Economy & Economic Development  February 16, 2007

Data suggest new startups on downward trend in region

While measures of Northern Colorado’s economic growth have risen steadily during the past decade, troubling recent data show an uncharacteristic decline in new business start-ups during the past two years.

The number of new sales tax filings in Northern Colorado are down for the second year in a row. In 2006, Larimer County received 2,734 new sales tax account filings, the fewest since 1997, while Weld County had 2,395, the fewest since 1999.

A sales tax account is required for every business that is selling some tangible good, said Neal Tillquist, director for taxpayer services with the Colorado Department of Revenue in Denver.

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Tillquist explained that even local outlets of chain companies are required to get a new account for each bricks-and-mortar location. However, certain service-based businesses are not required to file for sales tax accounts.

Service companies are only exempt if they do not sell any tangible goods. For instance, a cleaning service would not have to file, unless it sells cleaning products as part of its business.

For the most part, Northern Colorado has seen yearly increases in the number of new sales tax filings since the early 1990s, with one year’s decline offset by the next year’s increase. Even during the technology bust that hit the region just over five years ago, the filings continued to increase, with the highest number of new sales tax account filings coming in 2004: 3,357 in Larimer and 3,100 in Weld.

Regional economist John Green projects that the decline could continue.

“It’s just a professional gut feeling,” he said.

Green said that he feels the decline is better described as a softening, rather than a maturing, of the market. He added, however, that the economy has likely hit a plateau after years of steady growth. What the region is seeing now, he explained, is a period of consolidation before growth continues.

Additionally, the decline could be related to other positive economic trends.

“The high-tech layoffs created a lot of instant entrepreneurs,” Green said, referring to the thousands of jobs lost from large tech employers early in the new millennium.

More data needed

Colorado State University economist Martin Shields said that it is hard to interpret the numbers without more data, such as what industries the new sales tax accounts are in.

“This is alarming, or at least it piques my curiosity a little bit,” he said. “You worry when there’s not a lot of new businesses or a decline.”

What it could mean is that entrepreneurs are not optimistic about the overall state of the economy. He said that the decline could also represent a return to a more normal growth pattern from the generally over-optimistic 1990s.

Shields said that a few years of declining numbers was worth note, but probably not worry.

“One more year would be more indicative of trouble,” he said.

In January, Weld County opened 278 new sales tax accounts and Larimer 273. Compared to January 2006, Larimer’s accounts were down only slightly, but Weld’s were up by more than 50.

Despite the apparent declining number of new businesses, there doesn’t appear to be a slowdown in activity for small businesses.

“This past year, we had a record year for loan approvals,´ said Chris Chavez, spokesman for the U.S. Small Business Administration office in Denver.

The SBA offers guarantees for banks that offer loans to small businesses. In 2006, the SBA guaranteed 146 loans for a total of $17 million in Larimer County. The previous year, Larimer had fewer loans with 86 but for a greater total of $18.6 million. In Weld County, the number of loans increased from 59 in 2005 to 73 in 2006, and the loan amount increased from $11 million to $12 million.

However, Chavez explained that loan guarantee requests to the SBA typically run counter to the rest of the economy.

“We’re reverse of what the rest of the economy is,” he said. In a generally prosperous period, banks are less likely to request backing from the SBA.

Anecdotally, Chavez said that it seems like the number of businesses in the state is growing at a faster rate. He suggested that a decreasing number of filings in Northern Colorado could be due to the growth in small towns. He explained that as larger, big-box stores begin to expand into the smaller communities, such as Johnstown and Milliken, fewer small retailers are likely to compete.

It is too soon to know if the declining sales tax numbers are a trend, and more data would be needed to draw any definitive conclusions. However, it is important to be aware of all economic data, even those that might not paint a rosy picture.

While measures of Northern Colorado’s economic growth have risen steadily during the past decade, troubling recent data show an uncharacteristic decline in new business start-ups during the past two years.

The number of new sales tax filings in Northern Colorado are down for the second year in a row. In 2006, Larimer County received 2,734 new sales tax account filings, the fewest since 1997, while Weld County had 2,395, the fewest since 1999.

A sales tax account is required for every business that is selling some tangible good, said Neal Tillquist, director for taxpayer services with the Colorado Department of Revenue in…

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