Our View: Winter air service can’t be grounded
February 27, 2011
The critical importance to our economy of Steamboat Springs' ski season jet service underscores the need for a quick solution to the impending funding crisis for the flight program.
The winter air service program works like this: Our resort community negotiates minimum revenue guarantees to commercial airlines, who in turn bring ski-season flights to Yampa Valley Regional Airport in Hayden.
About half of the $2.5 million annual budget for the program is generated by revenues from a 2 percent lodging tax within the local marketing district. The Local Marketing District was created in 2005 to secure a more stable source of funding for the flight program. The other half of the annual budget comes from Steamboat Ski and Resort Corp. Other local businesses contribute a smaller percentage through the Fly Steamboat program.
Of this year's $2.5 million air service program budget, the local marketing district will contribute about $996,000 in lodging tax receipts and have to supplement that with $346,000 from its reserves. Ski Corp. President and CEO Chris Diamond said in late January that the program will burn through its $1 million reserve by the end of next winter.
Several factors play into the funding shortage of the program. First is that the lodging community has had to dramatically discount nightly rates during the past two seasons to attract guests. Lower rates combined with a down economy and fewer overall visitors has led to a 35 percent decrease in lodging taxes during the past two years. Local Marketing District revenues decreased from about $1.5 million in 2008 to about $1 million in 2010.
The second factor is discounted airlines fares and fewer available seats. Although decreasing fares can lead to higher demand for those seats, it also produces lower yields for the airlines, which then forces the air service program to make up for the increasing gap between what the airlines are making on those routes to YVRA and what the negotiated minimum revenue guarantee says they should make.
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Third is the shrinking number of lodging units that are on the nightly rental pool. Although there's been significant development of multifamily dwellings in the past eight years, many of them aren't in the nightly rental pool and therefore aren't subject to the Local Marketing District tax. There's been a total loss of about 2,000 taxable units since 2003.
Routt County Commissioner Doug Monger wasn't totally off base when he said recently that increasing airline subsidies while passenger numbers continue to decline isn't a sustainable model. But cutting off the program or significantly decreasing the available inbound seats to YVRA during winter would have a crippling effect on our economy.
Resort leaders have considered the creation of a rural transit authority that could seek as much as a 1 percent countywide sales tax to, among other things, help offset the funding gaps in the winter air service program. But the urgency of the program's funding crisis now has resort leaders focusing on a solution geared toward generating revenue exclusively for the air program. Potential funding sources could include temporarily raising the 2 percent Local Marketing District tax or seeking funding from the city and county.
We're not sure what the best answer is, but we know this: The winter air service program is crucial for a destination resort like ours. Fewer airline seats means fewer potential visitors, which means decreased business activity and less tax revenues for the entire community. And that's not an option Steamboat Springs can afford to live with.