Indicators positive for Steamboat Springs sales tax sources

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— The city of Steamboat Springs is banking the extra money from sales tax revenues that are outpacing budgeted amounts, and sales tax gains could continue into the next year as indicators are positive for key contributing sources.

Local economist and Steamboat Springs City Council member Scott Ford recently revisited an analysis of the sources of the city’s sales tax and broke it down into three groups: local population, non-lodging visitor spending and lodging.

Tax collections from residents and lodging were down in 2012, the full year of data available, compared to 2008, but consumer confidence bodes well for local spending, and lodging prices already are marching back upward.

Using the sales tax collections during shoulder months, Ford subtracted lodging to estimate the average level of spending by residents. The local population accounted for between 62 and 65 percent of total sales tax collections, according to Ford, looking back as far as 2007.

The city’s collections in 2012 were 12 percent lower than the boom year of 2008, with 13 percent of that decline caused by a decrease in spending by the local population.

Ford said Thursday that he compared the changes in resident spending to the Gallup U.S. Consumer Spending survey and found a high level of correlation between what Americans reported they’d spent the previous day and changes in the level of sales tax collections attributable to the local population in Steamboat.

From 2008 to 2012, the Gallup survey showed about a 20 percent decline in the average amount respondents said they’d spent the previous day, from $90.26 to $70.74.

The smaller drop in local spending than Gallup’s national figure likely is because of Steamboat’s relative affluence, according to Ford. To date for 2013, Gallup’s national average daily spending survey is trending more than 4 percent above 2012.

Ford’s analysis also showed tax collections from lodging as being down about 22 percent in 2012 compared to 2008.

That decline likely is a mix of fewer visitors in Steamboat and visitors paying less on average for lodging.

About 26 percent fewer people boarded planes at Yampa Valley Regional Airport in 2012 than in 2008, but according to Ford, the amount that visitors spent unrelated to lodging was 3 percent higher in 2012 than in 2008.

Tax collections for Steamboat run counter to national tourism trends, according to the Bureau of Economic Analysis. The most recent release of tourism data showed accommodations spending at its highest point in more than a decade in 2012 while food service, entertainment and shopping have not fully recovered to 2008 levels.

Scott Marr, owner of the Holiday Inn of Steamboat Springs, said that rates and visitors fell for a couple years after 2008 but that by 2012, the average room rate for his hotel had recovered and surpassed 2008.

Larry Mashaw, vice president of sales and marketing for Resort Group, said that different markets such as hotel rooms and condos behave differently but, in general, rates can drop precipitously after major events like 9/11 and the most recent financial crisis and take a long time to crawl back up.

Mashaw said he’s “fairly confident” that the lodging sector is going to continue to see year-over-year improvement.

To reach Michael Schrantz, call 970-871-4206, email mschrantz@SteamboatToday.com or follow him on Twitter @MLSchrantz

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Comments

Scott Wedel 9 months, 2 weeks ago

So where is Scott Ford's report so extensively reported in this article?

Are any of the numbers corrected for inflation? Comparing same numbers now vs 2008 should take into consideration 5 years of inflation which is not zero over 5 years.

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Scott Ford 9 months, 2 weeks ago

Hi Scott - I will put the report I did and the MS-Excel workbook used for the analysis into my Public DropBox folder. I will do this when I get back to my office at the house. Anyone else that would like to see this information just use the "Reply" button in the lower left of this posting and give me an email address you would like me to use.

In addition, Scott W. is correct in pointing out that numbers referenced has not been adjusted for inflation. It is relatively easy to make these adjustments. I need to modify the CPI to exclude items such as Health Care, fuel, personal services, etc. so we have a basis of comparison of equal items.

The purpose of the analysis was not report on growth but the allocation of sources of City . sales tax collections. The key take away for me from the analysis is that the "Local Population" is accounting for at least 65% of City sales tax collections annually. Visitor's share (35%) pre-recession were roughly roughly split equally between sales tax collected on retail & food/beverage and lodging. Through the recession - lodging's share of sales tax dollars declined - and yet the visitor's share likely identified with retail and food & beverage remained relatively consistant.

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Scott Wedel 9 months, 2 weeks ago

Where is your Public Dropbox folder?

I am also interested in the methodology for separating locals vs tourists by using the low tourism shoulder months. While LNBs are probably largely independent of tourism, service worker income is highly dependent upon tourism.

So does your model imply that tourism has zero economic multiplicative effect?

Hmm, or maybe this model of using the big seasonal variations in lodging taxes correlated against sales tax receipts allows calculating the multiplicative effect of SB tourism. There is fairly good data on how much tourists spend. So we can have a pretty good idea of how much the added sales tax collected during tourism season is due to direct tourist spending. Thus, presumably the difference in baseline local spending between shoulder season and tourist season is attributable to the multiplicative effect of tourism.

A calculated multiplicative economic effect for tourism would also be a critical number to consider when looking at allocation of resources. If the multiplicative effect is much smaller than claimed then spending money promoting tourism is not being recovered locally in additional economic activity.

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Scott Ford 9 months, 1 week ago

Hi Scott - The analysis done on Sources of City Sales Tax can best be described as “quick-n-dirty” high summary level. As with any analysis of this type – there is always more that can be done. This analysis did not do the impact of the direct/indirect/induced impact attributed to local workforce local spending would have on City sales tax collections.

Last summer I did a 4-part series in the Valley Voice that looked at tourism (very broadly defined) as a source of household income and as a source of employment. Again at a high level tourism locally likely accounts for 20% +/- as a source of household income and 30% +/- of employment.

Fundamentally we live in the house that tourism built. Tourism is an amalgamation of industry sector whose impact encompasses (Accommodations/food services, Arts, Recreation and Entertainment, Real Estate and Retail Trade). For Steamboat Springs and all of the Yampa Valley, tourisms (past/present/future) is very important. However, we are much more than just a tourism economy.

In my discussion regarding the local economy I try and avoid qualitative assessments. Discussions that place a value judgment that one industry sector in the local economy is more important than another is a wee-bit silly. The local economy measured in terms of sources of household income (labor and non-labor) and employment both wage/salary and self-employment are wonderfully interconnected.

BTW - Sent the source files of the analysis to you.

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Scott Wedel 9 months, 1 week ago

Scott Ford,

I note how often the multiplier effect is used to justify the city subsidizing tourism. Thus, it is argued that not only the spending will attract tourists bringing X dollars, but that the multiplier effect of money being spent in one place will then be spent in another place, then another and so on. Thus, it is argued that the city subsidy doesn't boost the local by X tourism dollars, but by 5 X or whatever multiplier effect the applicants wish to claim.

But it would seem that someone could use this data to derive a reasonable estimate for what is the multiplier effect. The size of the multiplier effect suggests the break even point of how much money it is worth to spend subsidizing to attract each tourist.

Some city subsidizes such as the summer concert are for locally popular events. Thus, city may decide to continue funding even if it doesn't have nearly as large of a beneficial economic impact as what has historically claimed.

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Scott Ford 9 months, 1 week ago

Hi Scott W – In conjunction with the “Shop Local” campaign Tracey Barnett made the statement to the Pilot that a dollar spent locally turns over 3 to 4 times (multiplier). When I met with Tracey and challenged this figure – she cited that that is what she had read in some national Main Street publication. A multiplier of 3 or 4 times is total BALOONEY! Depending on the industry sector a case could be made that a dollar spent locally, optimistically might have a multiplier of 0.5 to 0.8. Let say $100 is spent on a winter coat. Let’s say that dollar was spent with a retailer owned locally vs. chain and that business was organized as a sole proprietor. On average nationally the labor cost for this business is going to be about 20% of sales. Now in this example $20 would be paid in gross wages/salary. Less taxes at about 17% would leave about $16.50 of disposable income. Based on BLS consumer expenditure data and the Routt County Consumer Preference Study (leakage) optimistically about 40% of this would be spend locally. So the very first turn of this dollar would result in $6.60. So out of $100 only $6.60 would be re-spent locally by the employees.
Now the business itself will have overhead including such items advertising, insurance, rent, utilities, etc. This is likely in the 25 to 30 pct. range. Not all that much is left over as profit. For $100 spent locally, less: ($50 for COGS+$20 Labor+$25 overhead) $5.00 profit before taxes. How much of overhead is spent locally? It all depends – but let’s for discussion 50% of it is. In addition, let’s assume that the owner’s $5 profit mirrors that of the employees spending. So, optimistically here is how much of $100 spent in a retail establishment based on these assumptions would be multiplied. First Turn in this retail establishment = $20.66 ($6.60+$12.50+$1.660) or 0.2066 Second Turn (assuming the $20.66 was spent in exactly the same way the result would be $20.66 x .2066 = $4.26. Assuming that the third turn was spent exactly the same way would be $4.26 x .2066 = $0.88. The fourth turn (we are getting silly now) would result in $0.18. So $100 spent locally at a locally owned retailer results in about $26 of local res-spending. Or, a multiplier of .26 (not 3.0 or 4.0)! If this spending were to occur at an auto repair shop or a health care provider the multiplier increases because of higher wages.
Obviously there are a host of variables to account for ranging from the industry sector, ownership, overhead, etc. Simply put, every situation is different depending on the circumstances.

To do things simply because they generate City sales tax dollars can be dangerous economic waters to venture into.

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