Colorado, Summit County tourism industries face long, hard road to recovery
FRISCO — The past few months have told a tale of two Colorados. Before March, the state economy was booming. That includes Summit County and its ski and tourism industries, which saw one of the best seasons on record for snow and visitors last winter.
After a robust fiscal year of tax collection in 2019, Colorado had projected a tax revenue surplus, with refunds owed to taxpayers next year under the Taxpayer’s Bill of Rights provision of the Colorado Constitution.
And then COVID-19 arrived.
When it infected the state and country, it burned away over a decade of job growth and economic recovery. Lawmakers on the state’s Joint Budget Committee — such as Rep. Julie McCluskie, D-Dillon — expected very bad news for the latest economic forecast unveiled Tuesday by the Office of State Planning and Budget. But it turns out they underestimated how much damage the virus has done to Colorado.
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The state budget office presented a parade of economic horrors to the committee Tuesday morning. The highlights include how the state went from a surplus to a $3.3 billion shortfall that must be recouped by the next fiscal year, meaning huge budget cuts are going to be needed across the board. That is because of Colorado’s constitutional requirement for a balanced budget.
Luke Teater, the office’s deputy director for tax and economic development, presented an updated economic forecast for the state. One thing he made clear: The economy is definitely shrinking, and it’s most likely not going to recover any time soon.
“The speed and the depth of the economic contraction is unprecedented, and the path to recovery remains unknown,” Teater said.
One slide in his presentation showed how long it took for Colorado to recover job losses from the Great Recession in 2008 and compared it to the pandemic. Teater said the national employment level dropped by 14% through April, twice the number of jobs lost during the last recession.
“It took two years to recover the jobs lost back then,” Teater said. “We have reached that level in two months. The amount of job losses we have today is more comparable to a natural disaster than a recession.”
Teater threw out more sobering numbers. Over 400,000 Coloradans have applied for unemployment insurance claims since March, over 16% of the state’s employment base. The counties seeing the most job losses are in Colorado’s mountain and ski communities, including Summit, where over 21% of workers have filed for unemployment.
The state’s tourism and mining industries have been the hardest hit by the pandemic. Teater said tourism spending already began to fall below averages before March and then took a swan dive after Frisco recorded the state’s first COVID-19 case March 5.
“Tourism spending in March was at 80% to 90% below the spending a year ago,” Teater said. “We’re expecting the same or worse for April. We do not anticipate tourism will come back quickly.”
Teater pointed out that during the last recession, tourism spending in the state dropped over two years and took another two years to rebound to pre-recession levels. Teater said he expects the pandemic is going to come with a heavier blow and a longer recovery period than the four years it took last time.
“We anticipate the pandemic will more significantly reduce travel and tourism, and there will be a longer aftereffect from that,” Teater said.
The tourism dollars are tied to consumer spending, which Teater said dropped by 9% in March — the largest drop ever recorded. April is expected to be worse.
As far as projections for a recovery, Teater admitted that uncertainty was fogging any good idea of what the state economy will be doing past the spring and summer. He presented three scenarios that could play out.
One is a V-shaped recovery, which sees a sharp decline followed by a sharp recovery. This, Teater admitted, is looking less likely given the lack of progress toward a vaccine or effective treatment.
Another scenario, which the office believes is more likely, is a swoosh-shaped recovery, with a sharp decline followed by a short, sudden partial recovery, followed by a long road back to a full recovery by 2022 at the earliest.
But another forecast is much more bleak. That forecast is a W-shaped recovery that would see the sharp decline followed by a partial recovery before a second or multiple waves of outbreaks force another shutdown, thereby causing the economy to tank again. This is akin to a “double-dip recession,” such as the one experienced in the early 1980s.
“The primary reason for slow recovery is because the degree of recovery is entirely dependent on the degree of progress against the pandemic,” Teater said. “Businesses and consumers will resume normal activities very cautiously until they are convinced public health risk is minimized.”
The economy, Teater said, relies on medical breakthroughs, including a vaccine, an effective and quick testing strategy or an effective treatment. We have none of that now, and it is unknown when those solutions will come.
Another significant problem for the state economy is the uncertainty of how the federal government will respond. Relief measures, such as the Paycheck Protection Program for businesses as well as the unemployment expansion are set to expire in the coming weeks and months.
With at least half the federal government balking at extending these very expensive recovery programs, the state’s recovery could be stymied or stopped dead in its tracks. Current projections have the state’s unemployment insurance fund running out of money by June.
All of this dire information left McCluskie disturbed and saddened. She said the committee has been working around the clock to review decisions it made on the state’s budget from January through March.
“At that point, we had a forecast that we would have revenues above the TABOR cap, that the economy was thriving,” McCluskie said. “All of last week was spent revisiting those decisions. We are looking at cuts in every single department.”
Among the areas that likely will see the biggest budget cuts are the state’s tourism and marketing to the outside world — money used to attract visitors to Colorado ski resorts and mountain areas. Though no decisions have been finalized, it is expected the tourism budget will see an 80% to 90% cut due to the loss of casino gambling revenue since the shutdown started.
Other items expected to be cut include property tax breaks for seniors and veterans, which McCluskie said will save the state $160 million. The state also will be looking at deep cuts to the education budget, which could lose hundreds of millions of dollars. All of these cuts will be needed just to make up the $3.3 billion shortfall.
“It has been extremely challenging, and we want people to know how hard it is to face these budget cuts when they are things we value most, such as services for working families, public education and climate change,” McCluskie said. “We were making so much tremendous progress on issues, but now we are frozen in our tracks.”
McCluskie admitted she was personally demoralized by all the budget slashing legislators are having to do.
“Last week was a really emotional week for myself, and for many people, having to defund programs we really believe in,” McCluskie said. “But we know it is what we have to do. I can’t impress enough how hard this work is and how heartbreaking this work is.”
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