As conveyed in the recent Town Hall meeting held by the Manitou Springs City Council, the City is facing a $4.3 million budget shortfall going forward, due largely to significantly reduced marijuana tax revenue. Representing a deficit of nearly $1,600 per employed Manatoid, the $4.3 million shortfall is significant.
I appreciate the balanced approach proposal recently put forth to increase the excise tax on ticket sales and admission fees and reconfigure the parking system to cover the shortfall. Such revenue sources often come from tourists, and I believe that relying more heavily on tourism support makes good sense for a community such as ours.
The proposal includes restructuring the City parking system to help offset approximately $1.9 million in streets department expenditures. This would seem to make a lot of sense.
The proposal also includes nearly tripling the excise tax on ticket sales and admission fees from 5% to 14%, resulting in $2.4 million in additional revenue. Presumably, this tax is almost entirely paid for by Cog Railway passengers. I have three concerns with this proposed tax increase.
First, the amount of the tax, at 14%, seems higher than any other similar tax I can find in the country. Now, the case can be made that City costs associated with maintaining the Ruxton Avenue corridor, and even other areas of town, as a result of Cog traffic are significant. Do these costs warrant an unusually high 14% tax – maybe so.
Second, and perhaps most importantly, is the chance that the City won’t be able to retain the additional tax revenues collected. If, through ongoing legal action, the courts determine that the City must refund tax revenue above specific amounts as listed in the 2018 agreement with the Cog Railway, any increase in the tax rate will result in no additional tax revenue to the City. Does it make sense to plan to cover most of the budget shortfall with a tax increase that may, in the end, result in no additional revenue?
Third, might nearly tripling the excise tax on Cog Railway passengers be viewed negatively by the courts and potentially adversely impact the outcome of the ongoing litigation? I’m no legal expert, but I think this possibility should be given consideration.
A not-yet-discussed potential revenue source is the Lodging and Camping tax. This tax is only 2% in Manitou Springs and is also largely paid for by tourists. Increasing this tax from 2% to 6% would result in a total lodging tax rate in Manitou Springs of 15.03%, which would be well in line with lodging tax rates across the country. Such a tax increase would result in an estimated $700,000 in additional revenue per year. While not a significant amount of revenue relative to the overall budget deficit, it would result in tax revenue that the City would know that it can retain.
Now, there are cases against a Lodging and Camping tax increase. Would a higher tax in Manitou Springs accelerate the migration of room nights to newer properties in Colorado Springs? If the increased tax drives more room nights to Colorado Springs, would ancillary tourist expenditures also move to Colorado Springs to a greater degree? It seems likely that Colorado Springs will consider a lodging tax increase in the near future. Perhaps an increase to the tax in Manitou Springs should wait until our neighbor to the east makes a change.
Regardless of any tax increases passed this November, until Cog Railway litigation is settled, it seems as though City expense reductions must be considered. I found it curious that reducing expenses wasn’t discussed in any meaningful way during the recent Town Hall meeting. I realize that reducing expenses may be less desirable in many respects when compared to increasing revenues. However, it would seem as though reducing expenses, to some degree, could be an important component of a balanced approach to solving the budget issue.
One of the biggest challenges is that it is difficult to ask voters for multiple tax increases at the same time, even if most of those increases are paid primarily by tourists. After all, the Manitou Springs School District is also expected to place a bond initiative on the November ballot. I appreciate that the City Council is not seeking a property tax increase on the same ballot. No matter how reasonable tax increases may be, the more proposed on the same ballot will decrease the chances of any passing.
At the same time, we should recognize that municipalities can only provide services with resources they have available. The median property tax rate in Manitou Springs of 0.51% is one half of the national average of 1.02%. Our city staff gets a lot done with limited resources. Let’s face it, as a small community we’re going to have to invest more on a per household basis if we want to continue to have services like our own police force and properly invest in things like streets and parks.
Getting back to the near-term outlook, if the tax increase on ticket sales and admission fees is not passed, or, if the City is not able to retain revenues from such a tax increase, City services will take a significant hit to cover the $2.4 million that is hoped to be derived from the increase. I, for one, would not like to see what a $2.4 million reduction in the City budget means for reduced services in our beautiful hamlet.
Editor’s note 8-13: The title of this opinion piece has been updated.
