City’s financial guru shares his thoughts on Aspen’s economy
October 2, 2007
A: I have been the finance and administrative services director for the city of Aspen for five years. I have worked in local government most of my career, in Indiana, Florida, Washington state, and now in Colorado. I have a master’s degree in public affairs from the Indiana University School of Public and Environmental Affairs in Bloomington. I graduated with a double major in urban management and public finance. Prior to that I attended Pacific Lutheran University in Tacoma, Wash., and graduated with a bachelor’s degree in communications and a minor in economics.
A: RETT revenues are unpredictable and very volatile from month to month, or even year to year. Collections depend upon the number and size of sales in any given period, which can vary significantly based upon lots of factors that are not in the city’s control.
In the 16 collections years since the 1 percent housing RETT went into effect in 1990, on nine occasions, there has been a difference of more than 20 percent (increase or decrease) between one year and the next in total collections.
At the same time, the average growth in annual collections since 1990 is 19.6 percent. This average benefits greatly from the past three full years (2004, 2005 and 2006) which increased 49 percent, 51 percent and 17 percent respectively.
We believe that RETT collections will continue to grow at their historic trend rates on a long-term basis, but with significant ups and downs along the way, which is why we only budget to spend about 70 percent of our anticipated Wheeler RETT collections in any one year.
A: If I knew the answer to that question, I would have my own TV program right after Jim Cramer’s “Mad Money.” I would call it “Sane Real Estate” …
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History seems to indicate that Aspen’s real estate economy is somewhat unique in comparison to other parts of the country. Our real estate tends to hold its value during periods of decline ” and increase in value at a faster rate during periods of growth ” than the national real estate market. In my experience this is due to three primary factors:
1. Basic supply and demand. Demand for real estate is higher here, and there is less of it. This is a beautiful place, and everyone would like to own property here, and there is a very limited supply to go around. This factor tends to make any desirable and rare commodity somewhat “recession-proof.”
2. Our real estate benefits from an international demand that is unique to only a few markets in the United States.
3. Because free-market Aspen real estate is only available to the wealthy and very wealthy, its value tends to remain more stable over time since very wealthy individuals tend to not have to sell their real estate as frequently as others during down financial times.
But, truthfully, there are a lot of very knowledgeable real estate professionals in Aspen that know this market far better than I and can provide much better general information about our exposure to real estate “bubbles.”
A: Aspen ” and really the entire Western Slope of Colorado ” is in the midst of a growth period.
Individuals smarter than me have been pointing out for several years now that we are experiencing an in-migration of people to the Western Slope, driven by the impending retirement of the first wave of baby boomers ” many of whom already own property here ” who want to come here for the lifestyle and the natural beauty and to escape “big-city” USA.
This growth trend is, to a certain extent, fueling Aspen’s economy, and Carbondale’s, and Basalt’s, and Glenwood’s, etc.
This real growth is permitting Aspen’s consumption-based tax collections (sales, lodging, real estate) to exceed the rate of inflation.
We have seen this trend since about 2004. Prior to 2004, our tax collections, while they grew most years, tended to lag behind the inflation rate. 2005 was the first year in more than a decade that Aspen’s sales tax dollars had more purchasing power than in 1995, when adjusting for inflation using the Denver/Boulder CPI.
A: Art galleries and jewelry stores tend to make up approximately 3.5 percent to 4 percent of total retail sales annually in Aspen (3.6 percent, or $2.6 million in 2006).
Because they tend to sell higher-priced items, their sales are often erratic, from month to month and year to year. According to a recent analysis conducted by the Finance Department, they also tend to have the highest percentage of shipped sales (along with fur stores), which are exempt from our sales tax if they are shipped out of state.
If you think about it, this makes a certain amount of sense. And in reality, it’s common among resort communities. Why would a vacationer want to carry their expensive original painting on to the CRJ-700 when they can have it shipped and insured? The jets are new, but they are also small.
The same is true for expensive jewelry, while not an issue of size, convenience and safety play a role in consumer decisions about such purchases. Plus, luxury shoppers tend to be savvy. Why not save 8.6 percent by shipping it home? So while their may be some lost revenue from fraudulent shipping, it is a very small percentage of total revenue and it would be very difficult to enforce in a manner that did not create a chilling effect on local retailers.
We tend to rely on education to keep our local retailers in compliance with this provision of the code.
A: The City Council will be considering the 2008 budget in a series of work sessions starting Oct. 1. All work sessions start at 5 p.m. and are scheduled for Oct. 1, 2, 15, 16, 23, 29 and 30. All residents are welcome to attend one or more of these meetings to learn about the city’s budgetary plans and challenges. Some, but not all, or the major policy issues the council will be grappling with include:
1. Environmental stewardship in all areas of city business
2. Use of excess TABOR property tax revenue.
3. Affordable housing for the community and for city employees.
4. Transportation services and improvements.
5. The Wheeler endowment fund’s use in future years and the possibility of a second theater facility adjacent to the Wheeler.
6. Recreation and golf fees.
A: I am not an economist and I don’t play one on television, but in my view, Aspen’s economy is showing growth in all three of its major component areas: retail sales (primarily lodging, clothing and specialty shops); real estate sales and real estate development, which is primarily redevelopment of existing homes and commercial businesses.
It is important for the local governments to remember that we are experiencing the “good times” right now, and economic contractions, which will result in slower revenue growth, will come at some point in the future. Because of this, fiscal discipline is needed to ensure the sustainability of our budgets to meet the community’s long term service needs. I believe that city staff have done a tremendous job in this area over the past three years, in spite of tremendous growth in demand for services.
A: am really not sure about this. But in the end, Aspen’s economy overall tends to be volatile from year to year, but has proven to be resilient and shows strong growth in the long run.
A: That is really a very broad question that is difficult to answer in simple terms. I think it is also situational. I think. It’s hard to generalize. The U.S. economy is so big, and Aspen is a single resort community.
After 9/11, I think we were affected as much or more than almost any other city except for New York or Washington D.C., at least in terms of proportionate impact based upon size. But then Aspen recovered from the economic impacts of 9/11 more quickly than a lot of places. Normally, I think the numbers indicate that Aspen weathers downturns in the national economy a little better than most places. But again, it’s situational.