San Miguel County Budget to Worsen in Coming Years
by Samuel Adams
Jul 11, 2013 | 2195 views | 0 0 comments | 44 44 recommendations | email to a friend | print

Property Tax Revenues Lag Behind Changes in Market Values

TELLURIDE – After years of market volatility, threats of contagion from the European debt crisis and relentless political brinksmanship in Washington, Americans are finally seeing positive economic news: Overall unemployment has continued a downward trajectory, Americans appear to be spending confidently and a bullish Wall Street has calmed many investor jitters.

But don’t pop the corks quite yet. Governments in San Miguel, Montrose and Ouray counties will see their budgets suffer the impacts of the Great Recession for years to come.

On June 27, the Wilkinson Public Library in Telluride hosted a budget forum for taxing entities in the county. Officials representing the San Miguel County, the towns of Telluride and Mountain Village, the Telluride Medical Center, the Telluride Fire Protection District, the Wilkinson Public Library and the Telluride School District, outlined their respective budgetary challenges in the years ahead.

The budget shortfalls are largely a result of the crash of the American housing market, which began in 2007. The reason government and district revenues are forecast to decline in 2014 is tied to the mechanics of property appraisal laws in Colorado.

Real property in Colorado is revalued by county assessors every two years on even numbered years. These valuations are used to figure tax bills for the following two years. Therefore, even if market values may have leveled out from near-historical lows, or may even be rising, the most recent valuation, done in 2012 but used to set property tax rates for 2014, reflects the bottom of the housing market. As a result, taxing districts that operate on almost entirely or even partly on fixed mil levies are anticipating a steep decline next year. 

Given the way property taxes are assessed and collected, government entities in the Western San Juans first experienced declining revenues up to three years after property values started to decline. Similarly, property tax revenues may begin to recover as much as three years after property values recover. Thus, even though the Great Recession started in 2008, property taxes in Montrose, Ouray and San Miguel counties each saw their first significant decline from the boom years only in 2011, an average of 11 percent.

Montrose and Ouray counties have seen nearly four straight years of declines in property values. Values in San Miguel County, however, showed the greatest decline among the three counties since the property bust. Total property values in San Miguel County peaked in 2009, at just over $1 billion. 2012 property assessments saw the figure drop by nearly 18 percent to $857 million. During the same period, Montrose and Ouray counties saw declines in total property value of ten and thirteen percent respectively.

 

San Miguel County

San Miguel County, whose general fund budget relied 57 percent on property taxes in 2012, is preparing to endure years of budgetary challenges.

The county has long prepared for such an eventuality by amassing large cash reserves to offset a projected revenue gap.

“The reserves may be tapped into but they will not run dry,” San Miguel County Commissioner Joan May said by email.  “There is a statutory requirement to maintain a certain amount of reserves, about 30 percent. But we do have a policy to maintain higher amounts of reserves, which we are planning on doing.”

Still, May added, there have already been consequences due to declining tax revenues. 

“We have reduced and consolidated staff in several departments and will continue to do so as needed. Citizens may already be experiencing delayed response times from the sheriff's office, or longer waits for other services,” May said.

May added that the county is exploring options for increasing revenues, which could help offset possible further reductions in staffing and services, including raising fees for permits, seeking more federal grants and collecting increasing interest rates on county accounts.

Possibly compounding the budget crunch, the county may see reduced “payments in lieu of taxes,” or PILT funds. These are federal funds granted to local governments in jurisdictions where large swaths of federal land are exempt from property taxes. The federal government may reduce PILT funding due to the budget fights in the United States Congress. The political climate in Washington makes it difficult for governments like San Miguel County to anticipate federal aid or lack thereof.

“At this point there are just too many conflicting signals from Washington,” said San Miguel County Administrator Lynn Black.  “We are predicting further uncertainty from the federal government.”

 

Telluride

The Town of Telluride has more revenue streams than the county. In 2013, only seven percent of Telluride’s general fund budget comes from property tax and while half is comprised of sales taxes, which have grown steadily since a small decline occurred between 2008 and 2009. The town also has relied on Real Estate Transfer Taxes and building and permitting fees, both of which took a huge hit at the start of the recession.

Town Manager Greg Clifton told the forum that the town was is still recovering from the woes of 2008.

Clifton explained that in the fourth quarter of 2008, Telluride implemented the “Town Recession Plan”: a set of austere fiscal policies that reduced labor expenses, cut spending on town services and decreased discretionary spending. Clifton predicted, however, that Telluride could now be affected by San Miguel County’s budget shortfalls. The transit services it finances in partnership with San Miguel County, for example, might be impacted.

“The county is a big contributor to the transit system that is owned and operated by Telluride,” he said.  “And with that contribution, Telluride provides transit service to Down Valley residents. Shared services may be affected if any one of the contributing governments is no longer able to participate at current levels,” Clifton added. “I cannot state just what impacts will occur because these conversations have yet to happen.”

 

Mountain Village

The Town of Mountain Village also has diverse sources of revenue. This year, 12 percent of the town’s total revenues have been from sales taxes and another significant portion comes from the Telluride and Mountain Village Homeowners Association to fund the gondola, which Mountain Village owns and operates. Still, with more than 30 percent of 2013 revenues coming from property taxes, Mountain Village’s income is still susceptible to fluctuations in real estate valued.  

“Diversifying the sources of Mountain Village’s revenue streams is one of our top priorities,” said Mountain Village Town Manager Kim Montgomery. “We’ve also been taking steps to explore opportunities to incentivize enterprising individuals and to attract small businesses to Mountain Village.”

Mountain Village Finance Director Kevin Swain said at the forum that Mountain Village has begun mitigating the projected property tax revenue shortfall by taking steps that include reductions in staff and staff benefits, freezing wages, deferring road maintenance, and extending the life of town vehicles.

 

 Fire District

John Bennett, the director of the Telluride Fire Protection District, has been preparing for a possible revenue decline since the real estate market crashed in 2008. 

“We started preparing for this as soon as we could,” he said “We mitigated these future problems by stashing money away in a rainy day fund, delaying repairs and putting off new, large expenses.”

Buffering the pain, Bennett said, is that “unlike other fire departments, our biggest strength is our 100 volunteers. This saves a huge amount of resources and allows us to operate at a relatively small cost to the taxpayers while still being effective in the community.”

 

Telluride School District

The Telluride School District has already felt the heat from the 2008 recession. In 2009, the Colorado State government cut more than $1.2 million in funding for the school district. To balance its budget, the school district laid off faculty members, reduced supplies and minimized contract services. Partly offsetting the loss of revenue, a hundred additional students have enrolled in the district’s schools since 2009, which brought in more state funding. 

Voters supported a referendum that added $800,000 to the ailing school district in the November 2012 elections. This additional funding, superintendent Kyle Schumacher said, has been instrumental in maintaining the district’s high educational standards. “This goes to show that even with a much smaller budget, schools, with the support of the voters, can still produce outstanding educational results,” Schumacher said. “Sure, more state funding would be a huge help at this point but we’ve been extremely creative in navigating through these tough and uncertain times.”

 

Telluride Hospital District

The Telluride Hospital District, which operates the Telluride Medical Center, has already taken steps to roll back operating costs, even though it has seen a large increase in patient visits since 2011. Since the start of the Great Recession, the hospital has frozen staff wages, tightened financing for patient treatment and increased patient fees by three percent. The hospital district has also started pursuing new revenue sources, including adding new clinical procedures, purchasing  new laboratory equipment and retaining a collections agency. These fixes, however, will not generate enough additional income to offset the substantial decline in tax revenue.

In 2014, the hospital will operate at an estimated $260,000 loss. Julie Wesseling, the district’s financial director, outlined options for closing the hospital’s budget gaps. Further increases in patient fees, cutting non-patient care expenses and dipping into the medical center’s reserves, Wesseling said, are options the hospital is considering to avoid deeper deficits. The medical center is also considering changing operating hours and delaying large purchases.

“We’re exploring other opportunities to bring in more revenue,” said Telluride Medical Center Executive Director Gordon Reichard. “We’ve been blessed to have private donors contribute to our foundations. Donors sometimes single handedly purchase new equipment for the medical center. We’re also pursuing grant and state aid as a way to fund programs.”  

Since the Great Recession, the Telluride Medical Center has not cut patient services. These services, Wesseling said, will not be cut in the future regardless of the projected deficits.

 

San Miguel Library District

The Wilkinson Public Library in Telluride, whose general fund is supported almost entirely of property taxes, is predicting sharp budget cuts starting in 2014, and is forecasting four years of annual deficits.  After an 11.4 percent decline in its budget in 2012 and 2013, the library is expecting to see an additional $348,000, or 15 percent, decline in 2014 and 2015.

Wilkinson, the busiest library per capita in Colorado, has already begun cutting costs and using reserve funds to manage the revenue shortfalls. In addition, the library has reduced staff for an annual savings of almost $93,000 and is delaying large maintenance and upkeep projects.

“The library has elected a very conservative fiscal approach,” said Library Director Barbara Brattin. “We’ve been stashing away money even before the recession began and have used these resources when necessary. We’ve also maintained a capital requirement policy which gives us breathing room during these tough times.”

While the library retains a monetary cushion, making decisions on how to spend the reserves is difficult.

“These past few years we’ve done nothing but rely on contingency plans,” Brattin added. “If anything, this is a testament to the importance of fiscal responsibility.”

Even while the library has experienced declining revenues, and will experience still more, Wilkinson has seen sustained growth in library usage.

“Discovering core services to offer patrons is a central goal of ours,” Brattin said. “We’re planning more focus groups, community forums and surveys to learn what the community wants from the library. Identifying core services will enable us to find opportunities to reduce costs on infrequently used services. We’re always open to feedback and input from the community as to what services are important to everyone.”

 

Samuel@watchnewspapers.com

 

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