EDITORIAL: STR Owners File Lawsuit Against the Town of Pagosa Springs, Part Four

Read Part One

Archuleta County planning staff — Development Director Pam Flowers and Planner Brandon Wolff — hosting their second public presentation of newly proposed vacation rental regulations and fees, on Saturday, June 25, at the Ross Aragon Community Center.

As with the Friday presentation at the CSU Extension Building, the audience as the Saturday presentation and discussion appeared to be mainly STR owners and realtors, although I sensed that the general public was better represented on Saturday. The discussion was also more respectful, and perhaps also more productive, on Saturday.

The Community Center is located near the south end of downtown Pagosa Springs, within the town boundaries — where the County government has little jurisdiction and even less regulatory authority, other than the collection of property taxes and sales tax.

Vacation rentals, as commercial businesses, are regulated within the town limits by the municipal government — the corporation known as The Town of Pagosa Springs. The members of that corporation, who are also the voters, recently established a new fee charged to the operation of STRs — Short-Term Rentals — within the town limits. The new Town fee has been labeled as the ‘Workforce Housing Fee’ because the voters are requiring the Town to use the revenues to address the workforce housing crisis.

Those fees are now the subject of a lawsuit, Clinton James Alley et. al. v. Town of Pagosa Springs as filed by the following STR owners:

Clinton and Monica Alley, Pagosa Springs, CO
Blackhead Properties LLC, Pagosa Springs, CO
Melissa Buckley, San Clemente, CA
Escapa LLC, Texas City, TX
Gregg Fitts Trustee, Lantana, TX
John and Kristin Grey, Round Rock, TX
JLSFUN LLC, Belton, TX
Peter Macomber and Nicole Buckley, Pagosa Springs, CO
Olivia Modern, Pagosa Springs, CO
Aaron Steven Moore, Austin, TX

You can download the complaint, here.

The outcome of Clinton James Alley et. al. v. Town of Pagosa Springs may be of interest to the Archuleta County government, because the County Planning Department is suggesting that similar fees could be charged to STRs located in the unincorporated county. As with the new Town fees, the proposed County fees have been calculated in reference to the ‘property tax loophole’ that allows STRs to pay a 7% property tax rate, while all other commercial businesses in Colorado pay a 29% property tax rate.

As noted in the complaint filed in District Court, a fee is not the same as a tax… theoretically speaking, although the difference is not always readily apparent. One difference is that, in Colorado, the establishment of a new tax, or an increase in an existing tax, must be approved by the voters, while a fee can be created or increased by a government entity without voter approval.

In fact, the voters are almost never asked to approve new fees, or fee increases.

It’s an interesting point, perhaps, that the Town’s new STR fee was created by Ballot Question A last April, and was approved by the voters as a Home Rule Charter amendment. Not a typical path for a fee to take.

I proposed, in Part Two of this editorial series, that the complaint filed in Clinton James Alley et. al. v. Town of Pagosa Springs seems to exhibit some confusion about whether Ballot Question A was a citizen initiative or a Home Rule Charter amendment. Those two political tools are guaranteed by the Colorado Constitution, but have different requirements and mechanisms.

The complaint also proposes that the Town fee might be an ‘impact fee’ — a special type of fee that’s subject to particular statutory requirements. The Town of Pagosa Springs collected impact fees from new development for about 10 years, but has since repealed those fees. The County has never instituted impact fees. As a reporter who has written several articles about impact fees in the past, I would suggest that the ‘Workforce Housing Fee’ is not an impact fee, and that the new fee was not presented to the voters as an ‘impact fee’.

The court has been asked to rule, however, on whether the new fee qualifies as such.

The complaint also asks the court to impose an injunction to prevent the Town from collecting the new fee from STR owners.

One possibly interesting difference between a tax — such as a sales tax, or a Lodgers Tax — and the Town fee imposed by the voters at the April election is their potential impact on ‘idle’ businesses.

A sales tax is collected only when I choose to purchase something. Similarly, the Lodgers Tax is collected only when a motel room or STR is rented. There’s no tax collected, when no transaction is conducted. No sale, no tax.

This is quite different from, for example, a property tax, which is collected even if the property owner never uses the property in question.

The Town’s ‘Workforce Housing Fee’ works in a manner similar to a property tax. A licensed STR owner must pay the monthly fee, whether they rent out their unit or not.

Many Colorado communities have recently established new taxes on STR operations, which are collected from the tourists who stay in the STR units. Those taxes, in other Colorado mountain communities, range from 2% (Avon) to 7.5% (Crested Butte) to 15% (Ouray).

In these cases, an STR that rents only one day each per year, pays the STR tax for only that one day.

The Town’s STR fees, meanwhile, must be paid regardless of success in renting the unit, at a monthly rate of $150 per bedroom. This type of fee obviously puts pressure on an STR owner to aggressively market his or her property… or get out of the business.

As presented by the County Planning Department staff, the proposed County regulations might generate between $2 million and $4 million per year, that could then be used to fund workforce housing projects in Pagosa Springs.

My conversations with various local realtors have led me to believe that the purchase of residential homes by STR investors — typically, out-of-town investors — has been a significant factor in the skyrocketing cost of homes and long-term rental rates over the past ten years.

The proposed County regulations might put pressure on STR investors to get out of the vacation rental business.

Would the regulations therefore put downward pressure on home prices and long-term rental rates?

We can only hope, for the sake of our community’s future.

Bill Hudson

Bill Hudson

Bill Hudson began sharing his opinions in the Pagosa Daily Post in 2004 and can’t seem to break the habit. He claims that, in Pagosa Springs, opinions are like pickup trucks: everybody has one.