Boulder exploring new taxes, fees as revenues falter

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Saturday, May 22, 2021

For years, Boulder has been seeing dark clouds on its financial horizon. The city’s main source of revenue — sales tax — is still growing, but more slowly than in years past. At the same time, Boulder has perhaps never had more expenses: millions in flood protection, deferred maintenance on trails and roads and buildings, unmet goals on affordable housing and climate change.

COVID exacerbated this slow-burning fiscal crisis, but the pandemic’s retreat will not necessarily mean a return to budget bliss. The population is still declining and aging, both impacting consumer spending, and if in-commuters don’t return en masse post-COVID, that dark future of continued deficits may arrive sooner than anticipated.

On Tuesday, city council will talk about ways to shore up future revenues, including possible new taxes and fees — one of which will be on the ballot this year. How much appetite voters have for higher bills, even in tax-happy Boulder, remains to be seen.

Where does Boulder get its money now?

Excluding utilities, more than half (50.4%) of Boulder’s 2021 revenue came from sales tax. That’s a higher share than in past years, but it has long been the major funding source for city budgets. Property tax is making up more and more of the budget as home values have skyrocketed. Boulder also pulls in many millions from various fees and taxes for services.

City of Boulder 2021 funding sources (excluding utilities)

Sales and use tax (50.4%) $129,929,677

Property tax (20%) $50,267,372

Other (11%) $28,508,720

  • Licenses, permits & fees (4%)
  • Development & impact fees (2%)
  • Grant revenues (1%)
  • Interest & investment earnings (1%)
  • Leases, rents & royalties (<1%)
  • Sales of materials & goods (<1%)
  • Other (1%)

Other taxes (10%) $24,481,124

  • Franchise taxes (5%)
  • Accommodations/Admission tax (3%)
  • Specific ownership / tobacco tax (<1%)
  • Development excise tax (<1%)

Charges for services (6%) $15,915,871

Intergovernmental revenues (3.3%) $8,515,985

Boulder has the highest sales tax rate on the Front Range at 8.845%. The base sales tax rate is only 3.86% (still the highest) but there are source-specific taxes layered on top of that, for things like open space, transportation, parks and recreation.

The city is almost tapped out on property tax as well — 92% of the charter-imposed limit on property tax is already being levied. (That cap could be raised through a vote of the people.) Untapped property tax up to the current limit represents just under $4.4 million.

Front Range city property tax rates (mills)

Westminster: 3.650
Arvada: 4.310
Louisville: 7.934
Superior: 9.430
Thornton: 10.210
Broomfield*: 11.457
Boulder: 11.981
Longmont: 13.420
Lafayette: 16.572

In Boulder, 1 mill = $4.3 million
Total property tax allowed by Boulder’s charter = 13 mills ($55.9 million total tax capacity)
Current tax rate = 11.981 mills ($51.5 million)

For every $1 of property tax collected:
56 cents –> Boulder County schools
28 cents –> Boulder County
14 cents –> City of Boulder
2 cents –> Special districts

At current property tax rate, homeowners pay $86 per $100,000 of home value annually to the City of Boulder
Commercial properties pay $348 per $100,000 of value

*City rate only; Broomfield is both a city and county, like Denver.

Where can Boulder get more money?

Boulder also taxes some things that other communities don’t, like plastic bags (technically a fee) and sugary drinks. That leaves few options for taxing things not already not taxed, according to staff.

“Based upon a review of the Colorado Municipal League tracking of municipal tax measures that have been approved by voters,” they wrote in notes to city council, “the only selective sales tax that was approved that the City of Boulder does not already have in place is a local tobacco tax.”

There is an existing tax on electronic smoking devices, passed in 2019. It’s also the highest of Boulder’s three selective taxes, at 40%. (Food service is taxed at 0.15%, and recreational marijuana at 3.5%).

Other municipalities charge tax on rental cars, storage facilities and hemp, staff found — all possible options for Boulder. 

Colorado municipalities — including Boulder — have relied more heavily on fees in recent years, because voter approval is not needed to implement them. But the money fees bring in has to be spent on things that are directly tied to whatever the fee is on. For examples, the city’s 10-cent disposable bag fee pays for reusable bags, handed out for free to community members; litter cleanup events; recycling and waste reduction programs; and the impacts of trash on drainage ways, among other things.

Such dedicated funds are both good and bad: They provide accountability to taxpayers. But they also limit the potential to shift spending during times of financial strain.

More than half of Boulder’s budget (62%) is tied to specific projects and services, taxes as well as fees. A group commissioned by the city found that having more flexibility would be beneficial. The issue is political.

The Blue Ribbon Commission and best practices recommend revenue sources should not be restricted to give the governing body flexibility to prioritize spending to the highest priority and evolving needs,” staff wrote. “However, to garner taxpayer support, it is common that tax proposals are for dedicated purposes so voters feel confident they will know how the additional or continued revenue will be used.”

An old suggestion was also dusted off by staff: A head tax, or a tax on businesses and/or their workers. Former city councilwoman Cindy Carlisle revived this idea in 2019, three years after city council weighed asking voters to impose such a tax. They ultimately declined, as did Carlisle’s peers, but the idea has never truly died.

Critics of Boulder’s explosive job growth have argued it’s a good way to ensure companies pay for the impacts of economic expansion, such as increased traffic and rising housing prices. Denver has a head tax, as do Sheridan, Greenwood Village, Glendale and Aurora.

Opponents argue that it’s inherently inequitable: Retired individuals or those wealthy enough to not work wouldn’t pay. They also note that the vast majority of Boulder’s 7,000 businesses are small (96% have fewer than 50 employees; 78% fewer than 10) and local.

Proponents counter that it could be charged to the businesses themselves, and only those of a certain size. Certain industries in Boulder already pay for, as staff wrote, “the privilege of operating a business or practicing an occupation within the city.” Liquor sellers, trash haulers and telephone service are all charged an occupation tax.

Occupational privilege taxes

Liquor sales occupation tax – $600,000
Telephone service occupation tax – $771,000
Trash hauler occupation tax – $1.85 million

Tax hikes all but assured

While most of the measures discussed in the council memo are hypothetical, one tax is sure to appear on Boulder ballots this year. It’s not an increase, but an extension: Of the (roughly) $10 million yearly Community, Culture and Safety Tax. 

Extended over a period of 10-15 years — the timeline is TBD — the CCS would raise between $114-$185 million for a whole host of projects and services, the kind of “unsexy” things like pavement and building maintenance that tend to get passed over in budgeting processes. A community survey is planned to gauge support for the extension.

Proposed CCS projects ($160M)

  • Relocate Fire Stations 2 and 4: $11M-$24M
  • Transportation maintenance: $14M (widen, replace Central Ave bridge, replace traffic signal poles, street pavement maintenance)
  • Parks & rec: $7M (stream bank restoration; wayfinding/signs; play areas and adult fitness equipment)
  • City facility energy retrofits: $12M (from natural gas to electric)
  • Customer service tech and data systems: $5M

Boulder voters have not turned down a local tax in over a decade. But that tolerance may be tested, and soon, with a half-dozen planned or proposed measures percolating at the city and county level.

A library district is possible in 2022, which would ask voters to add $200 (more or less, based on value) to homeowners’ property tax bills. The city is discussing additional sales tax to fund homeless services, as well as a more general social services funding tax. The county has also been planning a transportation and affordable housing tax, one that was pushed due to the pandemic.

City leaders have been eyeing a fee on drivers and/or cars, to bolster the transportation department’s beleaguered budget. Included on utility bills, a Transportation Maintenance Fee or Transportation Utility Fee would raise $5 million annually.

Four more taxes are sunsetting within the next three years, representing $13.7 million in city revenue. Of those, nearly $10 million goes to the all-important general fund, which pays for things like police, fire, libraries and more. 

Expiring city taxes

Utility Occupation Tax (Energy Strategy): $2.1 million – Dec. 31, 2022
Utility Occupation Tax (General Fund): $4.9 million – Dec. 31, 2022
Climate Action Plan Tax: $1.7 million – March 31, 2023
0.15% sales and use tax (general fund): $5.1 million – Dec. 31, 2024

— Shay Castle, boulderbeatnews@gmail.com, @shayshinecastle

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