On Monday, June 20, Steamboat Springs City Council approved the first step to ask the city’s voters to support a 9% tax on short-term rentals, which would be used to increase the stock of affordable and attainable housing locally.

If approved by voters in November, the tax would collect about $11.7 million in 2023 based on an estimate from City Finance Director Kim Weber, who said she assumed less gross revenue from the rentals next year than what is projected for this year.

While not specifically called out in the proposed ballot language, money generated by the tax would support the Yampa Valley Housing Authority’s Brown Ranch development, where infrastructure costs have been pegged at $400 million.

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City Council voted 6-1 to approve the ordinance on first reading. Council member Michael Buccino was opposed. Second reading is set for July 5.

“I think the entire community will benefit from the affordable and attainable housing,” said council member Dakotah McGinlay during council’s discussion. “I think that short-term rentals should pay their fair share.”

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Affordable housing in Steamboat has never been plentiful. Routt County’s 2003 master plan says the problem had been discussed for decades without much progress. That stock of housing available has been further depleted since the onset of the pandemic as more remote workers flocked to mountain communities.

In the last year, hotels have been converted to employee housing, nearly 1,000 people signed an interest list for a 90-unit workforce housing complex and there are staffing shortages for positions across town including restaurant workers, medical professionals, law enforcement and educators.

The 536-acre Brown Ranch property was purchased with an anonymous donation to the housing authority last year. The housing authority has been working on development plans for the last nine-months and hopes to add as many as 2,300 housing units over the next 20 years.

In addition to collecting funding for housing, supporters of the tax say it could also address disproportional taxes on commercial hotel operations and short-term rentals. While both pay the same local lodging taxes, a short-term rental pays a 7% residential property tax rate, rather than the 29% commercial rate.

During public comment, an organized group from Steamboat’s lodging community opposed the new tax on short-term rentals.

Andy Wallace, chair of the Steamboat Springs Lodging Association, instead proposed a combined measure that would increase the current lodging tax by 2% and impose an additional 0.75% sales tax across the city, excluding groceries and utilities.

The group included managers of hotels, executives at lodging management companies and other business leaders. They argued that a new tax on short-term stays would put Steamboat at a disadvantage to other resort communities that don’t require as high a fee.  

Mark Walker, president of the management company Resort Group, pointed to Vail, Beaver Creek and Aspen, which all currently have lower lodging taxes than the 11.4% that is currently assessed on most rentals in Steamboat. With this new tax, he said, Steamboat’s rate would be 10 percentage points above Vail’s.

“This will drastically impact the professional management companies that manage many of these STRs that operate peacefully,” Walker said, adding that his company provides a significant number of local jobs, both directly and indirectly.

Resort Group manages about 600 nightly rentals and recently purchased the Inn at Steamboat in an effort to obtain housing for employees.

Others in the group said the tax wouldn’t be “recession-proof” because travel trends can fluctuate. Instead, they said the community should find a “more diverse” stream of revenue to deal with the local housing problem, adding that it needs to be a community-wide solution, not just one that comes from short-term rentals.

“Our community has demonstrated that if there is an issue to solve, and they believe in that issue, they are willing to tax themselves,” said Dan Pirrallo, general manager at Sheraton Steamboat Resort. “I ask you to pause and consider the alternatives.”

When the group finished, Jason Peasley, executive director of the housing authority, spoke in support of the tax, noting that the community is already taxing itself to support housing.

“Our 1 mill property tax is paid for by locals, by businesses, by second homeowners,” Peasley said. “We’ve got this 1 mill property tax that these people are sort of skirting around because they are running a commercial operation out of a residential property.”

Buccino, who supported the alternative tax combo, said 75 cents more paid on every $100 he spends wouldn’t be a burden for him, but he asked fellow council members Eddie Briones and McGinlay their thoughts. Neither thought an increased sales tax would be palatable with voters.

“An increase in sales tax would definitely not pass,” Briones said. “The community feels that the STR issue is why we are here to begin with because of a shortfall in workforce housing. So why should the community pay for it?”

In 2018, a smaller 0.2% sales tax meant to support the local air program didn’t pass muster with voters, failing by about 300 votes.

City staff had initially proposed an 8% tax, but council was divided, with three members favoring that number and three others favoring 10%. The 9% mark stems from a compromise.

Council also tweaked ballot language to make it clear the money could be used to support transportation infrastructure as well.

As written, the tax would go into place Jan. 1 and sunset after 20 years if it’s approved by voters.