Voters could decide on tax increases this fall

City council looking at sales, lodging, marijuana tax increases as finances sputter

David Gilbert
Posted 2/22/21

Littleton City Council could ask voters as soon as this November whether to raise local taxes, in efforts to shore up sputtering city finances hit hard by the COVID crisis. City council is exploring …

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Voters could decide on tax increases this fall

City council looking at sales, lodging, marijuana tax increases as finances sputter


Littleton City Council could ask voters as soon as this November whether to raise local taxes, in efforts to shore up sputtering city finances hit hard by the COVID crisis.

City council is exploring a range of budget-boosting ideas, including asking voters for an increase in the city sales tax, a first-ever lodging tax, an increase in the tax rate on retail marijuana sales, and a handful of other tax proposals and fee increases.

Colorado law requires popular votes to change tax rates, though governments can increase fees without voter approval.

The proposals come in the face of dire financial forecasts showing the city's capital projects fund — which covers a vast array of transportation, infrastructure and fleet costs — dwindling to a mere $2,000 over the next five years, despite ten of millions of dollars in identified need.

“That should alarm all of us,” City Manager Mark Relph told council at a Feb. 9 study session.

Relph has long sounded the alarm over the city's dwindling capital projects fund, which for years has fallen short of needs.

Watch the Feb. 9 study session.

Read  the supporting documentation for the Feb. 9 council study session.

“We owe it to our community to tell them this story,” Relph said. “We must let them know we have a crisis that must be solved.”

The list of needs that fall under the capital projects fund is daunting, but the biggest-ticket items include repairs and replacements of city vehicles including police cars, replacing crumbling public works buildings, meeting the requirements of the Americans with Disabilities Act, and securing matching funds required to obtain state and federal grants for massive highway projects that could top hundreds of millions of dollars.

The fund has three primary sources: building use taxes, which are levied on new development, gasoline taxes, and an annual $3.1 million infusion from the general fund earmarked for road projects that began in 2020.

The building use tax has long been volatile, fluctuating widely from year to year. Gasoline tax revenues, which have been weakening in recent years anyway, took a dive in 2020 as COVID closures curtailed how much people drive.

The list of projects identified by city staff comes out to more than $400 million on a 20-50 year timeline, according to city documents, with unfunded needs of $12.5 million in 2021 alone.

Some of the needs are dire, Relph said, citing a public works building built shortly after World War II that is corroded to the point that it can no longer be repaired.

“We're asking employees to work where it's unsafe,” Relph said, saying one building on the public works campus collapsed under a heavy snow load in recent years. “We need revenues in place to react.”

To address the funding gap, Relph suggested an idea long bandied about in Littleton government: increasing the city's sales tax rate.

Littleton's sales tax rate is currently 3%, which city finance director Tiffany Hooten said is lower than the metro-wide average of 3.48%. Hooten presented a range of proposals, raising the rate to 3.25% to as high as 4%, which could raise more than $12 million a year.

Surveys of Littleton residents have long shown strong support for a sales tax increase, according to city documents, with at least 77% of residents polled strongly or somewhat supporting the concept in 2016, 2018 and 2020 — though the most recent survey was conducted before the COVID crisis.

Relph advocated waiting until 2022 to ask voters for a sales tax increase, saying identifying specific earmarks for the increase and building public support will take time.

“We cannot fail,” he said. “We have one shot at this ... we're coming out of the COVID recovery with an economy that's unknown.”

Councilmember Pat Driscoll, however, was adamant that the great need and the years of surveys suggest there's no need to hold back.

“I think citizens have spoken, and I think they've been speaking for four years,” Driscoll said. “I don't know why we have to go through more surveys and beat the options to death. I would prefer to move forward.”

Councilmember Kelly Milliman backed Driscoll.

“Why wait?” Milliman said. “I get it, it's COVID, but people can understand we're in a crisis. It's not getting better. In fact, it's getting a lot worse ... If we have good messaging and make it easy to understand, we could get this passed.”

Councilmembers Elrod and Grove also supported pursuing the sales tax increase this fall, though Mayor Jerry Valdes advocated holding off until 2022, and Mayor Pro Tem Scott Melin urged restraint.

“I hear what the city manager is saying,” Melin said. “If we want to maximize our chances for success, we've got to be conservative in our approach.”

Councilmembers also supported a proposed lodging tax, with staff proposing a 3% rate. Pre-COVID estimates suggested such a tax could net $425,000 per year, though occupancy rates at the city's handful of hotels have fallen sharply in the past year.

Elrod said the time is right for a lodging tax — which Littleton currently does not have.

“There's always some reason it's not the right time,” she said. “We're behind the curve here ... Yes, it's COVID, and people aren't traveling, but they will again. Let's rip the Band-Aid off. It's a visitor tax, not a tax on our residents.”

Though a staff proposal suggested waiting until 2023 to ask voters for a lodging tax to give hotels time to recover from the downturn, Elrod said the lodging tax's proposed uses, including to support cultural amenities, couldn't wait.

“These are the industries that are hurting the most,” Elrod said of the city's arts and culture scene. “If we wait until 2023, there may be nothing left to support.”

Melin urged caution on the lodging tax as well, citing a 2013 proposal that got shot down at the ballot box.

“I don't think we can be overconfident about it,” Melin said.

Another proposed tax increase, on retail marijuana, found more ambivalent support among councilmembers, with several saying they need to know more about what an appropriate amount would be, but nominally expressing support for placing an increase on the 2021 ballot.

Voters approved retail marijuana sales in Littleton last fall, allowing the city's three medical marijuana retailers to begin selling to the general public. The ballot measure set an additional 3% tax rate on retail sales on top of the city's 3% sales tax rate, which Hooten said could be pushed even higher. Currently, marijuana sales are expected to net roughly $1 million in annual tax revenue.

An increase could be used to create a “seed fund” to pull the city's vehicle fleet budget out from the volatile capital projects fund, she said.

Several councilmembers said without further research, council ran the danger of asking for a tax rate that could make Littleton's marijuana sales less competitive than surrounding jurisdictions.

Other taxes and fees found little support among council for the time being, including a grocery tax — Littleton voters overturned a prior grocery tax through a citizen initiative in 2005.

Councilmembers were also ambivalent on fee increases, which Elrod called a “sneaky” way to increase revenues in hard economic times.

Through the entire meeting, one councilmember stayed silent: Carol Fey, who offered no response to any proposal.

Mayor Valdes pressed Fey for her opinion, leading to an odd exchange in which Fey repeatedly rebuffed him.

“You're the only one who hasn't given direction,” Valdes said.

“Correct,” Fey said.

“You're choosing not to participate, or what's going on here?” Valdes said.

“I have no comment on this,” Fey said.

“Is there a reason you don't want to participate?” Valdes said.

“Nope,” Fey responded.

At the end of the meeting, with councilmembers settled on exploring increasing the sales tax, lodging tax and retail marijuana tax as soon as this fall, Relph said he was concerned about overloading the ballot.

“I've never heard anything like this before,” Relph said. “I don't think this is a recipe for success.”


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