At the most recent meeting of the Grand County Board of County Commissioners (BOCC), County Manager Lee Staab updated the Board on the County’s year-old Short-Term Rental (STR) program. The update fell in line with other discussion about STRs, the ambiguities that still surround their definition and the best ways in which to regulate them, and possible state-level changes that are being considered for STRs.
Grand County’s formal STR program was first implemented in May 2017, following months of study and hearings. A flat permitting fee was put in place at $150 per residence. A third-party contract was signed with software developer Bear Cloud to provide daily monitoring of online advertisements, and a new staff person was eventually hired to alleviate the time burden placed on the Community Development team. However, at year’s end, the County had not been able to reach the desired 90 percent compliance rate and was operating with a revenue shortfall of over $130,000, without quantifying other impact costs, such as increased road and bridge maintenance and increased emergency services needs.
Following the annual review, Commissioners voted 2-1, with Chair Merrit Linke opposing, to move from the flat-fee permitting to a “per-pillow” count permitting format. With approximately 750 unincorporated Grand County residences being advertised with an average of 9.5 “pillows” each, the rationale was that a $25 per-pillow fee would increase revenues at least $100,000, coming closer to meeting direct program costs to the County. While the program was first implemented to help increase collection of sales and lodging taxes in the county, no numbers have yet been presented on the revenue benefits of regulating STRs.
Staab presented the most recent numbers, indicating that there were 555 permitted registrants at the time, up from 525 a month before. He reported that the Community Development Department had so far sent out 131 non-compliance letters to non-registered advertisers, resulting in 87 registrations, 25 pending applications, and six home-owners who indicated they were no longer renting. Discussion on this last group indicated that Staff had seen such properties go off the market for a few days only to reappear on marketing sites such as AirBnB or VRBO.
Under the 2017 resolution, violating properties can be subject to fines up to $1,000, and Commissioner Rich Cimino asked whether any fines had been levied or collected so far. Staab responded in the negative but stated that the County has started issuing summons to non-compliant properties, 19 pending at the time of the meeting and 14 to be turned over to the Grand County Sheriff’s Office for enforcement. Upon questioning from Commissioner Kristen Manguso, County Attorney Bob Franek confirmed both that he was communicating with the Manager’s Office and Sheriff’s Department and that the Sheriff had expressed intent to contact non-compliant owners in an attempt to encourage compliance without court proceedings as well. “Sometimes, a call from the Sheriff is more powerful than from someone else,” stated Franek.
Staab reiterated that monitoring is an ongoing process and that 43 letters had been sent out to first-time STR advertisers, with 11 having already contacted and registered with Community Development. He also indicated that there would be a delay in the implementation of the new pillow-count fee, as necessary software changes that allow online registration had not yet been completed.
Manguso had already questioned this last piece of information, indicating concern that the software changes were estimated to result in an additional $6,200 fee, raising the cost of a program already not close to paying for itself. “We weren’t presented that information,” she said. “I struggled with that. If I’d known it would be a $6,200 addition, I would never have voted in favor.”
Cimino reminded that the fee structure change should result in another $100,000 for the program, making the $6,200 software change a negligible cost. Staab confirmed that, while the program had brought in about $85,000 in the last year, the new structure should increase revenue nearer to $200,000. “I would just like all the information before a decision is made,” Manguso reiterated.
The whole conversation followed on brief updates from Cimino on, first, a community forum he recently held to discuss vacation rentals and a related hearing held by the Colorado Legislative Interim Committee, a group looking for solutions to looming funding shortfalls anticipated by an upcoming change to property tax valuation under the 1982 Gallagher Amendment to the Colorado Constitution.
Cimino reported that the forum he hosted drew 12 participants, including two members of the media, one property manager, and a handful of STR owner-operators. He indicated that only he and the property manager voiced concern over the vacation rental issue and how to best regulate it. He hopes to hold more such forums across the county to increase awareness of and participation in the discussion.
On the legislative committee, he reported that state lawmakers and representatives from special districts across the state, such as fire and school districts, presented their concerns about Gallagher and its potential impact on the state.
The Gallagher Amendment was approved by Colorado voters in 1982. It required a specific 55-45 percent ratio of non-residential to residential property tax revenue. It also mandated that residential taxes be lower than non-residential taxes on commercial, agricultural, natural resource properties, and vacant land. It further required that the residential tax rate be reduced from 21 percent, at the time of the vote, to 7.2 percent at present, while non-residential properties are currently taxed at 29 percent. As home values go up, the tax rate continues to go down, in order to maintain the mandated ratio. It is predicted to go down to 6.1 percent in coming years.
And as online commerce continues to reduce the number of commercial properties, the ratio becomes harder and harder to maintain. This leaves a significant funding shortfall for special districts dependent on property tax revenue. As an example, Cimino noted that Colorado Mountain College presented at the Committee hearing, calculating a 15 to 35 percent reduction in property tax revenues, depending on the makeup of various districts. “This is a big budget hit,” recognized Cimino.
He then reported that Summit and Gunnison County Commissioners attended the Committee meeting with the express purpose of asking that Short-Term Rentals be taxed at the non-residential rate, something Colorado counties are currently unable to do. Cimino indicated that the Commissioners presented a tempting rational– that while a change to the Constitutional Gallagher Amendment would require a general vote, asking all residential property owners to vote for a property tax increase for themselves, a change to the way STRs are taxed would only take a legislative vote. Cimino described this as a “light-bulb moment” for the legislators present. And while a Constitutional change could not be presented to voters before the 2019 election, a legislative vote could be called for in the 2019 spring session.
Cimino recognized that such a change would mean that tens of thousands, possibly up to 100,000 properties across the state could see their property taxes quadruple, helping to make up the funding shortfall caused by Gallagher. He did express concern, however, over the potential impacts of such a change to the STR industry itself. “It is fraught with problems,” he stated. “Whereas our policy didn’t really take any properties off the market, I think this would take significant numbers of operators off the market. It would affect the ability of tourists to come to our county.”
Linke responded with the idea that “the secret is in the definition of STR. Is it a little lady renting her home out for a week while she’s in Europe? Is it a company buying up properties just to rent out?” Manguso agreed, noting that home-based businesses in Colorado could also be assessed as part residential and part non-residential already.
Discussion was continued, but far from the topic of STRs being settled, it appears to be encroaching on more and more areas of concern. As STRs are looked to to complement and make up for shortages in commercial rentals, they are becoming relevant in issues of planning and zoning, water usage and other natural resource impacts and, now, in property tax planning. It seems to be a topic that will continue to influence economic and political choices and one to be watched carefully.