New tax on horizon

City switches gears from impact fees to property tax

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— Alternately called "regressive," "short-sighted" and "unpredictable," the city's sales tax-heavy budget should never have made it this far, say city officials and community members.

"Everybody that I've talked to no matter how they feel about taxes has told me that if we were to start over from scratch tomorrow we would not come up with the system that we have right now," said City Manager Paul Hughes.

The city of Steamboat Springs is one of only eight cities and towns in Colorado without a property tax. Only one of those cities Montrose is comparable to Steamboat in terms of population and salaries, said Finance Director Don Taylor.

At its July 10 meeting, City Council will discuss the option of putting a property tax before the voters this November, possibly allowing the city to scale back some of its sales tax. Residents in the city pay a total of 8.4 percent sales tax, 4.5 percent of which goes to the city. One half-cent of the city's sales tax goes to the school district. But with new tax initiatives potentially on this November's ballot, that 8.4 percent could go up even more.

The city did have a property tax at one point in its history. That tax was phased out after 1977 and the city has not collected a mill since. Residents of the city still pay property taxes to the county to fund services like schools, but the lack of a property tax in the city has raised a number of concerns.

The city's current sales tax-heavy revenue stream has been compared to a one-legged stool by City Council members, who know that sales taxes are increasingly dependent on the somewhat unpredictable ski industry.

In March of this year, for instance, sales tax revenues fell off 3.5 percent from March, 2000. While sales taxes used to be seen as the best way to capture money from the tourist market, changes and fluctuations in tourism have caused local officials to question that notion.

Property taxes could add considerably to the predictability of the budget. Though the city has to wait and see how well the tourist season fairs some years before deciding what it can and cannot buy, property taxes could be marked in more indelible ink.

"The budget needs to have a predictable source of income," said City Councilwoman Arianthe Stettner.

The city has been keeping its head above water in part because of extremely successful grant-writing campaigns and intergovernmental revenue. Of 16 comparable cities and towns in Colorado, including Aspen, Breckenridge, Durango and Grand Junction, Steamboat receives the highest percentage of its revenue (14.5 percent) through grants and other intergovernmental revenue. It also ranks at or near the top in getting federal and state money.

While City Council members continually exalt the city's great success at winning grants, they also understand just how tenuous getting money through a competitive grant process can be.

Above all, however, may be the question of fairness. Hughes, who has been studying the effect of various taxing schemes on the community, said a property tax would essentially be "a wash" for people on the lower end of Steamboat's economic spectrum, costing them about the same as a sales tax.

The property tax would begin to capture more money, however, from more wealthy property owners.

Because Steamboat's real estate market has become filled with second homeowners who may only be in Steamboat for a month or two each year, those homeowners are not contributing much to the city through taxes, Hughes said. With a property tax hitting the 6,000-square-foot homes in the city, that would change.

"The positive is that a property tax would begin to collect from a very large segment of the residential property owners that are paying little or no taxes to the city right now for the services that are provided," Hughes said. "They would pay a lot in property taxes and even if they were here full time would not pay as much in sales taxes. Since many of them are not here full time, they end up paying almost nothing in sales taxes."

One resident who has spoken before City Council about the inequities of the sales tax is encouraged by the potential for a property tax.

"Sales tax is the most regressive form of taxation imaginable," Whittum said. "It's the 21st century and basically the only source of revenue in the city is sales tax. Any kind of progressive city would have already instituted a property tax long ago."

Take the example of buying snow tires, Whittum offered. When he buys snow tires a virtual necessity in Steamboat Springs he pays just as much in sales tax as another buyer who may live in a $1 million home. The city is taking the same amount in sales tax from two individuals who may have very different circumstances in terms of their ability to pay, he said. A property tax, on the other hand, taxes individuals more if their home is worth more.

City Council has instructed Hughes to make sure the property tax does not hit people on fixed incomes and would not unfairly hurt the business community. The second of those two directives may be somewhat more difficult to accomplish seeing as the statewide Gallagher Amendment causes property taxes to hit commercial buildings harder than residences. The amendment, instituted in 1983, causes owners of commercial buildings to pay a higher percentage of the assessed value of their property in taxes than residential owners. For instance, in 1998 the county assessed taxes on commercial properties on 29 percent of their market value, while residential property taxes were assessed on only 9.74 percent of the homes' value.

"Any piece of land in town should be taxed the same," said Emil Banas, co-owner of the Nordic Lodge. Banas said he thinks another property tax, on top of the county's, would be destructive.

The debate over whether commercial property owners should, in fact, be paying more of their homes' value than owners of residences will likely continue.

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