City manager warns of declining tax revenues

Laurie Kadrich

While local indicators point to economic recovery, Grand Junction City Manager Laurie Kadrich cautions that recent increases in sales tax collections likely won’t be the norm over the next 18 months.

In fact, Kadrich reminds residents the city forecast remains the same as it was last fall. There’ll be a promising increase in sales tax collections for the first half of 2011 compared to collections in the first half of 2010. But then, due to a slowdown in construction, sales tax collections for the second half of 2011 will be about the same as they were in the second half of 2010. And 2012 could look even worse.

“We have little or no projects for the third and fourth quarters of this year and none for 2012,” Kadrich said during a public seminar on city finances. “I’m pessimistic. Other people aren’t as pessimistic.”

Kadrich said a decrease in revenue for city government doesn’t necessarily mean private businesses and families will experience tougher times. Should members of households earn larger paychecks, save more money and obtain good returns on investments, they could find themselves in better financial shape in 2012 even as the city tightens its belt.

Kadrich acknowledged her forecast runs contrary to predictions from others in the Grand Valley. The results of a recent survey conducted by the Grand Junction Area Chamber of Commerce reflected an increase in optimism with more employers planning to hire people than lay off workers in coming months. There’s even disagreement over Kadrich’s prediction inside City Hall. City Finance Director  Jodi Romero believes improving consumer confidence will continue to spur local people to do more shopping and add to the city sales tax coffers the remainder of the year.

Kadrich told the audience at the seminar she hopes Romero is right. But a further slowdown in construction could exacerbate the problems for a county with an estimated 17 percent of the work force unemployed and an economy that has lost an estimated 10,000 jobs since 2008.

While the official unemployment rate in Mesa County was 9.9 percent in May, Kadrich and other local analysts say the percentage of adults out of work is higher.  The official unemployment rate counts only adults who are collecting unemployment insurance. It does not include people who haven’t filed for jobless benefits, people who no longer qualify for unemployment payments, students and the so-called underemployed.

Kadrich said the city itself has some underemployed workers who were hired to perform certain jobs, but were demoted and received pay cuts due to budget cuts over the past two years.

The city began to cut its budget during the first quarter of 2009 as declining sales tax revenues in the first quarter of that year confirmed the recession had hit the Grand Valley. The downturn has been drastic since then. Total government revenue locally has dropped 23 percent in two years. Sales and use tax revenues in 2010 were $12.5 million lower than in 2008. The $46 million in sales and use tax collections for last year was the lowest amount since $42 million was collected in 2005. The city now employs 10.67 workers for each 1,000 residents, compared to 13.66 employees for each 1,000 residents in 1988.

“In 2008, (Grand Junction Mayor) Gregg Palmer was on national TV because we were the best economy in the country,” Kadrich said. Robust energy and construction activity provided the country some positive financial news in the midst of a recession that began in 2007.

“We had a very good economy and then we had the recession,” Kadrich said. Since 2008, the loss of 10,000 jobs represents the largest proportional drop in the nation, Kadrich said. The number represents a loss of one out of every eight jobs in Mesa County.

Cuts at the local government level and at Mesa County School District 51 reflect the nationwide situation this year. Nationally, state and local governments eliminated 30,000 jobs in May, the seventh consecutive month of government layoffs. While the government and education sectors added jobs during the past few recessions, both sectors have been cutting jobs as the nation shifts funds to national health care reform and long-standing Medicare and Medicaid programs.

The Great Recession and ensuing soft economy have led to reduced numbers of people paying taxes and an increased number of people requesting tax-funded services. Government cuts have resulted in fewer government contracts for construction companies, which in turn leads to continued high unemployment in that sector. The jobless rate among construction workers in Mesa County is estimated at 17 percent to 20 percent at the Mesa County Workforce Center, where people must apply for jobs while receiving unemployment benefits. As Kadrich noted, government funded projects such as the 29 Road viaduct and the new downtown police station are the last major projects on the city list. In the private sector, the American Furniture Warehouse building near downtown is set to be completed late this year.

During a recent City Council retreat, Kadrich said council members urged her to move ahead with capital construction projects due to low cost of construction materials and a desire to put more people to work.

Capital projects over the past six years cost $291 million, while providing $500 million of local economic impact through wages and spending, Kadrich said. The expenditures included construction of the Riverside Parkway, which opened in 2008.

City Council also directed the administration to operate within existing revenue streams, to continue to provide such essential services as fire and police protection and to preserve $20 million in a rainy day fund, Kadrich said.

While the city delayed the paving of most city streets over the past two years, it will resume such work in 2012, Kadrich said. The recent delay saved $3 million in paving costs, with the city spending $600,000 on chip seal work as a stop-gap measure.

As the city crunches the budget numbers, it serves an ever-growing population even as tax revenues shrink. While the number of jobs also shrinks, the number of people living in the city does not. There are simply few places in the nation with an economic picture that’s brighter than the one in Grand Junction.

“Add the unemployment to the housing crisis, and we’re not seeing the mobility,” Kadrich said.