How Are We Doing: A Year Like No Other

Milene Henley – Contributed photo

This year began like any other – a little too cold, a little too wet; but quiet, mostly devoid of tourists, and still the sleepy little island community we are used to. Then news spread of a virus on the other side of the world. In late January, the disease hit the US, in Washington State. On the last day of February, the first US death occurred, again in Washington. In mid-March, the Governor closed most businesses and told us to stay home.

For County revenues, the year also began like any other. Early sales tax reflected a good fall and winter; permitting and planning revenues were ramping up for a new year; and properties continued to sell and bring in excise taxes. If one lived in a cave and had no idea what was going on, one might look at the data and see nothing that suggests a coming recession.

More recent data show otherwise, primarily because of delayed sales tax reporting. Sales tax is paid by the consumer in any given month – January, for example. Most businesses report the revenue in the following month – February. Then in March, sales tax is distributed by the state to the cities and counties in which the sales activity took place. Effectively, sales tax revenue received in March was generated in January.

Sales tax revenue to San Juan County through April (February sales) was flat, compared to the previous year. May sales tax data, however, shows an 8% reduction compared to the same period last year. May sales tax revenue was generated in March, a month in which retail establishments were open for half the month. June sales tax will be reduced even more, as it will be the first generated in a month (April) in which most businesses were closed all month. By year-end, a 20% reduction compared to 2019 is likely.

Unlike sales tax, real estate excise tax (REET), which is a tax on the sales of real property, is reported in the same month it is received. In January, February, and March, REET revenue exceeded the previous year’s revenue. In April, it dipped 44% compared to 2019, to 2015 levels. The same dip was reported at the state level. Permitting and planning revenue, which is another revenue tied to real property, was higher through April than in 2019, but lower than in each of 2016, 2017, and 2018.

The County Roads Fund is suffering from the lack of travel. Motor vehicle fuel tax, like sales tax, is distributed two months after receipt. The distribution for May was 46% less than projected. A 19% reduction is projected for all of 2020.

The County’s most stable source of funding, property tax, remains collectible and is coming in as budgeted. At the opposite end of the spectrum, lodging tax fell off the face of the earth in April. Even with transient accommodations opening partially in June and probably fully in July, lodging tax revenue is likely to come back slowly, as lingering fears keep visitors home.

The Great Recession of 2007-2009 came on gradually, organically. For years, mainstream economists had predicted the collapse of the housing loan pyramid. By contrast, the COVID-driven recession came on suddenly and without warning. My hope is that what appeared suddenly will disappear as quickly, and what began as a year like any other will become a year like no other. My fear is another great recession. Stay tuned.

You can support the San Juan Update by doing business with our loyal advertisers, and by making a one-time contribution or a recurring donation.