Making the cuts: Steamboat grapples with economic fallout of COVID-19
STEAMBOAT SPRINGS — A sign posted at the entrance of Steamboat Springs City Hall lists a few of the impacts the city is facing under the COVID-19 pandemic.
Members of the public are not allowed to enter the building. Operating hours have been reduced. Programs and services are in flux with no clear resolution in sight.
While the community has recorded a relatively low number of COVID-19 cases, the measures to protect the public, from restricting travel to closing nonessential businesses to enforcing social distancing policies, are leading to widespread economic blows to local government.
During a virtual panel discussion Thursday, Steamboat officials discussed the changes to city services over the coming months due to COVID-19.
“The summer is looking pretty gloomy right now,” City Manager Gary Suiter said.
Thus far, the impacts on local government have not been as noticeable to residents compared to the public employees whose hours have been reduced and jobs reassigned under the first phase of budget cuts. That will change during this second phase as officials grapple with the economic fallout of the pandemic and further shrink budgets to address shortfalls.
“This is when things get real, and we start seeing service cuts and events getting canceled,” Suiter said.
Assessing the damage
Summer in Steamboat will not be its usual bustle of activity. Youth programs and many public events, including the city’s Fourth of July fireworks and laser shows, already have been put on the chopping block.
Races, concerts and other planned events— from the Steamboat Springs Pro Rodeo Series to the Steamboat Springs Free Summer Concerts — faced the same demise. These decisions came from the companies and nonprofits that organize these events, not the city itself.
“June is basically canceled. The jury is out on July and August,” Suiter said.
This reality is disappointing for people who planned to enjoy these activities. For the city, it raises questions of how to make up for the millions of dollars of lost revenue that comes from summer events and tourism.
What makes Steamboat particularly susceptible to the fallout of COVID-19 is its extensive dependence on sales tax for revenue. About two-thirds of the city’s general budget comes from the 4% tax levied on local goods, according to Suiter.
As of this year, the city levies a property tax — its first in 40 years — but the tax is nominal and earmarked for fire and emergency medical services.
Without events to bring people to businesses, and with restrictions still limiting lodging and restaurants, what typically is a vibrant flow of income this time of year has all but run dry.
“They just turned the spigot off on our main revenue source,” Suiter said.
The city is bracing for budget shortfalls of more than $10.5 million, according to Finance Director Kim Weber. Unlike the federal government, municipalities cannot run on a deficit. Revenues must match expenditures.
A $930,000 stimulus from the CARES Act fund has cushioned some of the blow, but local government must account for the rest of the revenue decrease.
The city is maintaining a healthy reserve fund, but officials are wary of using too much of that money with seven months of the year remaining and uncertainties still looming. So far, the city has used $2.8 million from its reserves, according to Weber.
“We have to be careful with that,” she said of the reserves. “We are in this for the long haul.”
To make up for the rest of the deficit, the city has made cuts to capital projects and operating costs.
In April, salaried employees saw a 10% pay decrease. Hourly employees went from working 40 hours per week to 36 hours per week, with furloughs for full-time staff. Many seasonal positions will not be filled. City offices now operate just four days of the week, closed on Fridays.
“These are tough decisions, but it’s a tough time,” Suiter said.
Departments with the biggest cuts
Departments within the city are thinning their workforce and services in reaction to the cuts. The Parks & Recreation and the Public Works departments have seen among the biggest hits.
“This is the largest budget reduction we have ever worked through,” said Parks and Recreation Director Angela Cosby.
In addition to the suspension of youth programs, the department is delaying adult sports until at least the end of summer. Without the funding to hire seasonal staff or contractors, current employees have been reassigned to do maintenance work, clean trash cans, mow lawns and complete other necessary duties.
Most of the cutbacks to Public Works have not been noticeable to the general public, according to Director Jon Snyder. They have included reductions in things like stormwater maintenance and guard rail repairs.
More obvious changes will come in the fall and winter when snowplowing and removal operations get reduced, Snyder said. It likely will take longer for plows to clear side streets and for city vehicles to maintain the berms of snow that build on the roadside.
Those effects extend at least until early December, according to Snyder.
Steamboat Springs Transit has been one area that Public Works has committed to maintaining so necessary workers can get to and from their jobs.
“We were putting in a herculean effort to keep those buses clean and keep our people safe,” Snyder said.
But with reduced ridership, it is costing the city more money per passenger to operate the free bus service, according to Suiter. The cost per passenger is up 161% compared to last summer, the city manager said in a report to Steamboat Springs City Council on Tuesday.
On the bright side, “there has never been a better time to do road work,” Snyder said, pointing to projects like the Butcherknife floodplain construction along Seventh Street that has been accelerated due to reduced traffic.
Lessons from previous recessions
When economists describe a recession, defined as a significant decline in economic activity that lasts more than a few months, they typically graph the trajectory using one of four letters: V, U, W and L. For example, the Great Recession followed a V shape, in which economic activity suffered a sharp decline but was able to rebound at a slow but steady pace.
While the effects of the current crisis will be clearest in hindsight, the current state of things is largely indicative of an L-shaped recession, according to Suiter. Economic activity plummeted in a matter of days following the statewide stay-at-home order in March, and there has been little improvement in growth since.
Looking to the coming months, many economists believe that an L-shaped recession can be avoided as long as the recovery phases continue and the country does not see a resurgence of the virus, which could lead to a second round of shutdowns.
“I am too optimistic about the world to predict an L-shaped recovery,” Jim Cahn, chief investment officer for the Wealth Enhancement Group, a nationwide wealth management firm, told Forbes. “Expanding productivity, a well-trained workforce, rule of law and efficient capital markets are still intact, which will drive growth long into the future.”
As Suiter acknowledged, this would not be the first recession he has weathered. The past experiences have shown that the effects are temporary and Steamboat will experience financial growth once again.
“The economy will recover. It always does. It’s just a matter of how long it is going to take,” he said.
One of the biggest lessons past recessions have taught Suiter is that a rapid response is one of the most effective ways to mitigate the consequences. That mindset points to why the city acted so swiftly to cut costs and to keep expenses low in the months ahead.
“These were very difficult decisions, but experience has dictated that we have to be out in front of this,” Suiter said.
Plans for recovery
Despite the long list of reductions, cancellations and postponements, in other ways, the city already is showing signs of recovery. Recreation areas like skate parks and the volleyball and tennis courts at Howelsen Hill have reopened.
Employees are busy with trail maintenance as the melting snow opens opportunities for hiking and biking. Some local volunteers are helping with those efforts, including the Steamboat Rugby Club that helped to clean Emerald Mountain of debris from the Winter Carnival fireworks show.
As for plans to revitalize the rest of the city’s operations, much remains unclear. Future revenues, particularly from sales tax, largely will dictate the local government’s recovery. Even with growth in revenue, returning to business as usual is not so simple as just flipping a switch.
“It’s one thing to cut these services. It’s another thing to dial these things back up again,” Suiter said.
The expected update from Gov. Jared Polis on Monday regarding the timeline of the safer-at-home phase should shed more light on future expectations. His announcements could lead to the reopening of restaurants and ski resorts and to the loosening of other restrictions, which would help revitalize the local economy.
Until then, Suiter urges the community to continue practicing health guidelines like wearing a mask at businesses and maintaining social distance.
“This is a collective effort,” he said. “We need to band together to beat this thing.”
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