Gilbert feels economic pinch along with rest of US as it prepares for bond sales

U.S. and Arizona inflation data
(Source: U.S. Bureau of Labor Statistics/Community Impact Newspaper)

(Source: U.S. Bureau of Labor Statistics/Community Impact Newspaper)

Image description
(Source: Arizona Commerce Authority/Community Impact Newspaper)
Image description
(Source: Raymond James/Community Impact Newspaper)
Gilbert can point to a sterling employment recovery, but inflation and supply chain woes know no municipal boundaries and are affecting town business, experts said.

Unemployment in town was down to 2.6% in February, and the number has been lower since September than it was before the COVID-19 pandemic, when it stood at 3.2%, according to Arizona Commerce Authority data.

However, inflation in February was at 10.9% in the Phoenix area, worse than the national 7.9%, according to the U.S. Labor Department. Accordingly, the Consumer Price Index—the average change over time in the prices paid by urban consumers for a market basket of consumer goods—was up 2.1% over January and February.

Nonetheless, Gilbert’s businesses and government are relatively well positioned to withstand the current economic pressures, experts said.

“Like everything else over the past two years, I think there’s a different response depending on the size of the business, the industry,” said Sarah Watts, Gilbert Chamber of Commerce president and CEO. “Overall, I think that many people still feel a sense of growth and prosperity.”

For the town, inflation has mixed effects, increasing revenue from sales tax while also increasing expenses associated with operations of town services, such as water and trash collection, officials said.

It also could mean bonds, like those from the question the town of Gilbert passed in November, could grow more expensive to repay just as the town prepares to go out for $200 million in bonds for streets, transportation and infrastructure.

Employment ‘weirdness’

The size of Gilbert’s labor force was in line with what it was pre-pandemic in February, standing at about 145,000 employees, and was more than 150,000 for the first time in the seasonally-high employment months of November and December. Unemployment even dipped below 2% in December, according to data from the Arizona Commerce Authority.

Even with those numbers, Watts cautioned that for local employers, employment still can be challenging.

“Across the board, when I talk to our members, there is a sense of concern for workforce,” she said.

That is particularly true in the service industry, Watts said, where the number of youth available to fill some jobs, as once happened, has decreased as they stay busy with extracurricular activities outside of employment.

Watts said she has seen some owners or managers have to work more to cover open positions, with some even changing plans to retire or phase out because of the employment shortage.

“The other conversation right now that I hear more and more often is the talk about employee retention and how to balance bringing on new hires at what seems to be an increasingly competitive wage, while also accommodating those who have been in their company for several years and have been loyal through the last years of hard times,” she said.

Economist Jim Rounds, president of the Rounds Consulting Group in Tempe, said employment data has some discrepancies from how work has changed during the pandemic with more people freelancing and foregoing traditional employment.

“The same person might be working there [at a business], but the person is working as a freelancer,” he said. “Now the business won’t be counting that person, but when you ask the person in a different survey, they say, ‘Yeah, I’m still working.’ So, there’s some weirdness in the employment numbers, and I always discount them when they show something too extreme because the people who do the counting are still trying to resolve this issue.”

Inflationary pressures

With wages up and inflation running nationally at 7.9% and even higher locally at 10.9%, Watts said businesses have had to reassess their price points quickly.

“I hear about it very regularly that they’re responding by increasing prices, and they’re doing, in some cases, substantial increases,” she said, citing a payroll company that had to double their cost of payroll processing to cover their costs.

For the town, inflation is more of a mixed bag in terms of how the town can handle it, Gilbert Budget Director Kelly Pfost said.

“There’s some of the town’s revenue that automatically adjusts and some that doesn’t,” she said. “For example, in our general fund sales tax, as the price of goods increases sales tax automatically adjusts with that inflation. ... We get a little bit more revenue and we’re able to use that to offset the costs of goods that we’re seeing [from] the inflation on our expenditure side. So that stays more balanced.”

Gilbert has collected $92.66 million in tax revenue through February in fiscal year 2021-22, $13.41 million more than at the same point in the previous fiscal year, or 16.99%, town data shows.

But it is different with the town’s enterprise funds, such as water or environmental services, Pfost said. Unlike a business, the city does not have the ability to quickly change revenue sources to correspond with expenses.

“Our utility rates don’t automatically adjust with inflation,” she said. “We have to do a rate study and public hearings and consciously change the rate from one thing to another. And so we have to be more mindful of that.”

Rounds said the economic outlook for the area is favorable but that it bears watching with a war going on in Ukraine and inflation at home. What the Federal Reserve Board does to address inflation could be critical, he said, as well as if Congress ramps down spending too quickly, he said.

“I don’t think we’re going to be in a recession this year or next, but it’s definitely on the radar and it’s worth talking about,” Rounds said.

With that in mind, Rounds said people may want to prepare for the possibility of a mild recession. A more severe one would require additional “shocks,” he said.

“Gilbert’s in good shape because it has higher incomes,” he said. “It’s been a well-run town for a while, and I don’t expect things to change significantly. I feel like there’s enough income in the area where it’s supporting the higher inflation, the higher cost of retail and other things like that. The incomes have been going up even though costs have been going up as well. That’s not the case with every community.”

Upcoming bond sales

However, one area where the town might be affected by Federal Reserve Board action is its upcoming bond sales. Voters passed a $515 million streets, transportation and infrastructure bond package in November, and the Arizona Supreme Court declined to hear an appeal on a legal challenge to the election April 5.

Gilbert Town Council then approved April 12 the issuance of $200 million of bonds this year. At council’s financial retreat in March, staff said each quarter-point increase in the municipal bond rate would cost the town $6 million in additional debt.

Pfost said timing the bond sale is not a possible task, but the town will be watching what the fed does.

“The efforts that they’re doing will be to raise interest rates,” she said. “When the town is looking to sell bonds, we would like to sell them before they rise and they’re already rising right now.”

At the retreat, some discussion challenged the notion that the fed’s actions would definitely cost the town money.

Rounds said the town needs to implement public policy when it can and worry about financial details later as refinancing or consolidating debt can always be done.

“Gilbert [policy] actually has been implemented pretty nicely, but infrastructure, for sure, and public safety—they can’t get behind on that kind of stuff,” he said. “When you get behind on infrastructure, it’s really hard to catch up because you’re dealing with such big dollar amount.”

Jared Roskelley, president and director of financial planning for Jackson Roskelley Wealth Advisors in Scottsdale, said municipal bond rates, like all credit activities, do generally track with what the federal reserve does with the prime rate—the interest rate that commercial banks charge their most creditworthy customers, such as large corporations. In fact, the market already has risen in anticipation of federal reserve action, he said.

Roskelley noted that Gilbert’s AAA bonds rating means it will get the best rates as investors see the town as low risk.

“At the end of the day, as a municipality, you have to go to the market and say, ‘please lend us money. At what rate of return is the minimum rate of return that we can pay you to get you to lock in money with us for the next 20 years?’” Roskelley said. “That’s really what it comes down to. Gilbert will be a great bond issue because they’re a great municipality. They’re growing. They have the resources as opposed to a much smaller town that doesn’t have those growth trends.”
By Tom Blodgett

Editor, Gilbert

Raised in Arizona, Tom Blodgett has spent more than 30 years in journalism in Arizona and joined Community Impact Newspaper in July 2018 to launch the Gilbert edition. He is a graduate of Arizona State University, where he served as an instructional professional in the Walter Cronkite School of Journalism and Mass Communication from 2005-19 and remains editorial adviser to The State Press, the university's independent student media outlet.