Are sales tax dollars leaking out of Eagle?
May 6, 2012
EAGLE – The word is “leakage” and it has nothing to do with plumbing.
Rather, leakage is a term associated with sales tax revenue and it refers to the amount of shopping people do outside of the communities where they live.
Why is such behavior important enough to warrant its own terminology? Because sales tax revenue drives municipal budgets across the state. Municipal officials hope that people purchase goods and services in the towns where they reside so that, in turn, the sales tax applied to those purchases can be spent where the consumers live.
In Eagle, sales tax revenue in 2011 made up 58 percent of the community’s operating budget. That trend is forecast to continue in 2012. And while the sales tax revenue in Eagle has grown as the community’s population has increased, the rate of sales tax leakage has actually become more pronounced as Eagle has gotten larger.
Figures from the 2000 and 2010 census show that Eagle grew by 114 percent in terms of population. However, figures from the town concerning sales tax growth from 2003 to 2011 show an increase of only 22 percent. That means while there are more people in town, that larger population base is choosing to spend a larger percentage of its money outside of Eagle.
“The town has grown faster in residential population than employment opportunities, business growth and sales tax,” said Eagle Town Manager Willy Powell.
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“In order for the town to be economically sustainable, it is imperative the town both expand its jobs base and retain more of its residents’ disposable income by having them spend it with local businesses,” said Powell.
Eagle, like municipalities everywhere, wants people to stay home to shop. Since the 2008 national economic downturn, there has been an increased push to “buy locally” in communities across the country. Eagle is no different. Last year its residents approved a $2 per room per night lodging fee to fund marketing and events efforts and increase sales tax dollars.
And, of course, there is the Eagle River Station proposal on the horizon. Eagle River Station is a commercial-residential project proposed by Trinity RED Development on the eastern end of town, south of Interstate 70 and north of U.S. Highway 6. The 88-acre property would include 582,000 square feet of commercial space and 250 rental units in the first phase. The second phase calls for up to 150,000 square feet of additional commercial space and another 300 rental units. The project’s fate will be decided by Eagle voters in a special referendum May 22.
Proponents say that the project will stem Eagle’s leakage problem by providing residents with increased shopping options. Financial estimates compiled by Eagle River Station say the project could bring in as much as $3 million in additional annual sales tax revenues for Eagle. Opponents say the project is too large and would siphon shoppers from longtime Eagle businesses and thus fail to produce the promised revenue increases. They also argue that Eagle can address its sales tax needs through other avenues including revenue sharing with Gypsum.
“Of course sales tax is extremely important but considering it to be the only the only answer to Eagle’s revenue sources is a very narrow view of town finances,” said Eagle Mayor Yuri Kostick.
“The statement I hear often in town – sales tax is king – is not a bad statement, it just doesn’t tell the whole story. The town needs to try as many different things as possible to increase its revenue.”
Kostick, who was the only member of the Eagle Town Board to vote against the ERS proposal this spring, argued a small-scale example would be to review the cost of services the town provides and find ways to deliver these services at a lower cost. He also cited the lodging tax, which isn’t paid by Eagle taxpayers but provides $100,000 per year to fund marketing and events.
“On a large scale, plans are being made right now to fix Eagle’s traffic problem at Eby Creek road in 2014. The majority of funds for this $14 million project will come from state and federal dollars – not from Eagle sales tax dollars,” Kostick said.
During the recent Eagle Town Board election campaign, Kostick referred to a “silver buckshot” approach to increasing Eagle’s revenues. He said there isn’t a single solution – a silver bullet approach – that could address the issue, but rather promoted a comprehensive effort that would employ many strategies toward the goal.
Eagle Town Board member Scott Turnipseed agrees with the silver buckshot approach. However, he also believes that approval of the ERS proposal is a key element of that idea.
“The fact is that people in Eagle can’t buy everything they need from the businesses that currently exist here,” Turnipseed said. “That means they have to go out of town to purchase those items, and then they are paying for Glenwood’s parks or Gypsum’s roads. We need to provide them with the opportunity to support Eagle’s amenities.”
During the ERS debate this spring, City Market’s long-term plans for the community have been hotly debated. City Market officials have gone on record to say they like the store’s current Eagle location, which the company owns, and that they are not “actively pursuing” a relocation at this time. However, company officials also have noted the Eagle site is constrained for future store expansion and that City Market is always looking at site alternatives for any of its stores.
Turnipseed said the City Market debate highlights a central problem for Eagle. That single business is responsible for approximately 40 percent of the town’s sales tax revenue.
“That’s the opposite of a silver buckshot approach,” he said. “That’s an example of putting all your eggs in one basket. The way the situation exists today, Eagle is way too dependent on the fortunes of a single business and by expanding the sales tax base with ERS, the community will actually take a buckshot approach to expanding its sales tax revenues.”
When questioned about the sales tax scenario in Eagle, Kostick took issue with the idea that the community’s leakage issue is worsening.
“Of course the height of the most over-inflated market and the peak of the most massive construction boom will have higher sales tax dollars because we are now in a recession,” he said. “The town needs to try and do everything it can to increase sales tax collections but comparing today to the peak of the market is not the most informative exercise.”
Eagle, obviously, is not the only community in the nation, state or Western Slope to feel the effects of the recession. But the numbers indicate it has seen a larger gap between population increases and sales tax revenues than some of its neighbors.
“Rifle saw a massive sales tax increase during the recession, and it primarily had to do with the regional retail it added next to Interstate 70,” said Turnipseed. “It’s more than just Wal-Mart, it is a whole bunch of additional businesses that have sprung up in that community. The sales tax growth in Rifle clearly demonstrates what the addition of regional retail along I-70 could mean for Eagle’s long-term financial future.”