Tightrope Economy

On paper, evidence shows businesses in Santa Fe are bouncing back after last year’s COVID-19 shutdowns made a circus out of the economy. Taxable gross receipts are up in several sectors including accommodation, food services and retail trade. Hotel occupancy rates rose back to pre-pandemic levels this summer and tourist spending wasn’t too far behind.

Like visitors to the Plaza, hope has returned a year and a half into the pandemic.

But the hope is tempered, SFR finds in numerous conversations with business owners, workers, economists and trade groups, by both immediate and long-term concerns.

Supply chain disruptions have challenged businesses across sectors—from restaurants to construction companies to hotels.

Like their national counterparts, local business owners have had trouble hiring, with some making changes to accommodate the surging labor demands.

Masks again cover faces around town. With another surge of cases, the state reinstated an indoor mask mandate on Aug. 20, requiring businesses to once again warn customers with storefront signs. The specter of renewed restrictions is daunting, some business owners say, as is the prospect of once again facing tension with customers resistant to mask policies. One of the city’s biggest hotels is now reporting reservation cancellations.

After reviewing February’s figures in May, city staff said they were “cautiously optimistic” that a positive trend in gross receipts tax revenue would continue into the summer. When a new report for June was issued Aug. 30, the optimism remained.

After being able to operate at full capacity for the past two months, things are looking up for the city’s restaurants. Taxable gross receipts in accommodation and food services grew $33.8 million in June—the most recent figures available—compared to June 2020, an increase of 139%, but they also surpassed June 2019 levels by 12%.

Almost every other sector is also showing vast improvement:

Real estate, rental and leasing was up about 133% in June from last year—an amount equal to 72% over June 2019.

Arts, entertainment and recreation increased 172% from the same period last year and beat 2019 by 9.3%.

Taxable gross receipts in construction jumped $15.6 million, or 33.2%, from last year.

Santa Fe’s trend lines—seemingly a bit of a tightrope walk, for now—are reflected across New Mexico, with recovery in progress, at least by traditional measures. The city’s GRT increased from $3.4 billion in fiscal year 2020 to $3.45 billion this year, but is short its pre-pandemic $3.6 billion.

“We’re improving, but we’re not back to 2019 levels yet,” New Mexico State University Regents Professor Jim Peach tells SFR. “It’s good that we’re gaining some employment back; retail sales are back, but we’re not at the end of the recovery. It’s going to take a while for the economy to recover; and the Delta variant...will not yet show up in the money.”

With the gains made in the past few months come a handful of challenges like supply and staff shortages.

Nellie Tischler, who owns local South Indian restaurant Paper Dosa with her husband Paulraj Karuppasamy, says getting supplies has been difficult because many items are low in stock and are more expensive.

Tischler points to napkins and yogurt. Chicken, she says, used to cost $35 a case but goes for close to $90 now, causing some restaurants to take it off their menus.

Matt Segura, co-owner of Southwest Spray Foam and Roofing and the president of the Santa Fe Homebuilders Association, says all sorts of building materials are in short supply, including lumber, metal roofing and, an essential for his own business, spray polyurethane foam for roofing and insulation.

In the past, the wait for these materials would’ve been a week or two. Now it can take months.

The supply inconsistencies have left Segura struggling, he says, to balance clients’ needs on smaller, simpler projects against larger-scale, more lucrative jobs.

Violet Crown Cinema owner Bill Banowsky says the theater has experienced supply disruptions, too.

“It’s a little bit different for us because our primary product is movies from Hollywood,” Banowsky says. “The Hollywood distribution system has not fully opened up its pipeline of movies, so there’s a huge backlog of high-quality films that are going to draw people into the theaters.”

Banowsky says the theater has yet to return to pre-pandemic levels, and he believes that’s due mostly to the amount and quality of movies that are out rather than people feeling uncomfortable going to theaters.

Labor is also in short supply—or, at least, that’s how it feels to business owners who spoke with SFR.

Segura says his company has several open positions that don’t require any prior experience, but he hasn’t been able to fill them.

“It’s like a perfect storm with a combination of raw material shortages along with a lack of labor,” Segura tells SFR. “Demand has not changed; in fact, demand has increased. If we had the supplies we needed and the labor we needed we would probably be up 30 or 40%.”

Hiring has evidently been a hurdle for many businesses regardless of sector.

The New Mexico Hospitality Association conducted a statewide survey of 123 restaurants, hotels and tourist-dependent shops, about 20% of which are in Santa Fe. The majority of respondents cited difficulty in hiring, with 80% reporting people applying and then not showing up to interviews.

“Some businesses have been caught in that sort of Catch-22 of ‘Do I bring more people on? What happens if the bubble bursts and my business drops off again or cases rise?’” Kathy Komoll, CEO of the association, tells SFR. “I think people are optimistic, but there’s still just this level of uncertainty.”

The association posted a job listing board on its website in July and this week, the New Mexico Restaurant Association launched a campaign that also includes an online job board in an effort to draw workers back to the understaffed industry.

In between taking orders and making drinks during a barista shift, Tai Ayers, co-owner of Ohori’s Coffee Roasters, says she’s had applicants go through the interview process and then either not show up for their first shift or turn down the job after deciding it didn’t pay enough.

“I interviewed a person with a lot of good experience and they thought about the job and they just came back to me and said, ‘The pay won’t match what I need to be able to pay my rent in Santa Fe, so I have to keep looking,’” Ayers says, adding that Ohori’s will likely raise prices soon to be able to raise wages.

Tischler says when the pandemic began and Paper Dosa transitioned to takeout only, the restaurant’s servers chose to leave because they were eligible for unemployment, while kitchen staff stayed on along with hosts and food runners who helped prepare takeout orders.

When Paper Dosa reopened for dine-in, the servers who left didn’t return and Tischler and Karuppasamy competed with other restaurants for new staff.

“Everybody started hiring at the same time,” Tischler says. “When dine-in opened up, it created this frenzy with the general public and the restaurant industry. It was dormant for a very long time and then it just exploded within a month. When you have hundreds of restaurants hiring at the same time, it makes it really difficult for everybody.”

Statewide, there are about 2,800 more unemployed people than the number of online advertised job openings, according to the latest figures from the New Mexico Department of Workforce Solutions.

The department reported in its May labor market review that this ratio means there isn’t a true labor shortage; rather, there are “labor market inefficiencies that give the appearance of a labor shortage.”

“The state’s reopening has brought a massive increase in the demand for goods and services, which businesses may be unable nor prepared to meet in the short term,” the report reads.

Nationally, there are 10.1 million vacant jobs, according to the latest figures from the Bureau of Labor Statistics, which reported the largest job opening increases in professional and business services, retail trade, and accommodation and food services.

Tischler says she and her husband want to prioritize the employees who have stayed at Paper Dosa over the past year and a half rather than offering hiring bonuses like some businesses have done to attract new workers.

La Fonda on the Plaza offered $300 hiring bonuses from May to July, plus $500 “appreciation bonuses” for existing hourly staff, according to Chairwoman Jenny Kimball.

“It’s unprecedented. I’ve never seen this before,” Tischler says of the bonuses. “I do think that there’s a level of opportunistic behavior and it’s going to be short-lived. We’re really about taking care of the people who got us through the pandemic, and if we have to scale down our business to be able to support them, we’re going to do that.”

Banowsky at Violet Crown says he had a hard time hiring when the theater first opened back up in early May, so he raised the minimum wage from $12.50 to $15 an hour plus tips to fill a small staffing gap.

“I think it’s no different than the restaurants,” Banowsky says. “It was hard in the early weeks, finding enough qualified people to do the jobs. We were fortunate because we had a really terrific group of employees before COVID and we were able to bring back most of our key employees and, over time, we’ve been able to fill the positions.”

Promising GRT numbers from City Hall and cautious optimism from business owners only tell part of the story when it comes to economic health. Click the kaleidoscope a few times, and the picture shifts to the perspective of wage workers.

David Cooper, senior economic analyst at the nonprofit think tank Economic Policy Institute, tells SFR employers raising wages indicates workers are in a position of slightly elevated power for the first time in decades.

But the shift is unlikely to last, Cooper says, because the demand for labor will decrease over time and no structural changes, like raising the federal minimum wage, have been made.

“I think we’re going to get to a point in the next six months to a year where employers will have staffed up enough to meet that surge in demand and things are going to get back on trend,” Cooper says.

Even if wage increases falter, Cooper says businesses’ hiring struggles indicate many workers across the country are reevaluating and expecting more from their jobs. Government support during the pandemic, he says, has given people the space to do so. The upshot: Many people are no longer as tolerant of low-paying jobs that lack benefits.

Peach at NMSU echoes Cooper’s analysis, telling SFR some workers have used increased demands for labor as an opportunity to move into other industries.

“When labor was short in some other industries, some people undoubtedly moved from the hotel, restaurant and tourism industries into industries that pay better and have better benefits, like retail freight and wholesale freight,” Peach says. “FedEx and UPS, they needed drivers and delivery people and they have good benefits.”

Miles Devesty worked at Violet Crown for a couple years before being furloughed and then eventually laid off last spring. He was on unemployment for about six months and then worked as an assistant editor at a post-production house before coming back to the theater when the editing job fell through.

He says that for many workers, collecting unemployment benefits made more sense than showing up for low-paying, risky work.

Unemployment “was nuts, the money was insane,” Devesty says. “Most of us were like, ‘I don’t want to go back to work for $12 an hour, $11 an hour.’ It was definitely more of a pull when jobs started popping up with $15 an hour, which should’ve already been a thing. Now we’re getting to what we should actually be making.”

Liam Bell started working as a barista at Ohori’s about a month ago. When the pandemic began, getting on unemployment and living with his parents allowed him to quit his job bussing tables.

He says Ohori’s provides a better work environment than his last job.

In response to worker concerns and preferences, some businesses have made changes to how they operate, such as flexible scheduling.

Ayers says her 20 or so employees were worried about their health when the pandemic began and didn’t want to work as much, so many of them switched to part-time, making their shifts five hours long instead of 11.

“We’ve really looked at people’s lifestyles as they work, like how can people take enough time off to feel healthy and work the right amount of hours,” Ayers says. “One thing COVID has done is just make us so much more flexible.”

Ayers says the adjustment was especially important given that interacting with customers can be taxing for workers, who have become de facto enforcers of public health guidelines.

After temporarily lifting the statewide mask mandate for fully vaccinated people on May 14, Gov. Michelle Lujan Grisham reinstated it on Aug. 20.

SFR spoke with Collected Works Bookstore and Coffeehouse owner Dorothy Massey a week before the mandate came back into effect, but the store has had its own mask requirement since it reopened to customers in June after offering only online ordering for over a year.

“We were giving away probably 100 free masks a week,” Massey says. “We have them at all the doors and the reaction to that from the public has been varied, from ‘Thank you very much for enforcing the mask order’ to obscenities and a march out of the store. But we’re pretty inured to that at this point.”

Massey says the bookstore had a successful reopening, reflected in the city’s $109.8 million in retail gross receipts, up 32.4% over June 2020.

The tourism industry appears to be rebounding as well, which bodes well for Santa Fe businesses.

On a recent afternoon, dozens of tourists—some masked and some not—milled about the Plaza in the late August heat, checked into hotels and popped off the store-lined sidewalks to browse trinkets, jewelry and clothes. Music and laughter drifted out of a busy restaurant.

Cody Johnson, a spokesman for the state Tourism Department, tells SFR the department considers two major indicators to gauge industry health: hotel occupancy rates and estimated visitor spending.

They’re both looking up.

Since December, New Mexico has outpaced the rest of the country in terms of visitor spending recovery, according to Johnson. He attributes some of that to the state’s public health response, which garnered national recognition early on in the pandemic.

“Since we’ve always really leaned into public health precautions first and foremost, we’ve established our state as a safe place,” Johnson says. “That really helped us last year when the traveling public were looking for places that were safe to go.”

Johnson says in June, estimated visitor spending rates were about 14% lower than they were in 2019. That’s up from the same month in 2020, when spending rates were down 50% from 2019.

Hotel occupancy rates have recovered alongside estimated visitor spending.

When the state shut down for a couple months in the spring of 2020, occupancy rates took a nosedive. Rates started to climb back up in the summer but were hindered by occupancy restrictions and quarantine requirements for out-of-state visitors.

Occupancy rose at the beginning of this year. By summer, rates had peaked, nearly reaching pre-pandemic levels, with hotels statewide seeing about 73% occupancy. During the same period last year, the rate was around 45%.

In what the tourism department considers the north central region, of which Santa Fe is a part, the occupancy rate was just under 80% in July.

“If Santa Fe thrives, the state thrives,” Johnson says.

While enjoying recovered occupancy rates during the summer, hotels haven’t been immune to supply and staff shortages.

“We’re short-staffed mainly in the kitchen, the bar and the restaurant,” Kimball of La Fonda tells SFR. “We have supply issues throughout the hotel, from wine and alcohol to the food costs are higher than normal because they’re harder to get. We still don’t have patio furniture that we ordered four or five months ago.”

Kimball says the hotel thrived over the summer. But just last week, the staff started noticing reservation cancellations, which she believes is due both to surging cases and the newly-reinstated mask mandate.

“It depends on what side of the equation you’re on,” Kimball says. “If you’re scientific and worried about your health, our governor has done a good job of being proactive. But if you think it’s all made up or that masks aren’t that helpful, then it’s been difficult for New Mexico because Texas and Arizona, our big competing tourism states, have gone the opposite direction.”

When taxable gross receipts surpassed pre-pandemic levels for the first time in February, Mayor Alan Webber said the city’s optimism for continued economic recovery was “contingent upon not having another spike in cases, not having a variant show up in New Mexico that leads to a serious reversion where we’ve got to go into a more constrained mode.”

Four months later, the Delta variant is spreading, vaccination rates have slowed and hospitals are filling up again.

Among business owners, feelings about the possibility of another lockdown are mixed. Some say they wouldn’t mind having to limit operations again while others think tighter restrictions are unlikely to return.

Tischler says Paper Dosa did well with takeout, but she and her husband felt compelled to open back up for dine-in because even though it’s “nerve-wracking” and puts the health of the staff at risk, it’s what customers expect.

“We don’t know who’s vaccinated or if someone actually has COVID,” Tischler says. “We try to sanitize and clean our hands as much as possible but it’s very high-risk, so do we want it? Not really. I wish that we didn’t have to right now. People who work in the restaurant industry, they have to risk their lives. Restaurant employees are not protected at all.”

At a news conference last week, Acting Health Secretary Dr. David Scrase said he believes individuals and communities need to take the lead to curb the spread of the virus, rather than the state government mandating more closures.

“I feel like up until this point in the pandemic, we sort of all thought about how we fight COVID like a giant electrical on-off switch, either everything is open or everything is closed…but we can’t just enforce absolute compliance with a shutdown for four or five years if this pandemic were to go on from variant to variant,” Scrase said.

Still, the outlook for prolonged recovery is unclear to many.

“I’m concerned about my staff, and we still have to be on the watchout for health and our community,” Ayers at Ohori’s says. “Nothing seems normal. As a business owner, things aren’t normal.”