Two local residents filed a lawsuit against the city of Manitou Springs and the Manitou Springs City Council Aug. 20, claiming that their petition for a referendum on a recently adopted ordinance to provide subsidies to the Cog Railway for the next 50 years was illegally rejected.

In their lawsuit, John Shada and Brenda Kay Gillen challenge the claim by the Manitou Springs City Clerk that the agreement is not subject to voter repeal because it is an “administrative” issue rather than “legislative.”

“The Cog Railway agreement will be the biggest issue to impact Manitou Springs in our lifetime,” Shada said. “Any decision of this magnitude needs to be made by the voters of Manitou Springs.”

Shada and Gillen are seeking a declaratory judgment requiring Manitou City Clerk Donna Kast to allow them to collect a minimum of 223 petition signatures from registered voters to force City Council to either void the ordinance or put it on the ballot for a binding up-or-down vote.  

Attorney Howard Morrison is representing Shada and Gillen in District Court of El Paso County, where the lawsuit was filed.

Manitou’s City Council passed Ordinance 1318, enacting the 50-year tax agreement with the railway, on June 26. The agreement, attached to the ordinance, caps the excise taxes the Cog would pay to the city at $500,000 per year beginning in 2020. The cap amount increases periodically through 2070.

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In addition, the agreement waives a 3.8 percent use tax on capital assets purchased by the Cog while it makes extensive repairs and renovations to the trains, track and station.

The railway has agreed to pay the city $500,000 this year and another $500,000 in 2019 to partially offset the loss of sales and excise tax revenues while the Cog is closed for repairs.

In addition, the Cog pledged to partner with the city on remedies to Cog-related Manitou issues such as traffic and parking, and agreed to work with Manitou on a world-class railway museum. The railway is owned by The Oklahoma Publishing Co., which also is the parent company of The Broadmoor hotel.

The railway shut down last fall and did not reopen this spring. Its owners say they need the tax incentives in order to invest $75 million to $95 million in repairs and upgrades.

The agreement was first presented to Council — and made public for the first time — on June 12, but Mayor Ken Jaray said negotiations between a city team and Cog officials had been ongoing for some time.

Since then, a group of citizens has expressed concerns about the lengthy term of the agreement, the fact that the tax incentive schedule was not indexed to inflation, and the agreement’s lack of specificity about the railway’s role in helping Manitou to solve traffic and parking issues.

Shada and Gillen submitted a referendum petition to Kast on July 17 to be reviewed as to form. The petition would have required the City Council to reconsider Ordinance 1318. If Council voted not to repeal the ordinance, it would have been required to submit the question to city voters at the next general election or a special election.

Kast informed Shada and Gillen on July 23 that she was rejecting the petition on grounds that the agreement was not of a “legislative nature” and thus not subject under state law to a referendum. In addition, Kast stated that Manitou’s charter provides that ordinances to meet contractual obligations are not subject to referendum.

The court filing maintains that the ordinance is “legislative” because it amends the City’s Amusement Tax legislation enacted in 1971.

“This was an agreement created in a legislative context, in a legislative setting,” Shada said Tuesday. “It’s not a contract to procure a new street sweeper. We contend it meets the charter requirement.”

The lawsuit also contends that the ordinance “is effectively changing the amount of tax and the tax rate [the city] is charging the cog railroad. … The city cannot lower that tax rate and call what they did an administrative action.”

Shada said the result could be a total loss of revenue of up to $61 million.

“We are in favor of the Cog Railway resuming operations,” Shada said, “but we just believe that six people, in two weeks of public process, should not be making such a large financial concession. This unprecedented deal provides a long-term tax break to a private corporation owned by Phillip Anschutz, the richest man in Colorado. No financial need was ever documented.”

“The ordinance is an enormous tax give-back to the Cog Railway spanning 50 years,” Shada said. “Whether property taxes, sales taxes or whatever, somebody else is going to have to fill in that $61 million. That will have to be done legislatively and probably will require a vote of the people [under TABOR.] We will have to fix this legislatively and at the ballot box.”

Editor’s note: This story has been corrected to reflect the official filing date for the lawsuit, which was Aug. 20. An earlier press release gave Aug. 21 as the date of the lawsuit.