While we’ve been watching countries around the world deal as best they can with a newly-identified virus, and while we’ve been wondering how this illness will affect the tourist economy of a place like Pagosa Springs, a couple dramatic changes have been taking place, slightly under the radar perhaps?
According to the New York Times, April 20, 2020:
Something bizarre happened in the markets on Monday: The price of a barrel of oil went negative.
Oil prices tumbled as the economic crisis set off by the coronavirus pandemic continued to destroy demand for energy, and as concerns grew that storage tanks in the United States were near capacity and unable to hold all the unused crude.
Here’s the chart from the NYT as of this morning, when it appears oil was selling for -$4.47 per barrel.
When I told my daughter about this strange development, she immediately did a calculation in her head and asked, “So they’re going to pay us to fill up our cars?”
I laughed. “No, I don’t think so.” But then, I thought about it, and I wondered if she had a point. If the world’s oil-producing countries are continuing to pump oil out of the ground, even in a situation where practically everyone has stopped traveling, they will need somewhere to store all the extra petroleum. Maybe in our vehicle gas tanks?
A similar economic disaster has struck the dairy industry, but the catastrophe might be even worse in that case. More about that in a moment.
One of the primary jobs of the Colorado General Assembly is the approval of the state government’s annual budget, and you can learn a little bit about the budget on the legislative website. You can, for example, view colorful charts like this one:
(On the actual website, you can mouse over the colored sections of the bar and see detailed dollar amounts.). Readers might wonder why we’re looking at a chart of state government expenditures in the midst of an article series about ‘the impacts of a global pandemic on Archuleta County tourism.’ I’m thinking there’s a good reason, so I hope you will bear with me.
For one thing, the chart is a fascinating thing to look at, simply as a temporary distraction… when we’re been looking at photos of medical personnel in ‘personal protection gear’ and bodies being wheeled into ambulances for the past month…
Taking in the whole chart, we see that the state budget has basically tripled in size since 1990-2000. Looking more closely, we see that the portions of the budget that appear to have grown most dramatically are K-12 education, higher education and — most most strikingly — health care.
Because the population of Colorado has grown by only about 20% during that same period of time, it would appear at first that the overall cost of state government has grown at a rate 15 times that of population. But once we adjust for inflation, we find that state spending has increased by only 10 times the rate of population growth. (The above chart is not adjusted for inflation.) A person might be tempted to wonder if the average Colorado household is getting 10 times the government services in 2020 that we were getting in 1999-2000, but the experience ‘on the ground’ suggests that the level of service hasn’t changed much at all — only the cost has changed.
I was visiting this website because I wanted to know what portion of the state revenues comes from income tax, and what portion comes from sales tax — because that ratio will have considerable importance this year. Here’s the chart, from the General Assembly’s website, that shows the money flowing into state government via various taxes. The majority comes from income tax and from sales tax, shown in the large dark blue bars.
When economic trouble strikes, and spending slows — consumer spending, business spending, government spending — both income tax and sales tax are likely to take a significant hit, as happened during the Great Recession (2008-2011) as well as during the Dot-Com-9/11 recession (2001-2003) as shown above.
Local Colorado governments also saw a steep drop in sales tax revenues during those recessions. But the amount of property tax paid by property owners around the state actually increased for the first couple of years during the Great Recession, because the values are based on past property sales, not current property sales. Another factor that kept property taxes relatively high was the fact that sellers didn’t immediately drop their asking prices; they were hoping the recessions would be over quickly and the housing market would continue its upward bubble — which eventually did happen.
Here in Archuleta County, the largest portions of our property taxes go to the school district and the County government, and while those services certainly will be affected by the coronavirus crisis, the local government that will likely be most affected by a drop in tourism and by the decrease in overall business activity is the Town government — the folks most dependent on sales tax, and lodgers tax.
So what’s this about the dairy industry? Not that we have a dairy industry in Pagosa, but I still find the situation worth thinking about.
The US dairy industry was already struggling with falling prices in 2019, as you can read here. But the COVID-19 crisis might have delivered a knock-out punch.
From the Wisconsin State Farmer website, April 20:
Farmers have weathered some tough times over the last five years. The weight on their shoulders has increased ten-fold due to the fallout the coronovirus pandemic has had on the agricultural industry…
Dairy farmers from coast to coast are being forced to dump milk or cut their milk production as demand drops amid the cornavirus closures including schools, workplaces and restaurants… Over half of the milk produced in the United States goes into cheese production. Forty percent of that cheese is earmarked for the food service industry. With the food industry market literally dried up, milk processing plants are asking for reductions of up to 20% of the farm’s milk production or simply telling them to dump it down the drain.< Before the pandemic, about 15% of US dairy production was being exported overseas. That market has pretty much disappeared, at the moment, partly due to ongoing tariff disputes. Oil wells, theoretically, can stop pumping oil. But you can't easily stop milking your cow. Times are tough all over. Read Part Six…