Our View: Airline program is key to our economy
October 5, 2011
We encourage Steamboat Springs voters to support Referendum 2B, which would implement a quarter-cent sales tax increase in the city to pay for airline revenue guarantees.
Airline revenue guarantees are used to ensure direct ski season jet flights into Yampa Valley Regional Airport from key markets such as Dallas, Houston, New York, Atlanta and Chicago. Airlines would prefer to fly more profitable business routes but will agree to fly into Steamboat Springs if they can get specific revenue guarantees for the flights. If the load factors don't pan out during ski season, Steamboat's winter air program makes up the difference.
Since 2004, when voters approved a 1 percent tax on lodging to pay for the airline revenue guarantees, the cost of the airline program essentially has been split between Steamboat Ski and Resort Corp. and the lodging tax, along with lesser contributions from the business community. Before 2004, nearly all the cost of the earlier, smaller program was borne by Ski Corp.
The cost of the airline program fluctuates depending on the performance of the flights. Last season, Steamboat put up $2.69 million in guarantees for 118,360 inbound airline seats. The guarantees actually wound up costing $1.9 million. At the peak of the program — the winter of 2007-08 — Steamboat risked $2.45 million in guarantees for 162,700 inbound seats. The actual cost of the program that winter was $1.75 million.
The economic collapse since the winter of 2007-08 has jeopardized the air program severely. Consolidation in the airline industry has meant less competition and higher prices for fewer seats. Booking declines and competitive price decreases in lodging have resulted in tax revenue decreases locally. The net impact is that the airline program has a declining base of funding to pay for ever-increasing flight costs. Without a significant change, there won't be enough funding in two years to pay for even 100,000 seats.
To date, available airline seats have declined 27 percent in three winters. We can ill afford further seat erosion.
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We know it's not an ideal time to pursue an increase in the sales tax. Residents have been burdened by declining home values, a rising unemployment rate and increased food costs. They're already paying $8.40 in sales tax on every $100 they spend in local stores and restaurants. It is hard to ask them to pony up another quarter.
But it is a small investment with a proven return. Estimates are that the quarter-cent sales tax would raise about $1 million per year, with half of that coming from locals and the other half being paid by visitors to Steamboat Springs. The goal is to use locals' $500,000 annual investment to get back to 160,000 available seats by 2016. Based on proven load factors and revenue-per-visitor data, the extra seats translate into an additional $25 million to $30 million per year in local economic activity, and about 475 new jobs, returning $6 to $9 in local wages for every dollar of local taxes paid, according to estimates by local economist Scott Ford.
Some things to note about the proposed tax:
■ It is scheduled to sunset in five years, though advocates could seek renewal of the tax or even an increase at that time.
■ Ski Corp. will continue to commit as much as $1.3 million per year to the program, and its funding will be first in.
■ The 1 percent lodging tax will continue to support the program.
Steamboat's airline program always has been the envy of other destination resorts. It has been vital to our tourist economy, and we would ask residents to bolster the stability of the program by voting "yes" on Referendum 2B this fall.