Cog Railway

Manitou Springs City Council approved a new 50-year tax incentive agreement with the cog railway on Tuesday, Nov. 8 but also told its negotiating team to keep trying to win further concessions on behalf of the city.

The railway, which is owned along with The Broadmoor by the Oklahoma Publishing Co., has been closed since last fall. Its owners say the attraction needs major repairs and upgrades that will cost almost $100 million and that they aren’t willing to undertake the project without the incentives spelled out in the agreement.

After negotiations between the railway’s owners and a team from Manitou Springs, the city councilors passed an initial agreement June 26.

The original agreement capped the 5 percent excise tax the cog would pay to the city at $500,000 per year. The cap amount would have increased periodically through 2070. The railway would also pay the city $500,000 this year and $500,000 in 2019 to partially offset the loss of sales and excise tax revenue while the cog was closed for repairs.

The agreement came under fire from citizens who thought it bound the city for too long, failed to take inflation into account and required the city to rebate too much money to the cog.

In August, two citizens sued the city after the city clerk rejected their petition for a referendum on the issue.

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The new agreement retains the cap on excise tax revenue for the first 25 years and rebate the excess to the cog. The cap would rise from $507,500 in 2021 to $557,548 in 2044. In the remaining years, the city would rebate either excess excise tax revenue above a specified amount, from $565,911 in 2045 to $775,000, or an amount exceeding 3.8 percent of Cog revenue in any calendar year, whichever is less.

In addition, the cog would pay the full 5 percent excise tax on sales that exceeded 375,000 tickets in any calendar year, and would pay the city an additional $250,000 in 2020 to make up for lost revenue.

More than 40 people attended the Nov. 8 Council meeting, and some raised the same objections as expressed about the original agreement.

“It is unfortunate that council finds itself between a rock and a hard place,” said Howard Morrison, who is the attorney for the two residents who filed the lawsuit. “The cog has placed you there. … What we’re faced with now is the definition of appeasement — in our case, surrender by the installment plan over 50 years.”

“I’ve never been through a public process any more confusing and disorienting than this one, former Manitou Councilor Aimee Cox said. “The numbers constantly change. How much does the cog need for this deal? … It feels like there’s sort of this open-endedness that I’m not comfortable with and I think you should not be comfortable with.”

Primary cog negotiator Gary Pierson was not present at the council meeting but reiterated in an Oct. 19 letter to Manitou Interim City Administrator Malcolm Fleming that “without confidence in our relationship and the financial incentives agreed to, … we will again have to assess the risk/rewards of such an exciting but risky project.”

Pierson, who was unavailable for comment, estimated that the new agreement would likely result in the cog remitting $34 million to $68 million to the city over the life of the agreement and the city rebating $7.5 million to $9.5 million to the railway.

“These are meaningful amounts of money and illustrate a spirit of partnership that must exist in order to get done what many people would say is impossible to financially justify,” stated Pierson, who is president and CEO of The Oklahoma Publishing Co.

Councilors unanimously agreed that the agreement would be null and void unless signed by both parties by Nov. 30. They approved the new agreement without further amending it by a vote of 5-2, with Councilors Bob Todd and Becky Elder dissenting.

Councilors then voted 4-3 to send the negotiating team back to the table to seek several provisions:

  • A flat tax for years 3 through 25 of the agreement, or a $10 million cap on rebates, terms that have been proposed before and rejected by the cog.
  • Additional annual payments if the cog does not reopen in 2021.
  • Consideration to the city, such as leasing the cog right of way to the city, if the railway shuts down for good at year 24 or later.

The council will give final consideration to the agreement at its Nov. 20 meeting.

Disclosure: The Business Journal’s owner, John Weiss, has been active in opposing the agreement.