Paul Hughes: Tax structure wrong

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— I appreciated the Pilot & Today's editorial about Steamboat 700, its potential for providing affordable housing, and its true costs. You have opened an important issue: the actual costs and revenues produced by housing here in Steamboat.

Two separate analyses of the net cost of serving houses within the West of Steamboat Springs Area Plan showed that every new house will cost somewhere between $2,000 and $4,000 per year more to serve than it will contribute in sales taxes. No wonder, then, that Steamboat 700 was willing to throw in $50,000 a year in property taxes to partially offset the deficit.

But wait. It's not just West Steamboat houses that cost more to serve than they contribute. Every single house in Steamboat is also a net loser, tax-wise. That's why we rely so heavily on tourism to pay our bills; that's why we've never seen a tourism-related activity that we didn't like; and that's why any downturn in the national economy quickly forces us to make cuts in local city services.

The solution, which I have been trying unsuccessfully to sell for years, is an honest, objective, scientific re-examination of our city tax structure. Right now, it's regressive, unfair and unproductive. Steamboat 700 - and the house that's being built next door to you - will only exacerbate the problem. We can and must address this difficult and unpopular issue before it eats us alive.

Paul Hughes

Steamboat Springs

Comments

Martha D Young 5 years, 1 month ago

Thank you, Paul, for your observations about our city's ludicrous and unsound tax structure. The debate about Steamboat 700 has shed light on a systemic problem which needs to be addressed and solved.

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Mike Forney 5 years, 1 month ago

I think Paul has a good point which comes at an appropriate time as our "one-trick pony" economy struggles with the economic downturn. Unfortunately, the independent Tax Advisory Group study several years ago came to different conclusions based on their review of the various (more than 20, I recall) taxes assessed by the city. It seems like a lot of the revenue derived from these "nuisance" taxes came from builder's fees and assessments.

Now that the building boom has gone bust, it is time to revisit the city's tax structure and consider, once again, a tax system based at least in part on residential property values.

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Scott Wedel 5 years, 1 month ago

With taxes you have to pick your poison.

An advantage of sales tax is that tourists pay a huge amount of it. And the lack of a city property tax takes away any fiscal incentive for annexing. Look at how much the City works to promote tourism and they justify it as bringing in more revenue. Just imagine what would happen if there was a property tax that would make annexation profitable for the City.

The tax advisory board did the unexpected which was to look and think in order to independently reach their conclusion. They noted that a sales tax was most paid by tourists, but volatile. It is volatile on the way up and so the City had huge revenue gains when the economy is growing, but it also goes down sharper when then economy slows down. And so the tax advisory board said to build reserves when things were good.

So because the City lacks the discipline to build reserves when there was double digit growth in sales tax collection and instead they blow the money on the stupid Iron Horse purchase then the public is supposed accept the need for a property tax?

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Scott Wedel 5 years, 1 month ago

And to be fair, it was just the Iron Horse that soaked up the sales tax revenue from the boom. The City also allowed every dept to grow and so overall expenditures went up substantially.

The budget was up something like 40% over 3 years.

If the City had budget discipline and restrained spending growth to inflation plus population growth over the past 5 years and put the rest into reserve then there never would have been a need for budget cuts.

So if the City is not going to build reserves during boom times then it is going to have cut during tough times.

Maybe they should do an honest, objective, scientific re-examination of our city budget and spending practices.

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Scott Wedel 5 years, 1 month ago

above was supposed to say "not just the Iron Horse"

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JLM 5 years, 1 month ago

Scott Wedel's comments hit the mark dead center. The City simply does not have the basic, fundamental financial planning discipline to look out over a time period sufficiently long to anticipate both expansion and contraction in its financial plans.

This is a problem --- an inexcusable problem --- both for the professional staff and the politicians.

Everybody wants the freedom and flexibility created by expanding revenues while ignoring the reality that a portion of the expanding revenues must be conserved for the times when the City's economy contracts.

The City needs 1, 2, 5, 10 year budgets with high, medium and low revenue projections based upon documentable assumptions.

The City needs to be nimble and to modify its spending quickly, in real time to changing conditions based upon forecasts rather than on historical financial statements.

The problem with having a diverse system of tax revenue sources is that they all always go up and they never come down. Never. Ever.

The tax burden on a homeowner in SBS is too high already.

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Paul Hughes 5 years, 1 month ago

Scott, you make good points. I would suggest, however, that a property tax never makes annexation "profitable." It simply makes it "bearable." And I'm not suggesting that we add a property tax to the taxpayers' burden; I'm suggesting that we might (emphasis on might) find that a mix of property tax, sales tax, building & use tax, excise tax, and fees for services would result in lower taxes for the people who can least afford them; higher taxes for those who can afford them; and at last some taxes for the large and growing number of second-home owners who currently pay little or nothing for the services that must be provided for them. The important thing is to start out by having completely open minds and doing "what-if" scenarios that take into account all of the possible combinations. Perhaps we would come up with a tax system that will work for us in 2009, rather than trying to get by on a system that worked in 1975.

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Scott Wedel 5 years, 1 month ago

I don't think the SB homeowner is paying too much in city taxes. I fear a city property tax because it adds a squeeze to those already barely able to afford to live in SB. Though, my main fear is that a property tax would just be more money to an already historically wasteful city government.

I just think that the City has plenty of money. It gets so much from sales tax that there is no lack of revenue to create a reasonable budget.

The challenge for SB is decide whether they want they want a stable or volatile budget. If they want a stable budget then during good times they need to put most of the revenue growth into reserves for bad times. SB could have been putting 10% of revenues into reserve for the past few years.

If they want a volatile budget then they just need to keep on doing what they have been doing which is to spend most of the revenue growth during good times. And so when revenue falls then there has to be equally large budget cuts.

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Scott Wedel 5 years, 1 month ago

To put it bluntly, I have ZERO confident that redoing the tax structure would be anything other than a tax hike.

If sales tax was reduced to make the new tax structure revenue neutral then it would not be long before someone thinks of a spending project that needs the sales tax restored to the legal maximum.

And if there was some fairness modification to the sales tax needed to make it fairer then if that was a sincere priority then it could have been done during the boom when the city was swimming in sales tax revenues.

The "fairness" argument ONLY COMES UP WHEN THEY ARE LOOKING FOR MORE MONEY!!!!!

How about the next time sales tax is up more than projected month after month to then look at fairness of city taxes?

And BTW, don't go around talking about "fairness" by claiming there are people that don't pay enough taxes. If you want to argue fairness then talk about the people that pay too much and how you'd change that. (Note that wouldn't be honest or scientific because it is purely a policy argument)..

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exduffer 5 years, 1 month ago

Why does switching to a property tax not make sense? If sales taxes are down do you stop plowing roads or turn off the water to condoville. Look at Wildhorse, One house that is not occupied (not sure on the status of the condos) and the city was already plowing the road this winter. Was that cost neutral? What the city's biggest mistake is is forgetting that when you build a new capital project you have to plan for eternity to fund the maintenance and operating budgets or shut it down. Does the Tennis Bubble ring a bell.

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Scott Wedel 5 years, 1 month ago

Exduffer, Revenues are down compared to 2008. I think 2009 will also have less than 2007.

But revenues are up substantially compared to 2004 when revenues started increasing dramatically.

So if the City had limited spending growth to 5% a year for the past 5 years then they would have been putting a huge amount of money into reserves and would have not needed to make any budget cuts when the boom finally went bust. You can see how fat the City got by what was cut which was staff and such that had greatly increased over the past few years.

And the City is going to make a ton of money from Wildhorse as soon as those owners start putting units into the nightly rental pool since rentals have to pay sales and lodging taxes.

And it was not long ago that the City had so much money that they thought it was worth buying the Iron Horse that in the best of times was still going to be a money loser. A city of 10,000 people losing $500K a year on something like Iron Horse would be a catastrophic mistake in any other city of similar size. The only reason SB can survive this is because it already has tons of money for a city of its size. And they have the money to spend on the Rehder building for yet another SB museum.

The City even now has a ton of money. The only issue is that they have less money that a sky rocketed peak.

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exduffer 5 years, 1 month ago

Scott But what if 700 gets built (infrastructure not houses) and nobody comes. If the city has taken on responsibility for the care and maintenance of that infrastructure and there are no additional tax revenues what gets cut. Paul is right there needs to be some sort of tax to cover the basic services provided to all housing and business unit in thcity whether they are occupied or not. What if Wildhorse properties are only owned by people who spend two weeks a year here and decide not to rent out there homes or condos. Property taxes (whether occupied or not) to pay for maintenance and publc safety are a necessary evil. Sales tax paying to provide access to empty homes or condos is not.

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Scott Wedel 5 years, 1 month ago

I'll accept that some point in the future that it is theoretically possible that the City is not getting enough money from sales tax and should then look at a property tax.

Right now the City is still getting a huge amount of money from the sales tax and their current budget issues exist only because they allowed City government to grow as fast as revenues increased during an historic boom.

A City that is so flush with money that the City Council and city officials could do something like the Iron Horse purchase has shown it has the far bigger problem of having more money than brains.

Before the public would accept a property tax then the City would need to fix its budget process. Most important fix is to limit spending growth during good times so that there are sufficient reserves for bad times. Second would be some limitation of what the City could spend in closed door sessions. it is simply intolerable that millions of dollars can be spent in a real estate purchase that is a complete surprise to the community.

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bubba 5 years, 1 month ago

One other point, exduffer seems to be concluding that the City gets no money from a property that is built and then sits vacant for most of the year. The Use Tax in the building permit process ensures that this is not the case; in fact, in the extreme situations that exduffer put out there, the City collects a few million dollars up front in exchange for plowing some vacant roads. Not to mention that sales-tax wise, I'd guess the family that owns a vacation home here and spends two weeks a year in it probably spends at least as much on antler chandeliers and one-piece ski suits while they are in town as I spend on groceries and bike parts the rest of the year, so it's not like we're not getting tax money from vacation homes.

I'd have to agree with Scott that the real problem is a complete inability to separate required government spending (like cops and snowplowing) from niceties (like free buses, golf courses, tennis bubbles, museums, bedbug infested hotels, etc...) is the real problem. Until the local government can show some responsibility with the money they do have, I see no reason to increase the taxes.

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JLM 5 years, 1 month ago

Bubba raises a great issue and makes a very pointed observation.

Well run cities should formulate operating budgets which clearly segregate "mission critical" funds, "discretionary" funds and "capital" expenditures.

Why?

So they can simply look at their budgets in tough times like today and shed expenditures with a clear eye toward the priorities which they were assigned when the budget was prepared.

Within mission ciritical funds priorities should be assigned which immediately prioritize the manner in which they would be elminated. Fire trumps pets? Public safety trumps airport hangers?

Discretionary funds should be similarly prioritized though almost the entire expenditure class is subject to elimination in tough times --- hell, that's why there were classified "discretionary" in the first place.

Capital expenditures should also be discriminated by those expenditures which can be cancelled, delayed, lengthened or otherwise managed to minimize their short term impact.

A well constructed budget and a competent CFO working in concert with an experienced City Manager would actually take this approach into consideration by its very construction assigning account codes which correspond to the importance and priority of individual expenditures in a manner that would suggest the manner in which they would be shed in tough times.

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