Durango city finances don’t look as bad as they did in March, but staff members expect sales and use tax revenue to drop by $2.2 million in 2021 as a result of the continuing impacts of the coronavirus pandemic.
In March and April, city administrators began budget cuts expecting to lose up to 29% of the city’s sales tax revenue because of the coronavirus pandemic. Heading into winter and 2021, forecasts are less severe: City staff members expect a 7% to 10% drop in overall revenue for the year. But it’s hard to predict during the ongoing pandemic.
Devin Schmidt, acting finance director, is feeling “cautiously optimistic.”
“There are certainly challenges, but it’s nothing that we can’t figure out or overcome,” she said.
On average, sales and use-tax collections bring in $31 million annually. That means if projected revenue shortfalls hold true, the city could see $2.2 million to $3.1 million in lost revenue next year.
Sales taxes are the main funding source for the general fund and special revenue funds, like the 2005, 2015 and 2019 sales tax funds.
The general fund pays for city operations, services and programs – like fire, police, City Council, community development, parks and recreation, and more.
The special revenue funds pay for debt servicing, parks, recreation, trails, open space, bicycle and pedestrian improvements, and streets.
Sales tax collections were hardest hit in April, when they dropped 15%. That’s compared with the budgeted amount based on three-year historical estimates.
Collections from January to August are 8% less than budgeted, Schmidt said. But in August, collections were actually 4.2% higher.
“August was the first month we were not down in sales tax, so that’s positive,” Schmidt said. Because of a delay in reporting, the August report actually reflects sales tax collections in July. “We’re absolutely moving in a better direction than we were previously,” Schmidt said.
In a typical year, sales tax collections rise and fall cyclically. They start to drop in November and increase during holiday shopping in December. The leanest months are January and February, Schmidt said.
“As we enter October, and we’re starting to think about November and after the holidays, we’re very worried about the health of our businesses and if they can weather these slow months,” said Tim Walsworth, director of the Durango Business Improvement District.
This year, Snowdown is canceled. The winter festival typically helps boost businesses through the lean months, so its absence will have an impact, Schmidt said.
“Everybody’s disappointed that we can’t have Snowdown from an economic standpoint and community psyche standpoint,” Walsworth said. But “it’s just not appropriate this season. Everybody understands it.”
The coronavirus pandemic might impact how comfortable people feel about traveling during the winter, particularly because it is also flu season.
An uptick in cases could prompt more restrictive public health measures. La Plata County shifted backward into some of those restrictive measures this week because of an increase in COVID-19 cases.
“We’re going to watch that dial very closely,” Walsworth said. “I’ve been very worried about the increase we’re seeing as of late.”
The city is also watching federal decisions around unemployment benefits. The extra funding included in the coronavirus relief packages and through the Trump administration helped keep money flowing through the economy. Expiring unemployment benefits will play a role, too, Schmidt said.
The city has lost several businesses, such as Eno Wine Bar and the Irish Embassy Pub, because of the economic impacts of the pandemic. Each lost restaurant means $264,000 less in sales tax revenue on average.
Heading into the winter, the city has put forward conservative budgets and halted capital-improvement projects.
“As we move into slower, quieter months, we’ll do the same thing we did when the pandemic struck: closer monitoring,” Schmidt said.
smullane@durangoherald.com
