Tough times offer opportunity for Eagle County
EAGLE COUNTY ” Recently pundits, politicians, economists (amateurs and professionals), journalists and candidates have made attempts to explain and analyze the state of our economy, including Eagle County’s.
I had the privilege to see and hear explanations from the following: Thomas Hoenig, president of the 10th District of Federal Reserve Bank system; Peter Wallison, American Enterprise Institute fellow and former chief counsel for the Treasury Department; Nariman Behravesh, chief economist for Global Insight; and several others, in person and on TV.
The message, though sobering, was common among the economists. Things are not well, but are not as bad as the media have predicted. We are not headed into a depression but into a serious recession that could take until 2010 to recover.
According to Mr. Behravesh, growth is not the enemy. Growth is good, in fact. An economy survives on growth. During the next few months, or possibly a year or two, however, growth will not be the driving engine for Eagle County.
A key to survival for citizens and government is liquidity. Cash is king and liquidity requires spending be curtailed.
Subprime mortgages are a thing of the past. In a private conversation, Mr. Behravesh told me he believes that any incentives offered to residential properties buyers by governments, or by mortgage companies, should be eliminated. It suckers young people who don’t have the current capacity to buy a home into purchases they can’t afford. With incomes threatened, foreclosures or bailouts frequently result. Few who default ever fully recover.
Incentives to avoid are downpayment assistance loans, low down payments (less than 20 percent), monthly payments (including insurance, property taxes, etc.) for more than 30 percent of the borrower’s spendable income, and extended terms.
Mr. Behravesh further believes that resale price controls and rent controls will lead to future economic problems and should be avoided in any market, not just Eagle County. There are no long term examples where price controls have worked.
Mr. Hoenig’s remarks didn’t give me the feeling that he had a feel for the pulse of the current economic situation and whether the bailout will be successful. I was disappointed.
Mr. Wallison gave the best recap of the historical events leading to the current crisis which has roots in the Carter Administration. There were “redlining” threats pressuring banks to ease lending requirements on home mortgages, or else.
How does this national crisis affect Eagle County?
Here are some facts:
n Winter reservation bookings are down, so far.
n Air reservations are down.
n Employee layoffs are increasing and fewer jobs, if any, are being scheduled for the year.
n Construction, except completing existing jobs, is being postponed.
n Lending is tight, even to those with good credit.
n The stock market has seriously depleted 401k’s and stock portfolios. That affects confidence and discretionary spending.
n Gas prices are off their highest levels, but are still a problem.
n Demographic changes may affect ski resorts’ future customers.
What may result?
n Lower sales tax revenues for the county and towns.
n Lower building permits and fees, thus less County revenue.
n Increased vacancies as lay offs reduce demand for all housing, including affordable housing, rental demand will increase.
n A possible reduction in migrant employees as they seek employment elsewhere.
n If Eagle County doesn’t curtail spending, taxes will be raised for State mandated services and staff payroll, at a time when citizens are hurting. Discretionary spending must be eliminated
n It may be time for Vail Resorts, followed by the Eagle Valley, to consider reinventing itself … again.
n Hard times mean increased police and social services costs. We must be prepared.
This offers a powerful opportunity for Eagle County, however. It is not a time for panic.
If the county makes proper adjustments, we can use this time to take a deep breath and re-evaluate our priorities. The county can solicit public input, establish goals for the future, and return the county to a sound financial footing.
Dick Gustafson is a Republican candidate for county commissioner who is running against incumbent Democrat Peter Runyon.
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