City of Aspen projecting massive revenue losses, expenditure cuts
The city of Aspen finance director is estimating a loss of almost $13 million in lodging and sales tax revenue this year due to the COVID-19 crisis, with steep declines in just about every industry in the resort community.
City Finance Director Pete Strecker’s 2020 tax projections will translate into massive cuts in capital projects and municipal services, including in public transit and parks and open space programming.
City Manager Sara Ott told Aspen City Council on Monday that 55 part-time employees have been laid off and more operational cuts are coming.
“The city needs to take action pretty quickly in its own spending to be responsible back to the community, and there’s going to be tough choices coming before the council in the future about priorities,” she said.
Strecker projects that economic weakness is expected through the summer and a slight rebound will occur in the fall and December, with a weaker opening to the 2020-21 ski season.
Strecker, who was the chief of economic forecaster for the Colorado Governor’s Office during the recession that began in 2008, told council his projections are just a snapshot in time.
“In August we’re hoping there is a (bounce back) but that’s absolutely contingent upon what the travel looks like, the travel bans, and how soon and comfortable people are moving around the country and around the world,” he said. “The overall projection at this point is that we will see softenings all the way through the year, even December, ski season, we are still down 22 percent.”
He projects a decline over last year in monthly sales tax revenue anywhere between 65% in March to the 50% reductions through the summer months and into the 30% losses in the fall.
The losses are due to the abrupt shutdown of the ski areas, restaurant and bars, lodging and all non-essential businesses through public health orders issued earlier this month to prevent further spread of COVID-19.
“By industry, the hardest hit are the likely areas of high-cost items like luxury goods and automobiles, followed by additional optional areas like clothing and sporting goods,” Strecker wrote in a memo to council. “With limited and/or heightened fear of travel anticipated, accommodations will also be hit hard. A slightly muted impact would then occur at restaurants, but not as deep given local patron visits.
“The least impacted industry will be in the areas of general retail (which includes some large online retails that have been able to remain open during this time and have even seen a boost) and basic necessity retail like food and drug.”
Strecker projects a nearly $6.59 million loss in city sales tax revenue and a $4.4 million reduction in the city’s share of Pitkin County’s sales tax.
The lodging tax revenue is projected to take a hit of $1.65 million, according to Strecker.
He wrote in the memo that based on those projections, collections will be significantly reduced and will affect various city funds and leave varying options on how to weather the impact:
• Transportation: This is the area of greatest concern. Transportation has revenue from three tax streams: city sales and lodging tax, as well as indirectly from the 1.0% valley-wide transit sales tax. The aggregate impact is a $2.3 million loss among these sources, and there is then the impact of a reduced transfer from the parking fund given that there is no paid parking at this time, initially estimated at $1.5 million in lost revenue. Immediate steps, including reduction in service levels and hours, have started.
• General Fund: $3 million reduction is only the initial impact as departmental revenue from fees also will decline. With this, expenditure cuts are recommended. There is fund balance that can be utilized and there is the option to push more property tax revenue to this fund, but it will require decisions on slowing or stopping projects in the asset management plan.
• Parks and open space: $4 million reduction. Sales tax is a main source of income and as such, delaying capital projects is imperative.
• Child care/Kids First: $500,000 reduction. This fund has sufficient fund balance to delay immediate cuts but will then reduce resources to put forth on a capital expansion project in the future. There is already one position that is proposed to remain unfilled at this time (resource teacher).
• Tourism Promotion: $1.2 million reduction. This amount has been communicated to (Aspen Chamber Resort Association) to assist in prioritizing destination marketing dollars. ACRA does have close to $800,000 in reserve on its books, plus the city is holding another $300,000 in fund balance at this time.
Additional work still needs to be completed to analyze other fee-based revenue streams, property tax (though little impact is anticipated), and real estate transfer taxes (typically volatile and less detrimental in the near term if collections fall).
The city administration is already scaling back its operations and will bring forward a formalized cost-cutting package for the council to consider in the near future.
Councilman Ward Hauenstein said it is not going to be easy to tighten the city’s financial belt but it is necessary to save lives in this crisis.
“The public health orders are really designed to put an end to the spread of this contagion but in doing that, it heavily impacts businesses,” he said. “We have to be able to kill the virus, we have to kill the spread of it, but we have to be prepared for the economic recovery.”
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Responding to concerns from Aspen business leaders that the traveler-affidavit requirement keeps driving away potential visitors and will continue hurting the tourism trade, Pitkin County Manager Jon Peacock told commissioners Tuesday he and staff will recommend to the board of health to consider a revamp of the program.