It’ll be interesting (to say the very least!) to see how Colorado Springs voters react to Mayor John Suthers’ $36 million question on Nov. 3.
Raising the city’s sales tax rate by 0.62 percent should bring in about that amount annually, based on projected 2015 revenue estimates in the 2015 budget document. It’ll raise the city sales tax rate from 2.5 percent to 3.12 percent for a total rate of 8.25 percent. It may be enough to make a dent in the city’s massive infrastructure deficit, but raising the sales tax has few fiscal advantages — and many drawbacks.
The 2015 city budget estimated property tax revenues of $19.8 million compared to sales tax receipts of $147.8 million. Property taxes are stable, predictable and certain, while sales taxes are just the opposite. The city’s fiscal meltdown in the recent recession was a direct result of over-reliance on sales tax — revenues plunged abruptly, parks went unwatered, streetlights were turned off and furious residents blamed their elected and appointed officials.
At present, property taxes provide only 8 percent of total general fund revenue, while sales and use taxes provide 57 percent. Other sources include $32.5 million in “Utilities Surplus Revenue,” $4.1 million in traffic violations, $814,000 in tow and storage charges and $19 million from the state highway users tax.
Raising sales taxes by 24.8 percent, as Suthers and an 8-to-1 majority of City Council propose may be politically attractive — but it’s ethically questionable and fiscally imprudent.
Sales taxes are regressive by nature, falling heavily on the poor. If you spend most or all of your income on the necessities of life, the difference between 7.63 percent and 8.25 percent is significant. Moreover, it’s harder to evade such taxes by shopping at stores in the unincorporated county — unless you live nearby or have reliable transportation.
It also burdens businesses large and small, whose customers may decide to increase their online shopping and thereby avoid local taxes. Homebuilders and buyers alike will find the county more attractive – in theory, the construction materials cost of a house in parts of the county will enjoy a 3.25 percent advantage over an identical structure within the city.
We’ve already seen big retailers flee the city and set up shop nearby – witness the Wal-Mart/Sam’s Club relocation from South Academy to a site that’s legally in Fountain, thanks to a dubious flagpole annexation. The loss of the two stores cost the city $3 million in annual tax revenue.
Given that local residential property taxes are among the nation’s lowest, and that the city’s share of such taxes is minute (just 7.2 percent of the total property tax bill of a single-family residence located in School District 11), you’d think that our elected leaders would at least consider raising them.
But they’re afraid to even try. They know that Douglas Bruce and his co-religionists would accuse them of doubling or tripling property taxes, and they assume that the voters would buy into his flim-flam.
That’s not leadership. That’s political expediency, driven by the assumption that local voters are ignorant, bull-headed and easily misled. They may be right, but it’s hard to imagine that sticking Colorado Springs with the highest sales tax rate of any major city in Colorado will be to the city’s long-term benefit.
It might have made more sense to raise sales taxes modestly, increase lodging and automobile rental taxes, and raise property taxes as well. Such a complex package might be difficult to sell, but so what? Leaders lead…or do they?