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City reins in its sales tax revenue forecast 

Storm clouds ahead?

click to enlarge DATA FROM CITY BUDGETS
  • Data from city budgets
The dreaded “R” word appears only once in the city’s 2019 budget, but fear of a recession might be driving the city’s revenue forecast, which is less optimistic than the previous year’s prediction.

The 2018 city budget’s outlook predicted sales and use tax revenue would exceed $207 million in 2023 and noted “the forecast assumes no recession in the next five years.” (Use tax is sales tax paid on goods purchased elsewhere but used here, such as construction materials.)

But this year’s revenue projections walk back that figure by nearly $12 million, to $195.4 million in 2023. That same forecast predicts sales and use tax revenue will total about $191 million in 2022 — $9 million less than the $200 million predicted a year ago.

That looks like the city is hedging against an economic downturn, though Mayor John Suthers made no mention of a recession in his Sept. 21 “State of the City” speech to a record crowd at The Broadmoor. That was about two weeks before he presented the 2019 budget that contained the scaled-back figures.

Rather, Suthers labeled the local economy as booming, and hailed a thriving job market, citing the $77,000 annual median salary for posted jobs in the region. He also noted that U.S. News & World Report named the city the second best place in America to live and the top-rated most desirable city in America.

Despite sound local economic indicators, though, the stock market remains volatile, President Donald Trump’s trade war rages on, a government shutdown persists (as of our press time) and online commerce is thriving. Will all that impact the local economy?

Asked about a slowdown, city spokesperson Jamie Fabos says via email that although 2018 ended with strong 
economic markers, “We are aware that most economists are predicting a national downturn in the next year or two.”

She also notes the five-year forecast “serves as a guidepost in developing future city budgets.”

“It is intentionally [her emphasis] conservative,” she adds, “so that the city develops future budgets in a way that is sustainable should such a downtown occur. We of course don’t know if and when that will happen, but budget conservatively out of an abundance of caution.”

Chief Financial Officer Charae McDaniel says in an email that the original forecast for 2018, drafted in 2017, assumed a 3.5 percent annual growth rate, which was modified to 3 percent when the 2018 budget was finalized.

The decline in sales and use tax revenues will be offset largely by other revenues, however, such as increases from the Highway User Tax Fund and payments agencies make to the city, such as Colorado Springs Utilities’ payments for auditing and purchasing services, McDaniel says.

City Councilor Bill Murray, a member of Council’s Budget Committee, says he’s long argued the mayor’s projections are “incredibly optimistic.”

“Not only were they rosy in their formulation,” he says, “but they’re built in year after year. It’s a progression I felt couldn’t be sustained.”

Murray is especially concerned about a downturn after Council recently approved allowing millions of tax dollars to be directed to development in the lower downtown area around the Olympic Museum through tax increment financing. That’s when tax revenue that exceeds base-level receipts prior to development is funneled toward infrastructure costs, like sidewalks and street work, to accommodate development.

Murray proposed giving 50 percent of the increment to the projects, but Council approved 100 percent.

“The problem is, historically, there have been slowdowns,” Murray says. “Two years ago, I asked for some sort of planning document that talked about a 10 percent reduction in our income and what would occur. I’ve never seen it.”

Murray also frets over how much the Environmental Protection Agency’s Clean Water Act lawsuit might cost the city; the city is currently negotiating to settle the case after receiving an unfavorable ruling last fall from a federal judge regarding the city’s stormwater system.

“Then, we have these issues involving the stock market,” Murray adds, noting that if the Public Employees’ Retirement Association’s investments fall short, the city can be asked to make up the difference, which could cost millions of dollars.

“This is the kind of stuff that concerns me,” he says. “They’re storm clouds.”

When the 2008 national recession set in and sales tax revenue plummeted, the city slashed the budget so deeply that trash cans were removed from parks, many streetlights were shut off and personnel were laid off.

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