Searching for stimulus
Durango looks for the effects of the Economic Stimulus Act

The check-out lines bustle at Durango’s Walmart on Monday. Local economists and business people are currently trying to gauge the local effect of the Economic Stimulus Act. Regardless of the checks, local spending is crucial to the viability of the Durango economy./Photo by David Halterman

by Anna Thomas

It’s been more than a month since the last of the rebate checks were sent to the waiting hands of hard pressed American taxpayers. The Economic Stimulus Act of 2008 was intended to give a shot in the arm to a troubled economy. In a country where consumer spending accounts for more than two-thirds of economic growth, President Bush saw the move as putting “faith in the American people.”

To some, the $150 billion in tax rebates and small business incentives seemed more like a leap of that faith. In the light of the recent announcement by the Treasury Department that the federal budget deficit now amounts to more than $350 billion, double what it was a year ago, it’s fair to ask, was it worth it?

An antsy Congress is divided on the issue. In July, House Speaker Nancy Polosi and other Democrats introduced the idea of a second economic stimulus package. This round would include spending on infrastructure, theoretically stimulating job growth, mainly in the construction trade.

President Bush opposes a second stimulus package, taking a “wait-and-see” attitude about the first round. Addressing a coal industry trade association in July, Bush said,

“You can listen to these economists. ‘On the one hand,’ they’ll say, ‘…and then on the other hand.’ If they had three hands, it would be ‘…on the one hand, the second hand, and the third hand.’”

This little pearl of wisdom, however painful to admit, seems to be applicable to the “dismal science” of economics. Especially when skimming the marginal gains and losses with the fine-toothed comb that has been used of late to analyze the effects, or lack thereof, of the rebate checks. In short, the spin doctors have been hard at work on both sides.

The official White House website claims that “second-quarter growth is evidence that the President’s call for the bipartisan stimulus package was well-timed and properly sized.” Analyzing the same data set, the New York Times cited a decrease in consumer spending in June, the backbone of the rebates’ effect. Officially, the Commerce Department reported an unspectacular increase in July’s retail sales of 0.7 percent, which, regardless, was an increase of 2.7 percent over a year ago. Even Walmart, the mother of all discount chains, reported a disappointingly modest increase in July sales.

Most economists and politicians agree, though, that May and June saw the biggest effects at the cash register that would be felt all year. Most projections had dismal views of traditional windfalls of consumer spending, such as the back-to-school shopping season.

Recent news of the financial woes of Freddie Mac and Fannie Mae, the core of the American mortgage industry, does not do much to inspire consumer confidence. The companies saw a second-quarter loss of $821 million, compared to a profit of $729 million in the same quarter of 2007. Monday brought a 20 percent fall in stock prices.

So what does the broader economic picture hold for a small mountain town in Southwestern Colorado? “Right now, we won’t know, maybe not until everyone’s taxes are filed next April,” said Tino Sonora, Professor of Microeconomics at Fort Lewis College. “My guess is the spending that’s been done is over.”

Sonora said a major problem with a stimulus package of this type is that the purchase of imported goods, which he termed “leakages,” doesn’t put as much money into the economy as that spent on local goods and services. In short, all those DVD players, laptops and plasma TVs that were purchased with the rebate checks actually didn’t do as much for the economy as jetting on down to your local coffee shop would.

Zeroing in on what that means locally, Jack Llewellyn, director of the Durango Chamber of Commerce, explained that a major drain on Durango’s economy is the tradition of shopping in Farmington, as opposed to spending money in town.

“When you go across the border into Farmington, your tax dollars are lost,” said Llewellyn. “Tax dollars all generate to keep the quality of life how we want it.”

Without putting too much of a spin on the data, sales tax collected by the city in June and July in the Central Business and South Durango district differed from 2007 by only 1 percent. The South Durango district holds the major bigbox stores of Walmart, Home Depot, and Linens ’n’ Things. The No. 1 source for sales tax in June in both 2007 and 2008 was from department stores, followed by that from restaurants and taverns. “Forty-one percent of our tax revenue comes from South Durango (in June). Walmart accounts for about 25 percent of our sales tax revenue,” said Llewellyn. “Whether you love ’em or hate ’em, Walmart does fit a niche for our community.”

According to Sonora, lodger’s tax can also be a reliable economic indicator. While May saw a 14.7 percent increase in lodger’s tax over the previous year, Llewellyn said that most people who came to Durango this year as tourists saved money by doing inexpensive activities, as opposed to paying for train tickets or buying expensive souvenirs.

Region 9 Economic Development District of Southwestern Colorado recently published its Southwest Colorado Index, an analysis of data aimed at providing a synopsis of the region’s economic and demographic trends. On par with the nation’s housing predicament, Region 9 reported that the median home price in Durango rose 21 percent from 2003 to 2007, making Durango the most expensive place in the region to buy a home. However, 72 percent of Durango families made less than the qualifying income to buy a house in the town in which they lived.

In the post-housing bubble era, this is bad news. “We had no building permits pulled in the month of June for new residential starts, and we had one permit pulled in July,” said Llewellyn. “Usually those numbers are through the roof.”

In regards to President Bush’s reliance on consumer spending to stimulate economic growth, Sonora is worried.

“The U.S. economy has become more reliant on consumers to keep the economy sort of ticking along,” he said. “My worry is that as people have to increase their responsibility for the economy…people are holding onto a lot more debt than they used to.”

The national data seems to agree with Sonora. In June, consumer debt rose $14.3 billion, twice what economists had predicted.

So, was it worth it?

Sonora doesn’t think so. He termed the stimulus package “political” and suggested that it was a “bit of a waste” of money. “That’s a big fault with our system is that we have people with short-term goals that hurt us in the long term,” he said.

Llewellyn called the rebate checks a “drop in the bucket” when most people have a hard enough time just trying to make ends meet.

“Right now people are just trying to make hay while the sun shines,” said Llewellyn. •



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