A funny thing happened when the downvalley communities of Eagle and Gypsum girded themselves for the financial impact of the COVID-19 global pandemic.
While the towns braced themselves for massive sales tax revenue hits, locals apparently went shopping. As a result, both Eagle and Gypsum are reporting increases in their sales tax numbers through the first half of 2020.
A court ruling in 2018 has a lot to do with those figures. In the South Dakota versus Wayfair decision, the U.S. Supreme Court ruled that municipalities could collect sales tax on online purchases. That was a game-changer for communities such as Eagle and Gypsum, which have limited brick-and-mortar shopping options and have, for decades, battled a problem called leakage — residents spending their money outside of the communities where they live.
“I would say with confidence that the Wayfair decision solved a lot of our issues with leakage,” said Eagle Town Manager Brandy Reitter. “The benefit of being a year-round community, especially during a downturn, is that maybe instead of going to Glenwood to Target or Avon to Home Depot, you just stayed at home and ordered it online.”
Gypsum Town Manager Jeremy Rietmann figures the impact of the Wayfair decision roughly equates to the impact of having one more, large retailer in the community,.
“COVID is a leakage stopper because everyone is terrified to go anywhere,” he said. “Buy I don’t know if that’s the way I would have preferred to stop leakage.”
During the first three months of 2020, the town of Eagle saw sales tax revenues jump 25% over 2019 figures. During the second quarter, which ended in June, revenues were up 23% over last year. Dollarwise, that equates to collections of $3.076 million this year compared to $2.480 last year.
But not all the revenue news in Eagle is as cheery.
“All our other revenues are down significantly,” Reitter said, pointing to lodging tax, building feeds and other collections. “With sales tax being up, it will offset some of those losses.”
Higher sales tax collections will also forestall big budget cuts. Reitter noted that right now, the plan is to keep a solid amount of money in reserve — upwards of 30% of expenditures — and maintain current staffing and services. There is still a lot of financial uncertainty on the horizon for the rest of 2020 and into 2021.
“There is a lot of federal stimulus money that has propped up our economy and we all know they are having a tough time figuring out the next step there,” Reitter said. “This isn’t like the 2008 Recession. This is different. We are all kind of reacting to it and doing the best we can.”
‘It’s all fine, until its not’
In Gypsum, sales tax numbers for the first half of 2020 are up 9.85%. The town brought in $3.86 million through June of this year compared to $3.52 million during the same period of time in 2019.
The numbers are also very strong for Gypsum’s other chief revenue source — the real estate transfer tax. Rietmann said that with just under 60% of the year completed, real estate transfer tax receipts total just over 73% of the amount of money the town budgeted for 2020.
“Now that we have been through a few months of this, we are not surprised by the collections right now, because of the types of retail we have in town,” Rietmann said. “We still have concerns about the operations at the airport this winter and we know that will put some downward pressure on our budget. The million dollar question is how much?”
“It’s obvious we are going into an extended period of economic uncertainty,” Rietmann added. “For 2021, we are going to try to be very thoughtful with our spending.”
Like Eagle, Gypsum has a lot of money in reserve right now — 46.8% or $4.1 million. “That is the highest, to my knowledge, we have ever had,” said Rietmann. “It is our obligation, as we go along, to make sure we steward that money well for our taxpayers.”
Having a healthy reserve means the town can be nimble, he noted. “It’s all fine, until its not. This is a very unclear time and being nimble is just really important,” Rietmann said.
For now, the town is anxious to see July revenues from the Eagle County Regional Airport. “That may give us a hint for winter,” Reitmann said. “Our biggest revenue months out at the airport are January, February and March. We know there will be some revenue loss out there, we just don’t know how big it will be.”
No more predictions for Eagle County
Even Eagle County, where sales tax numbers are heavily weighted by collections in the upvalley resort communities hit hard by COVID-19, has gotten better news than expected. While sales tax revenues for the first six months are 5% below budget — $8.5 million actual compared to $8.9 budgeted — collections during June were 1.5% higher than collections in June 2019.
“We really thought there would be a 10% to 15% revenue drop across the board,” said Eagle County Finance Director Jill Klosterman. “We didn’t know what to expect. Would people be comfortable traveling? Would they choose Eagle County as a destination? The answers are yes, they are comfortable and they are choosing Eagle County.”
Along with strong early summer sales tax collections, Klosterman noted the local real estate market is doing well. The strength of local home sales may be a side impact of COVID-19 with long-term repercussions, she said.
“What is the impact to Eagle County if more people are working remotely?” Klosterman said. “Forever, Eagle County has looked to how it could to diversify its economy. Maybe it will happen through remote work.”
Overall, Klosterman said the county has taken a $3 million hit to revenues tied to the pandemic. But the county has also received federal funding to offset those hits. Looking forward to the 2021 county budget, Klosterman also plans for healthy reserves and status quo spending.
“We are not planning mass layoffs for 2021, but we will continue to look at all programs. “We are going to look very carefully to make sure we can manage the core services we do. But I am sleeping much better than I did in April. We have really strong reserves.”
“The ski season will be the big unknown,” Klosterman continued. She noted that Eagle County traditionally sees its highest sales tax collections during the months of July, December and January through March.
“I have sworn off making predictions for now,” Klosterman said.
Reitter isn’t making predictions either. “This whole thing is weird, because we have 20 percent unemployment, but sales tax is up for a lot of areas.”
”We aren’t where we were, economically before March,” Reitter added. “It’s not as bad up here as we originally thought is would be. But 2020 is definitely a year we don’t want to go through again.”