Manitou seeks to flesh out cog railway agreement

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The summer produced more business for the Pikes Peak Cog Railway than in the recent years, likely helped by a free shuttle.

Manitou Springs City Council has rejected a citizens’ petition to force reconsideration of the city’s 50-year tax incentive agreement with the Pikes Peak Cog Railway.

Mayor Ken Jaray, however, is seeking to address some of the concerns about the agreement expressed at a July 18 town hall meeting at the Briarhurst Manor, hosted by The Pikes Peak Bulletin, the Business Journal’s sister publication. At the same time, a group of citizens is urging a public vote on the 50-year deal.

Jaray presented what he called “addendum 1— the first of a number of addendums to flesh out and implement the agreement” to Manitou Springs City Council on Tuesday.

The original agreement would cap excise taxes the cog would pay the city at $500,000 per year beginning in 2020. The cap would increase periodically through 2070. Further, the city would waive a 3.8 percent use tax on capital assets purchased by the cog for the project, amounting to an estimated $900,000 to $1 million.

Under the agreement, the cog would pay the city $500,000 this year and in 2019 to partially make up for the loss of sales and excise tax revenue while repairs are being made. In addition, the cog pledged to partner with the city on remedies to cog-related quality-of-life issues including traffic congestion and parking, and help launch a world-class railway museum that would highlight the history of the cog and the city.

The railway is owned by The Oklahoma Publishing Co., which also is the parent company of The Broadmoor hotel and the Colorado Springs Gazette.

The cog shut down late last fall and did not reopen because, the railway’s owners stated, it needs major repairs and upgrades. Its owners say they need the tax incentives to guarantee revenue in order to invest $75 million to $95 million for the repairs.

Manitou business owners including Terry Haas, co-owner of the Garden of the Gods Trading Post, have said they have already felt the loss of the cog. Council heard a first reading of the agreement on June 12 and gave final approval in a 6-1 vote on June 26.

PROS AND CONS DEBATED

At the July 18 community meeting, which drew more than 150 people, residents said they were concerned about the 50-year term, the agreement’s lack of specificity regarding the cog’s role in solving quality-of-life issues and the fact that the tax incentive schedule was not indexed to inflation.

Without indexing to inflation, “things are going to look great for 10 years,” Manitou resident Tim Beeson said. “Then after we scrape the cream off the crop, people are going to feel that we mortgaged Manitou Springs.”

Manitou resident Judith Chandler said citizens bear the environmental, traffic and other impacts related to the cog.

“Yes, we get the tourist money, but we have to deal with everything else that goes along with it,” Chandler said.

Manitou resident Francois Raab said robust public engagement has been lacking and is needed going forward.

“We need to come together and put a lot of meat on those bones,” Raab said.

Former Manitou Mayor Marcy Morrison said no one wants to lose the cog, “but I morally have a problem with the 50-year contractual arrangement for this community.”

During and after the meeting, organizers John Weiss, owner and publisher of The Bulletin, the Colorado Springs Independent and the Business Journal, and former Manitou City Councilor John Shada collected more than 100 signatures from people who said they supported a petition to force council to reconsider its approval of the agreement.

But some business owners and residents said the benefits the cog brings to Manitou were too significant to jeopardize.

“The benefits are pretty clear,” said Gwenn David, co-owner of the Avenue Bed and Breakfast and the Whickerbill gift shop, and president of the Manitou Springs Chamber of Commerce. “We all exist on the cog railway. We invested in Manitou because of it.”

Annie Schmitt, a volunteer for the Manitou Springs Chamber of Commerce, said that during a recent three-hour shift at the chamber, “70 people came in; 10 asked about the cog. Two groups of people said, ‘the cog’s not running; I’m leaving.’ The cog is important.”

COG BY THE NUMBERS

According to Manitou’s Interim City Manager Malcolm Fleming, around 300,000 people rode the cog annually when it was operational. Since 2013, ticket sales generated between $350,000 and almost $500,000 annually in tax revenue.

“Staff estimates that retail activity generated by the cog in Manitou Springs generates at least another $100,000 in sales tax revenue to the city annually,” Fleming wrote in a June 12 memo to council members.

In response to repeated questions about the tax incentive portion of the agreement, Manitou Councilor Bob Todd said he asked a colleague, Leon Hoshower, a retired CPA and Ohio University professor now associated with Todd’s firm Build Value Now LLC, to analyze the impacts of inflation on the amounts of revenue that would be returned to the cog under the agreement.

Ticket prices likely would rise over the 50-year period because of inflation and a potential increase of 50,000 passengers per year during the shoulder season, Hoshower stated in his analysis.

According to Hoshower’s calculations, over the life of the agreement, the cog’s revenue from ticket sales could range from $900 million to $1.4 billion, corresponding to annual inflation rates ranging from 2 percent to 3.5 percent.

The excise tax retained by Manitou, however, would remain the same regardless of inflation because of the cap. As a result, Manitou would retain $28.8 million in tax revenues during the 50-year period while subsidizing the cog by returning revenue totaling $13.2 million to $41.5 million.

Over the life of the agreement the cog will pay an effective excise tax rate of only 2 percent — a 60 percent discount from what other amusements pay, Todd said.

THE PETITION

Shada and Brenda Gillen submitted a proposed referendum petition to Manitou Springs City Clerk Donna Kast on July 17. The petition invoked a charter provision that would require city council to take another vote on the ordinance that authorized the agreement. If council voted to re-approve the measure, it would be referred for consideration by Manitou voters.

On July 23, Kast responded to Shada and Gillen, stating that her office was rejecting the petition because it does not propose municipal legislation. In addition, under Colorado law, Kast said, ordinances to meet contractual obligations are not subject to referendum.

Since then, Jaray said he and other city officials had returned to the negotiating table with cog representatives.

“Based on our last conversation, they are open to continuing conversations” to flesh out and implement the agreement, Jaray said.

The first addendum to the agreement, if approved by the cog and council, would be a memorandum of understanding under which the cog and the city of Colorado Springs each would contribute $50,000 toward the cost of a mobility study to identify ways to minimize traffic congestion related to the railway’s operation.

“I don’t think these additional MOUs have assuaged my concern, which is that this agreement has some demonstrative, obvious monetary advantages to [the cog],” Shada said. “Everything else is just little scraps thrown around.”

Shada and Gillen filed a protest of Kast’s decision on Wednesday.

Weiss said supporters of the petition process are retaining an attorney and are “in a wait-and-see posture.”

“If other entities in the Pikes Peak region are willing to help financially compensate Manitou for the tax breaks we’re providing, that would go a long way toward increasing our support for this agreement,” Weiss said. “We believe that a good place to start would be for the city of Colorado Springs to agree to compensate the subsidy Manitou is providing to the tune of about $250,000 a year, indexed to inflation. If the city of Colorado Springs and others pledge in writing to contribute their fair share, then I, for one, would be far less inclined to seek to place a measure on this November’s ballot.”