The Manitou Springs City Council voted Wednesday night to replace the city’s 50-year tax incentive agreement with the Pikes Peak Cog Railway with a new version that many officials are calling a better deal for the city.
The changes mark the culmination of several months of work by Manitou Springs officials and owners of the cog to improve upon the agreement, originally approved on June 26. The council will take a second, final vote on the changes Nov. 20.
The railway’s owners, who began meeting with city officials in the spring, have said the tax breaks are needed to complete a nearly $100 million reconstruction. However, they have said they will wait until the council’s second vote to decide whether the project will go forward.
The railway never reopened this year after shutting down for the winter because it was deemed unsafe. Oklahoma Publishing, parent company of the cog and The Broadmoor hotel in Colorado Springs, is owned by the Denver-based Anschutz Corp., whose Clarity Media Group owns The Gazette.
City leaders and some residents say the proposed changes are an improvement because they would allow the city to get more compensation from the cog for revenue lost during the reconstruction and more tax dollars if ridership or ticket prices increase substantially in the future.
Two of the cog’s employees, who were not involved in negotiations, urged the council during a public hearing to approve the new deal so that the rebuilding could go forward.
But critics of the deal say it’s still too open-ended, and there’s no telling how much money the city would be losing out on because there’s no dollar-limit on the rebates.
“My bottom line is how much does the cog need for this deal?” former City Councilwoman Aimee Cox told the council. “It feels like there’s sort of this open-endedness to this that I’m not comfortable with, and I’m not sure you should be comfortable with.”
Following more than two hours of comments from residents and discussions, council members Bob Todd and Becky Elder voted against the new version. Todd said additional changes are needed to make it more financially favorable to the city.
Under the new agreement, the cog would be allowed to keep money that that the city would have otherwise collected as a 3.8 percent sales and use tax on materials involved in the reconstruction. The cog would also be rebated that tax money when it purchases new rail cars in the next 15 to 20 years, which are expected to cost $30 million.
During the first 25 years of the agreement, the city would still cap excise tax revenue that it collects on cog ticket sales. Everything over that cap would go to the cog. The limit would increase incrementally, from $507,500 initially to $775,000 in the last three years of the agreement.
But the new agreement includes two provisions related to the rebates that the original agreement did not include: In years 26 through 50 of the agreement, rebates would be limited so that the cog would not pay less than a 3.8 percent excise tax on ticket sales. And if there were more than 375,000 cog riders in any year, the cog would pay the city’s full 5 percent excise tax on ticket sales.
The city requested during negotiations that the provision requiring the cog pay at least 3.8 percent excise tax apply to the first half of the 50-year deal, too. But the cog’s owners rejected the request, city officials say.
City officials say the railway's ownership also rejected another proposal that would cap the Cog’s excise tax savings over the 50-year term at $10 million — a cap that critics have asked for to limit the city’s tax revenue losses over the course of the 50-year deal.
Before the council votes a second time on the agreement, the city will ask the cog again if it would agree to either of those proposals related to the excise tax rebates.
The original agreement also requires the cog to pay Manitou Springs $1 million by 2019 to make up for lost tax revenue from the railway’s closure this year. Under the new version, the cog will pay another $250,000 in 2020, for a total of $1.25 million over three years.
Like the original agreement, the new version also requires that the cog initially pay another $500,000 for parking facilities and transportation management. And, the cog will agree to donate historical “rail-related” assets to a Manitou Springs for a cog rail museum that the city has considered opening.
The cog and the city would also be required to sign the agreement by Nov. 30. The first $500,000 payment to the city would be due on Dec. 1
Oklahoma Publishing President and CEO Gary Pierson, who was not at the meeting, has said that the agreement must last 50 years for the company to recoup its investment, which is now expected to cost about $15 million more than the initial “maximum budget” of $85 million.
“So, this project is either approaching or has already reached being a financially strained business proposition whose anticipated returns would be so low, and the risks and uncertainties so high, that no public company would even consider taking it on,” Pierson wrote in an Oct. 19 letter to the city.
The cog is aiming for a reopening in May 2021 if the project moves forward, he has said.