council at the Thursday meeting.
“I have to thank [former Town Manager] Greg Schulte for putting together these different sales tax projections…
“It’s very difficult, at this point in the year, to know where we’re going to end up [in terms of revenues…] We believe February’s collections will be fairly normal; the closure orders didn’t really hit us until early- to mid-March… But we do think that for March, of course, and definitely April, we’re going to see quite a bit of a downturn, and probably well beyond that.
“One of the challenging things in predicting this is, we don’t know how long this is going to go on. So this graph is trying to show a bunch of different scenarios.”
The gray bars on this chart show, month by month, the sales taxes the Town had once hoped to collect this year. According to my pocket calculator, the total for the year, sketched out in the graph, appears to be about $2.9 million, which is close to the $2.85 million projected for the General Fund in the Town’s 2020 budget. The Town splits its sales tax collection 50/50 between the General Fund and the Capital Improvement Fund, so the total collections projected for 2020 were $5.7 million.
It now seems unlikely that the budget estimates are going to be accurate.
What we are looking at, in the graph above, are seven possible scenarios for how the COVID-19 outbreak might affect Town sales tax revenues. Scenario A, for instance, shows what might happen if sales tax collections dropped by 25% (compared to the budgeted estimates) between March and September, with the months of January, February, October, November and December remaining ‘normal.’ If such a scenario were to play out, the Town’s yearly collections would be about $2.46 million — a drop of about 15%.
For another example, Scenario C shows a drastic 75% sales tax decline throughout almost the entire year. I personally find such a drastic projection to verge on the ‘ridiculous’, implying as it does that our community, as a whole, would basically cease buying food and necessary supplies.
But if a sales tax decline were indeed to be in the 15% range, the Town’s current spending-reduction policy would apply:
Whenever the percentage of sales tax revenues collected in the current month falls fifteen percent (15%) below the average revenues collected for the same period in the preceding two fiscal years and the percentage of sales tax revenues collected in the previous month (or previous two months) falls fifteen percent (15%) below the average revenues collected for the same periods in the preceding two fiscal years, the Town Manager shall implement a seventeen percent (17%) reduction in sales tax related expenditures.
It’s a blunt tool, but perhaps better than no tool at all.
The Council had other tools to discuss on Thursday.