If it it's not broken, don't fix it.
That's the conclusion the Steamboat Springs Tax Policy Advisory Board reached after studying the city's taxing structure in 34 public meetings during more than eight months.
The board is not recommending a property tax or any kind of new tax, and members think that a tax system based on sales tax is a stable one. The board has yet to publish its final report, but members discussed some findings and recommendations at a meeting last week.
The tax board asked City Council members to attend Thursday's meeting to give input about what they thought were the city's future revenue needs. The tax board members talked about their decision not to move forward with a property tax recommendation.
"We wanted the property tax to work. We felt the property tax would give you leeway to make better decisions," tax board member Steve Lewis said.
The tax board's draft report notes that when the group first met, several members thought the likely recommendation would be to support a city property tax, perhaps in lieu of a sales tax on groceries or utilities. Board members said that no other issue received more scrutiny from the board than a property tax, which was discussed for weeks.
"We didn't neglect it," tax board member Audrey Enever said. "We just couldn't find a way to make it work."
Not all the council members were convinced that a property tax instead of a sales tax was no longer a viable option. Councilman Steve Ivancie said he was worried about the instability and inequity of a sales tax.
"There is a huge discrepancy when it comes to half the homes being owned by second-home owners," Ivancie said. "I think it takes political leadership to say to those (home owners), 'it is time to shoulder the burden.'"
Enever said the board's analysis showed that if property taxes were substituted for a sales tax -- even on necessary items, such as food and utilities -- the city's residents would have to pay a larger share of taxes.
"We weren't really getting anywhere with the exchanges," Enever said.
Pros and cons
In the draft report, the tax board notes that a sales tax is regressive, because poorer residents pay a larger portion of their income toward taxes than wealthier residents. The draft report acknowledged that a sales tax on groceries, a basic necessity, "penalizes the same residents who have difficulty finding affordable housing."
Overshadowing that fact was their analysis that showed non-residents generated about half of the grocery tax revenue.
"A large part of what we are spending as a community is coming from people who don't live here," tax board member Fred Wolf said.
The board did several estimates on how much sales tax non-residents generated, and those calculations ranged from 45 percent to 70 percent. The board agreed on a final number, estimating that 55 percent of the sales tax revenue comes from nonresidents, with the defining assumptions being median household expenditures on groceries and the length of time second-home owners spend in Steamboat Springs.
The board did a case study that substituted a property tax for sales tax, and it generated the same amount of revenue for the city. The study also showed that a property tax instead of a grocery sales tax actually would shift more of the total tax burden to city residents.
The board also looked at substituting a property tax for utility taxes. Enever said the study showed that condominium owners, who represent many second-home owners, would benefit the most from that change.
"We aren't getting to the group we want to get to, and that is the property owners who don't live here," Enever said. "Either exchange gave us nothing in taxes to solve the problems we are most trying to solve."
The tax policy group was formed last winter, after voters decided two years in a row not to pass a property tax to fund the fire department. At the time the group was appointed, the city was just beginning to rebound from two years of flat or declining sales tax revenues, which forced the city to cut services and defer capital improvements.
But from September 2003 through July 2004, sales tax revenue increased each month, and the city's spending increased with it. In the past month, the city has approved spending more than $6 million on two long-term capital projects: replacing the tennis bubble and building a clubhouse at Haymaker Golf Course.
Despite the rough patches in the past few years, tax advisory board members think the sales tax is a steady source of income. Board member Rich Tremaine said that he started out assuming the sales tax was volatile and that his impression has changed in the past eight months.
"When you look back over the last 15 years, it is incredibly consistent. With bad ski years, Sept. 11, it still has remained a reliable, fairly consistent source of income," Tremaine said. "That factored into our discussions."
As in the past few years, the board members said the city's reserve policy will help it weather through rough sales tax years. Wolf said it would take a major event for the city's sales tax to drop significantly.
"If it is bad enough for sales tax to go down significantly, we all will have a problem, and why shouldn't the city deal with that problem, just like everyone else?" Wolf asked.
Wolf said the city's reliance on grants made it most vulnerable. The city has been successful in getting grants through Great Outdoors Colorado, Energy Impact Funds, the Federal Aviation Administration and the Federal Transit Administration. In 2005, the city plans to use $3.8 million in grant money for capital improvement projects.
"I think the vulnerability you have is not in sales tax, is not in mineral tax, it is in grants," Wolf told the council members. "You have been very successful, and you need to keep being that successful, but that is the biggest vulnerability you have, and in large part, that is going to affect your capital program."
Council members agreed that after approving large capital improvement items, the community would be less inclined to approve an increase in property taxes. Councilwoman Susan Dellinger said any of the city's current budgetary problems could be fixed with a little prioritization.
"Until we say 'no we aren't going to build a tennis bubble, we are going to pave roads,' no one is going to believe there is a need for a property tax," Dellinger said.
In the draft report, the tax board noted that the most acceptable new tax would be the accommodations tax and that a sales tax on services is one of the most significant potential new sources of revenue.
Board members also said the city could have the greatest success in generating revenue by having residents vote for property tax increases to fund large scale capital projects, such as a recreation center.