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Cog Railway and Manitou Springs make a deal for tax subsidies

Railroaded? Opinions split on Cog deal


America’s Mountain won’t see railway cars in motion until 2020 at the earliest. - COURTESY VISIT COS
  • Courtesy Visit COS
  • America’s Mountain won’t see railway cars in motion until 2020 at the earliest.
A Manitou Springs agreement to put millions in rebates of the city’s excise tax into the pocket of a billionaire got a rewrite in recent days, making it less generous than originally planned.

The deal, with the Pikes Peak Cog Railway, is designed to sustain the city’s revenues for two years while the Cog is rehabilitated, and create an incentive to the railway to refurbish and reopen one of the region’s star attractions. The Cog, owned by multibillionaire Philip Anschutz’s Oklahoma Publishing Co., which also owns The Broadmoor, would still get a significant financial benefit if Manitou agrees to cap its excise taxes on ticket sales (allowing the Cog to pocket the excess) and waive use taxes on building supplies for needed Cog repairs.
Talks between Cog officials and Manitou Mayor Ken Jaray and other city officials led to a deal in which the Cog agreed to:

• provide the city $500,000 per year in 2018 and 2019 while the Cog is closed;
• provide another $500,000 toward parking issues that could include building more surface parking, a parking structure and a shuttle service from an outlying surface lot; and
• at intervals, increase the excise tax cap over the 50-year life of the agreement.

“It’s only gotten better, not worse, for the city,” Jaray told the Independent on Friday afternoon. But he stopped short of predicting City Council would give final approval to a deal that’s significantly different from the first version that was given an initial nod June 12. (A final Council vote was scheduled for June 26, after the Indy’s deadline.)

Manitou City Councilor Jay Rohrer, who supported the agreement, said he couldn’t predict whether the new version would be approved, noting, “Opinions can and do change.”

After chugging to the summit of Pikes Peak for 126 years, the Cog abruptly closed in late October — it usually stays open until New Year’s Day — and in March officials announced it wouldn’t reopen this year, or possibly ever. Now, Cog officials estimate upgrades will cost up to $95 million, depending on how steel tariffs impact prices, and it won’t reopen until 2020.
Manitou Springs historically has received roughly $500,000 a year in excise tax from the Cog, which is based on 5 percent of ticket sales. That means the Cog brings in about $10 million a year and draws roughly 286,000 passengers. Ticket prices varied from $28 to more than $40 or so. (Ticket prices are no longer stated on the Cog’s website.)

By comparison, the Mount Washington Cog Railway in New Hampshire charges $41 to $72 per ride. If the Pikes Peak Cog increases prices, the city’s excise tax revenue also would increase — unless the city agrees to the Cog’s proposed caps.

Manitou Council approved an initial agreement on first reading that allowed a 1.5 percent increase to the excise tax every four years, yielding $27.3 million to the city over 50 years. A revised version posted to the city’s website on June 22 showed revenue of $27.9 million would flow in over 50 years, due to a periodic increase of 2.5 percent, along with the 1.5 percent increases.

Yet a third version, posted to the website late Friday, would increase the revenue to $30.1 million. The latest version shows excise tax topping out at $750,000 in the agreement’s final six years, compared to $597,800 in the final two years in the first version.

Sounds like a deal, unless you consider ticket prices could average $50, rather than $35, which would mean that, without the cap, Manitou would receive $715,000 in excise tax in the first year. Assuming no ticket price changes over 50 years, which is unlikely over five decades, Manitou’s total revenue would be $35.75 million.

Regardless, Jaray notes the Cog’s agreement to help Manitou deal with traffic nightmares on Ruxton Avenue where traffic piles up during the tourist season due not only to the Cog but also Ruxton’s access to the Manitou Incline, the Barr Trail and other attractions.

“We’re trying to do the best deal for the city of Manitou and the region,” Jaray says, “and a lot of people think the Cog is important for the region.”

“There is definitely a strong sense of businesses wanting the Cog Railway back,” Manitou Springs Chamber of Commerce Executive Director Leslie Lewis says, noting the train drives up traffic in the town.

Former Mayor Marc Snyder agrees, saying the Cog’s allure goes beyond dollars and cents. “I think the Cog is more than just a financial presence in the town,” he says. “It’s kind of an iconic attraction that kind of is our signature attraction. There’s more to it than just the financial analysis. I think the majority sentiment is, we want to preserve it, we want to do all we can to bring it back and get it up and running.”

That said, Snyder wonders if the city is giving away too much by agreeing to excise caps. “Some people have said, ‘What if ridership goes up?’ We will be losing revenues. If the ticket prices go up, and I’m sure they will, that will affect the 5 percent of ticket price. If the ticket price doubles, that would be $1 million in excise tax [per year] to the city.”

On the other hand, Snyder notes the Cog brings more shoppers to Manitou, generating an estimated $100,000 a year in city sales tax revenue.

For some, however, that extra foot traffic just crowds the town too much and robs Manitou of its quaint ambiance. Independent owner John Weiss, a Manitou resident, wrote a recent editorial in our sister paper, the Pikes Peak Bulletin questioning the wisdom of such a large giveaway made on a rushed timeline and without the financial contributions of neighboring communities that also benefit from the attraction. And one business owner, who spoke on condition of anonymity, says the quality of life has improved with the Cog closed, because the town hasn’t been “inundated with a zillion cars.”

“Where’s the dramatic impact [from the Cog’s closing]?” the business owner says. “The hotels are doing better. Even with all the [road] construction and the Cog [closed], we’re still running record [sales tax] numbers, and we wanna give away this much money? We want to give away millions of dollars for untold carnage from automobiles.”

In fact, the city’s sales tax, minus the excise tax, has been growing in recent years, due in part to the opening of two recreational marijuana stores in the latter part of 2014. That year, sales tax revenues totaled $2.4 million, compared to $5.8 million last year. However, through the first four months of this year, the tax has brought in only $1.24 million, although tourist season will add more.

City Finance Director Rebecca Davis says it’s too soon to say if the city’s tax revenue will suffer with the Cog’s closing, but adds, “I would be surprised if sales tax was able to make up for the loss of revenue from the Cog, because sales tax would have to increase by approximately 8.6 percent for 2018, and currently sales tax is running about 3 percent over last year.”

But there is one final twist to this tale: Before discussions of a Cog deal, the Manitou Springs Urban Renewal Authority voted to forgo $1.2 million in tax increment financing, which was already spoken for by east-side business projects, redirecting that money to the city due to the emergency caused by the Cog closure. The URA cash closed the Cog funding gap for two years, meaning there was no immediate emergency. Nevertheless, Jaray says the city will keep the URA money regardless of the Cog deal, using it for capital improvements.

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