It is crazy to think that every major ski town in Colorado has made the same major mistake and that nobody has noticed until or done anything until now. What caused every ski town to duplicate the same mistake? What does this mean for property owners? When will Colorado ski towns from Steamboat to Crested Butte have to face this mistake?
What mistake has every Colorado ski town made?
As ski towns throughout Colorado have felt the impacts of huge jumps in tourism, they have adjusted their budgets for police, fire, road and bridge, parks, etc.. that are in many cases now fixed costs and yet these same ski towns rely on a variable income source to fund these fixed costs.
Anyone who has studied basic economics understands the huge risks that every ski town has put themselves in. It is only a matter of time before the issues start to crop up where income does not support the expenses that each ski town is now incurring.
Take for example Steamboat, over the last 4 years the city has committed to building a new fire station along with a new city hall. Both of these are million dollar projects for the initial build and they will cost substantial amounts of money to staff, maintain, etc… all of which are fixed costs.
At the same time, Steamboat, like almost every other ski town in Colorado, is reliant on sales taxes and yet sale taxes are starting to slow substantially almost in unison across the mountain towns. As these sales tax numbers decline, Steamboat and almost every other Colorado ski town has a big expense problem with not nearly enough revenues to cover all these expenses.
Every Colorado ski town has exasperated mismatch in revenue and expenses.
Although property values have increased in every ski town, it has not been enough to offset the huge increases in government spending, furthermore every ski town is heavily reliant on sales taxes to fund government services which is creating the issue we have today.
To help alleviate some of the tourism impacts and expenses, ski towns from Crested Butte to Steamboat Springs every Colorado ski town over the last four years has implemented taxes on nightly rentals. Ironically every single ski town has made the same mistake, all this money has been used for affordable housing development in the respective ski towns.
Unfortunately affordable housing is not nearly the only woe now facing Colorado ski towns. Take Steamboat for example, as highlighted above a new fire station is now needed due to an increase in calls due to higher visitation as the full time population has not changed as Steamboat Springs is currently growing at a rate of 0.71% annually and its population has increased by 2.91% since the most recent census, which recorded a population of 13,219 in 2020.
So long and short visitation is now driving huge expenses in every Colorado ski town. Yet, as highlighted above, new fire stations, city halls, road projects, etc… are still paid for by sale tax revenue that is quickly declining.
How should Colorado ski towns solve the crisis they have created?
Each Colorado ski town has made the same mistake only focusing on a unique funding source for affordable housing as opposed to the impacts of tourism to fire, police, roads, parks, etc… which is coming to light with the slowdown in sales tax revenue.
Instead of each Colorado ski town focusing just on affordable housing they need to broaden their scope to focus on the impacts to county budgets from increased visitation. Every Colorado ski town should instead of just taxing nightly rentals for affordable housing, split the same tax revenue up three ways 1) affordable housing 2)police/fire/search and rescue 3) transportation (buses, trails, roads, etc…)
When will Colorado ski towns have to pay for their mistake?
Unfortunately sooner than everyone is predicting. Steamboat City Finance Director Kim Weber told City Council on Tuesday that she is projecting the city’s sales tax to increase 2% over last year’s figures, which will likely require some cuts to current city services.
“We plan on starting the budget with 2% above the current year, which as you know is going to make for a difficult budget year because inflation is higher than 2%,” Weber told Council on Tuesday. “What it will probably mean is a reduction in services in some way, shape or form.” Roughly two-thirds of the city’s revenue comes from sales taxes
Other ski towns are seeing similar trends. Vail saw sales tax collections increase 16% in the start of 2023, but they are actually down 2% through March of 2024. It is a similar story for Winter Park, which saw a 9% increase to start 2023 but was up just 3% to start 2024.
Long term trends look even more ominous for ski town budgets
Vail resorts just announced that they were laying off 14% of their workforce. Furthermore visitation was down 9.5% last year and pass sales for the 24/25 season are down 3%. Furthermore, the overall travel industry is showing a downward trend:
Booking Holdings Inc., the parent company to almost a dozen travel brands including Kayak and Priceline, delivered a disappointing forecast for the third quarter, even though it posted second-quarter results that mostly beat analysts’ expectations. The results add to worries a slowdown in vacation demand is looming, with airlines and hotels warning of a dip in demand.
Why don’t ski towns just raise property taxes?
Unfortunately this has been tried many times and more often than not has failed. Many full time ski residents are not apt to raise taxes to support higher visitation. They would prefer less visitation and would not be excited to raise taxes.
Summary
When time are good and the money is flowing it is easy to kick the can down the road regarding expenses. This is what every ski town has been doing as their coffers have been overflowing with tax revenues.
Unfortunate every Colorado ski town has made a colossal mistake by growing tourism and visitation without coming up with a stable funding mechanism to pay for the impacts. Unfortunately the emphasis has been primarily focused on housing related issues as opposed to the full economic impact to county/city services. For example, due to higher visitation there are huge increases in call volumes on police, fire/medical, and search and rescue and yet these impacts have not been adequately addressed.
Fast forward and tourism is slowing with sales tax revenues down in most ski towns and this situation is only going to get worse as the economy continues to slow down. Fortunately it looks like it will be a gradual slow down to enable the various cities to “right size” their expenses. But, as an economist can tell you is that nothing happens exactly as planned and their could easily be a “shock” to the tourism economy. For example, what if we get a very strong La Nina which pushes snow to our south leaving Colorado with a below average year, we could see an even more substantial drop in sales tax revenue.
The various ski towns will have to “pay the piper” over the next several years as there is no free lunch in economics. Expenses will vastly exceed future revenue collection and hard choices need to be made. The unfortunate part about this situation is that it was 100% preventable if ski towns would have taken a much more measured approach to visitation that didn’t require the huge expenditures required in the county for police/fire/rescue, etc.. to support the surge in visitation.
Additional Reading/Resources
- https://www.bloomberg.com/news/articles/2024-08-01/booking-beats-on-room-nights-even-as-travel-spending-slows
- https://www.bloomberg.com/news/articles/2024-09-30/carnival-slumps-on-soft-outlook-even-as-demand-for-cruises-rises?srnd=homepage-americas
- https://www.engagesteamboat.net/new-fire-station-city-hall
- https://snowbrains.com/vail-resorts-2024-financial-results-net-income-down-15-skier-visitation-down-9-5-100-million-efficiency-plan-unveiled/
- https://coloradohardmoney.com/6-co-ski-towns-rentals-effect-on-estate/
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Glen Weinberg personally writes these weekly real estate blogs based on his real estate experience as a lender and property owner. He is the owner of Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine, The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
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