Financial meltdown worries High Country
September 26, 2008
SUMMIT COUNTY, Colorado ” The national meltdown of the financial-services sector has some immediate and very real impacts on Summit County, local officials and business operators say.
From the ski resorts to the mom-and-pop shops, locals are beginning to feel the pinch and tightening belts as they anticipate the impacts of the economic crisis on tourism, the biggest driver of the local economy.
“There’s no doubt the overall economic climate has worsened significantly,” Vail Resorts CEO Rob Katz said Thursday during an earnings-report conference call. (See related story on Page A6.) Although the ski company posted record profits for the fifth straight year, it is bracing the fallout of the Wall Street debacle.
“Advance bookings through our central reservations and directly at our owned and managed properties are down 13 percent in sales dollars and down 17.7 percent in room nights over the same period last year,” Katz said. He noted that bookings to date represent only about 15 to 20 percent of the total bookings for the season.
Company officials, however, are confident that Vail’s strong balance sheet, with $162 million in cash and cash equivalents on hand, will enable the company to weather the economic storm and “remain opportunistic in these challenging times,” Katz said. He touted the unrestricted Epic Pass as an instrument that will continue to drive skier visits at Breckenridge, Keystone, Vail and Beaver Creek. But overall pass sales are down 8.4 percent from last year, he said.
“(We) have certainly begun to see the impact of the current economic softness during these unprecedented times,” Katz said, adding that it’s unclear whether consumers are delaying their purchasing or whether it’s an indicator of a visitation decline for the upcoming season.
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Addressing the resort company’s real-estate development plans ” which represent huge construction projects and later ongoing employment in the community ” Katz said the current downturn could affect the timing and revenue from those projects.
“Clearly, we are in an unprecedented environment for real estate and related financings, marked by significant volatility and uncertainty,” Katz said. “At this point, we do not expect to continually update our projections for the individual projects as market conditions continue to fluctuate, but may readdress them as the volatility subsides and we get closer to project deliveries.”
Trickle down to Main StreetFrisco resident Jim Rodkey, whose resume includes a long stint in the corporate world, anticipates that the ski resorts still will attract well-heeled visitors, but he wonders how Middle America will respond to the current economic climate.
“There are people who are financially insulated who will still come skiing,” said Rodkey, who more recently has weathered a few economic cycles as former owner of Rocky Mountain Coffee Roasters and also teaches business classes at Colorado Mountain College.
Some recent forecasts for the holiday shopping season have been gloomy, as consumers eye their investments and clamp down on their wallets. That same thinking may affect winter-vacation decisions, Rodkey said.
People aren’t likely to completely cancel their summer vacations, given that their kids are out of school. But winter ski trips rank lower on the discretionary scale, Rodkey said, suggesting that local resorts could see a drop in business this winter. Airline woes, including cuts in the number of flights and higher fares, are also factors in the winter season outlook, he said. Rodkey notes that almost everyone has been affected personally by the financial crisis. “I’ve watched my 401(k) drop $60,000 in value,” Rodkey said.
“Even people who are employed are feeling shaky about their jobs, their houses … It’s going to be a long winter. People are going to say: ‘Let’s wait it out.’ I don’t see people making big investments or spending freely.” Local economy a bright spotThe news is somewhat mixed on the local housing front. The real-estate sales volume is down, and some properties are lingering on the market.
Prices in some neighborhoods are holding steady, but in other parts of the county, they have dropped in the past few months. On the other hand, county building inspector Larry Renshaw said his department issued more building permits this year than last. The county does not track how many of those permits convert into actual housing starts, so it’s impossible to discern whether new construction has slowed. Local banks are in a different boat than the big national firms.
“We’re not experiencing any of the national issues,” said Alpine Bank regional president Larry Reavis. In the face of daunting national news, Reavis said it’s important for locals to remember that local commercial banks are very different from the large financial service providers that have been at the core of the problem.
“I think from a public-perception standpoint, people think all banks are the same. That’s not true,” Reavis said. “From where I’m sitting as president, our investments are all around Colorado, and they’re doing well in this market. You can’t eliminate risk, but you can manage it.”
Reavis said the problem is rooted in the fact that the large companies made risky, uninsured investments with no guarantee of return. When the return on those investments ran dry, the economic house of cards collapsed.
Alpine Bank will continue lending and selling mortgages to qualified customers, Reavis said, even describing the current situation as a “tremendous opportunity” for Alpine Mortgage. County investments shrinkingReturn on the county’s $10 million investment portfolio is down between 2 percent and 2.5 percent from last year, said county treasurer Bill Wallace.
The county’s money is invested with the Federal Home Loan Bank, the Federal Home Loan Mortgage Corp., the Federal Farmer’s Credit Board, Fannie Mae and in U.S. Treasury notes. General Electric stock is the sole commercial note in the portfolio. Return on U.S. Treasury notes is down from 4.79 percent in 2007 to an average of 2.27 percent this year. Last year, the interests on the county’s investments paid $705,000 in the first half of the year.
For the same period this year, return on the investments shrank to $439,000, Wallace said. Interest income from those investments is spread across the county’s budget. The biggest slice goes to the general fund, said finance director Marty Ferris. In the 2008 budget, Ferris projected allocating about $500,000 to the general fund from interest income.
Based on the latest figures, Ferris cut that amount to $400,000. “It just further erodes the fund balance,” Ferris said, adding that sales-tax revenue has been flat this year, not meeting projections of a 2 to 3 percent increase.
Some other communities around Colorado have reported 3 to 4 percent declines in sales tax revenue, Ferris said.
Wallace said he’s also personally feeling the effects of the national economic woes, especially the softening of the housing market and rising construction costs. His plans to sell his home and build an “energy independent” dwelling are on hold for now, pending a rebound in the market, Wallace said.
Bob Berwyn can be reached at (970) 331-5996, or at email@example.com.