Wednesday, May 14, 2008

Economic growth is an illusion in Ketchum

The economic boom in the Wood River Valley in recent years is partly an illusion.

As mega-mansions and other residential structures sprouted up in the valley over the years, they made it look wealthy and prosperous. Construction boomed, the population grew by 19 percent in 10 years, and traffic congestion became the norm.

Even so, many north-county business owners nearly scratched their heads bald wondering why their businesses didn't seem better off and why they lived season to season in a state of high anxiety.

They puzzled over the common wisdom that growth in recreation-dependent businesses is similar to growth in the construction industry.

Turns out, the common wisdom is false.

The proof is in local-option sales tax receipts, which track business trends in Ketchum.

To compare apples to apples, we looked back at 18 years of Ketchum's local-option sales tax receipts between 1988-89 and 2006-07. The city collects taxes on retail sales, rooms, condominium rentals, liquor and building materials.

To find out what happened with spending outside the construction industry, we threw out the building materials taxes and adjusted 2006-07 tax receipts for inflation using the Web site

The results confirm the suspicions of the puzzled business owners. What looks like an impressive increase in business is not an impressive increase at all.

While total sales tax receipts from retail sales, room and condo rentals, and liquor sales increased from $974,412 to $1.6 million, when adjusted for inflation they increased just .6 percent per year, or less than one percent annually.

That anemic growth rate means the Ketchum economy will double in a pathetic 120 years. It is running in place.

It means that north valley business owners who have sounded the alarm on the need for economic initiatives—more marketing, construction of new hotels and attraction of more year-round businesses to the valley—are doing so because of need, not greed.

It means that population growth and booming residential construction made little difference to businesses that are largely recreation-dependent—very likely because the workforce and its paychecks moved down valley or outside the county.

It means that reduced skier numbers, increases in rents and the cost of employees and the failure of non-residents to replace the expenditures of displaced working residents have pounded Ketchum businesses. It means that to succeed, new competing businesses must divert revenue from established businesses.

It means that in Ketchum's resort economy, what you see is not what you get.

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