Collecting more money than expected is not usually a bad thing. But for the city of Durango, which has brought in at least $50,000 more than expected from a voter-approved lodgers tax, more money means more problems.
A busier-than-expected summer tourism season caused lodgers tax collections to go through the roof – in this case, a $900,000 ceiling that the city estimated it would collect for the whole year. It is already $50,000 over that amount, with 2½ months to go.
“We didn’t see this summer coming,” said Durango City Manager José Madrigal.
When asking voters to increase the lodgers tax in April, the city had to estimate how much it would raise, in accordance with the Taxpayer’s Bill of Rights.
“As part of that tax increase ballot question, it requires that kind of an estimate of the collections be made,” said City Attorney Dirk Nelson.
Now that the city has collected more than its ballot estimate, Colorado state law requires the overage be returned to the taxpayers, or residents must vote to allow the city to keep the excess.
“We are required to find a way to refund it, or put another question on the ballot asking the taxpayer to allow the city to retain those excess amounts,” Nelson said.
Nelson said it would be impractical to refund the money to taxpayers because the money accumulated came almost exclusively from visitors.
Durango City Council must make a decision as to whether the city will find a way to repay taxpayers, or craft a measure that lets the city use the money.
The city’s ballot estimate for the new lodgers tax was mostly based on lodging numbers from 2019 because of the pandemic in 2020.
“We sort of threw away the 2020 numbers because of COVID, but we looked at the historical collections on the lodgers tax, which at the time was a 2% rate,” said Durango Finance Director Cynthia Sneed. “Then, from there, looked at trends from the prior years and sort of extrapolated that into what we thought would be a reasonable collection for the incremental fees.”
Ballot language was crafted in January and February, when there was still some uncertainty as how quickly COVID-19 vaccines would become available.
“Vaccinations were just rolling out, and there was a lot of news that maybe it wouldn’t be till fall that we’d be back to normal,” Madrigal said. “I don’t think anyone had any expectation that we would have these record-breaking numbers in our tourism industry.”
It is important to note TABOR applies only to overages for the 5.25% lodgers tax implemented June 1, and not the previous 2% tax.
“We collected what was approved, but that picture that you’re supposed to give the voters with that estimate was not accurate,” Madrigal said. “Therefore, we now have to hold on to those funds outside of that $900,000.”
Nelson said collecting too much money from the tax won’t be a problem in future years.
“We have made a forecast for 2022 that is higher than the $900,000,” Nelson said. “The TABOR limit doesn’t apply to that. We’re just required to provide those numbers initially, and then going forward its whatever amounts we collect.”
The city believes it will be about $500,000 over its approved $900,000 by the end of the year.
The soonest Durango could put a question before voters for keeping the excess revenue is November 2022.
If Durango voters choose not to allow the city to keep the money, Nelson said city staff will have to get creative about how to refund the money.
“There are other towns that have faced this and there have been creative attempts to refund money,” he said.
An earlier version of this story said the city believes it will be about $100,000 over its projected $900,000 limit on the lodgers tax. The city revised that figure Thursday to say it will be about $500,000 over the projected $900,000.