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As a child, I loved storms. I loved the calm before the storm, when the air grew heavy and ripe with the smell of rain. I loved the thunder and lightning, and the sound of rain beating on the roof. Afterwards, I loved splashing in the water that pooled in the streets and up onto the sidewalks and yards. Storms brought chaos, and chaos was cool.
There’s a storm coming now, but it’s not the cool kind. In June, the current period of economic expansion in the United States will hit 10 years, tying for the longest ever. But booms don’t last forever, and this one has already begun to cloud over. Locally, there are signs that the real estate market is cooling. Sales in 2018 grew about 2% over 2019, compared to growth of 16% and 20% the previous two years. In the first quarter of 2019, sales were 25% lower than in the first quarter of 2018.
Real estate sales touch San Juan County government in the real estate excise taxes (REET) that fund the Land Bank, the County’s capital reserves, and the new Home Fund. REET has been growing at double-digit rates since 2014, including almost 12% in 2018. Revenue in 2019 was off to a slow start, though, reflecting the downtown in local real estate sales. Planning and permitting fees, which are similarly related to the economy, showed the same cooling, dropping in the first quarter of 2019 to their lowest point since 2013.
Two other important sources of revenue for San Juan County are sales tax and its subset, lodging tax. Sales tax has exhibited remarkable growth over the last few years, increasing by 8% to 16% annually from 2013 to 2017. All signs indicate that it is still growing, but the rate of growth has slowed, down to just under 4% for 2018. So far, it looks like 2019 is also off to a sluggish start. That slowdown may be because the islands have hit their capacity for taxable sales, or it may be because consumer buying and traveling are cooling off.
On the sunny side, although general sales tax was performing barely at budget, lodging tax was well above. At the end of the first quarter, lodging tax was projecting a year-end finish 10% above budget. By the end of April, that number had stretched to 17% above budget.
Interest income, though it’s a small part of Current Expense revenue, is also performing well above expectations. Unfortunately, that income is reflective of higher interest rates, which is a good barometer for a bad economy. As interest rates rise, people are less able to borrow for homes or businesses, causing the economy to slow.
The sky is not falling. First quarter revenue is notoriously volatile and can be heavily influenced by weather or other events. Construction is still thriving and real estate sales are down largely because inventory is down. Most County revenue sources are stable or growing. At worst, signals are mixed.
Still, there’s something in the air, and one would be wise to prepare oneself for what might be coming. The County has been doing that ever since the last recession. We now have a “rainy day fund” that will ease the decline, if a decline occurs. Because sooner or later, a storm will come.
Sadly, I’m not a child anymore. As a grownup, instead of playing in the water, I have to cover the windows and clear the slash. So let’s hope the next storm is a lot milder than the last.