The Ridgway Town Council is considering possible revenue streams for affordable housing efforts, including a short-term rental tax similar to Ouray’s excise tax.

A workshop held Wednesday night followed discussions last year about shifting how lodging tax revenue is spent, and came as the Ridgway Area Chamber of Commerce, which receives most of that revenue, is also considering pushing for an increase.

Last summer, councilors briefly considered potential changes to how lodging tax revenue is divided, to shift some money explicitly to housing. They ultimately opted against any decisions at that time in favor of a future discussion about other options after completing the 2023 budget process.

The town’s 2023 budget includes $75,000 for housing, an increase from $35,000 in 2022. That’s in addition to a $20,000 contribution to the Home Trust of Ouray County.

But that money currently comes out of the town’s general fund, and there is no dedicated, recurring revenue stream for that purpose. Instead, councilors work with town staff each year during the budget process to determine how much to set aside.

A dedicated funding source, such as lodging tax, short-term rental tax, sales tax or a new fee, would create a guaranteed way of generating money for housing, though amounts would vary from year to year.

Town Manager Preston Neill said the discussion is intended to be broad, and to cover all options, ranging from targeted fees to broad taxes, which would require voter approval. “It’s really just a starting point,” he said.

In a staff report to the council, he recommended the council consider a tax on short-term rentals, which “have reduced the affordable housing supply… while simultaneously increasing demands for service throughout our community.”

More research is needed to determine how much money the tax could be expected to generate, but “a preliminary exercise indicates that a short-term rental tax between 2% and 8% would generate between $15,190 and $60,760 annually,” Neill wrote.

“An additional tax on short-term rentals would capitalize on tourism to help fund local housing,” he said, noting the rentals’ owners pay a lower residential property tax rate than the commercial rate charged to hotels. An excise tax on short-term rentals “does help level the playing field,” Neill wrote.

Voter approval would be required for that initiative.

Neill also outlined other possibilities including sales tax or an additional property tax mill levy, but said those could be more likely to burden lower income households.

He also described two types of fees: linkage or impact fees, which are assessed on new commercial or residential development, and inclusionary zoning fees-in-lieu. If the town took that approach, an inclusionary housing ordinance would typically require developments to include income-restricted housing, and developers could be allowed to pay a fee in lieu of building those units.

The town currently works with developers to encourage 10% of new units to be deed-restricted for affordability, but there is no requirement that they do so.

If the Town Council agrees to pursue a short-term rental tax, Ridgway would follow in Ouray’s footsteps, where the City Council asked voters in 2021 to approve a 15% excise tax on short-term rentals.

Fifty-seven percent of Ouray voters supported the tax, which took effect in January 2022 and generated more than half a million dollars in its first year. Half of that money is dedicated to affordable housing, while the remainder is split between water and wastewater infrastructure projects.

Ouray and Ridgway both currently collect a 3.5% lodging occupancy tax on nightly room rentals in both hotels and short-term rentals.

But in a report presented to the Town Council last week, the Ridgway Area Chamber of Commerce indicated they are interested in raising that rate. They currently receive 70% of the town’s LOT revenues under a contract for tourism promotion and economic development, which is set to expire at the end of 2023.

The chamber needs to find ways to increase revenue due to “inflation and the higher cost of service expenses,” the 2022 annual report said.

“In addition to fundraising and membership drives, the RACC board will be engaging the community and town government in discussions about increasing the LOT from a 3.5% to potentially a 5% tax through a 2023 ballot measure,” the report said.

Chamber Director Ashley Perkins and Board President Adam Dubroff did not address that during their presentation to the council, and Neill said the chamber has not broached that subject with the town yet.

Perkins told the Plaindealer she sees a higher lodging tax as “an important possible step” to increase funding available for both the chamber and for housing and child care needs in the community.

While they haven’t had a conversation with the town about it yet, she said it stems from last summer’s discussions.

In July and August, councilors considered specifically earmarking the remaining 30% that isn’t used for tourism promotion for affordable housing efforts, or potentially asking voters to raise that to 40%. They ultimately tabled that discussion without making a decision.

Perkins said she’d like to see the division of revenue remain the same, but increasing the rate to 5% “would give the chamber more bandwidth and funding to help the town support affordable housing and child care.”

It also would give the chamber more resources in marketing a sustainable tourism approach, she said, one that encourages visitors to respect the community.

In 2022, RACC received $101,671 from the town, according to the report. Its largest expense was $53,574 in wages for its executive director, and $41,522 in advertising and promotion, including a visitor guide and print and online advertising. In the chamber’s 2023 budget request, the organization asked for $102,000 this year. Under the contract with the town, the chamber receives 70% of LOT revenues, not a fixed amount based on a request.

Perkins said the next step for the chamber would be discussing the lodging tax with the town, and gathering more data about lodging room numbers and what funding could look like in the future.

“I appreciate the town and the community considering increasing the lodging tax,” she said. “I think it can only benefit our community to have discussions and find solutions for these issues.”