The Manitou Springs City Council on Tuesday unanimously passed the first reading of an ordinance increasing a tax under dispute between the city and one of its major tourism attractions. 

The city proposed the tax increase at an open house for residents last week, where councilmembers presented a 9% increase to Manitou Springs’ excise tax as a “balanced approach” to tackling a $4 million budget deficit, according to Mayor Pro Tem Natalie Johnson.

The city is facing a nearly 30% hit to its general budget because of declining recreational marijuana sales at its two dispensaries. Long one of two small communities in El Paso County to offer recreational sales, Manitou Springs is feeling the impacts of the introduction of retail marijuana in Colorado Springs in April. 

Manitou Springs’ excise tax has not been increased since the 1970s. The ballot initiative as passed on Tuesday would allow City Council to raise the current tax of 5% to as much as 14%. 

Manitou Springs proposes tax increase over budget woes, but ongoing litigation could null benefit

The sliding-scale approach was introduced Tuesday by Councilmember Nancy Fortuin. The city has a similar prerogative for changing its marijuana special sales tax rate, which the council dropped from 10% to 5% earlier this year. 

“From an optics standpoint, it would be better, and from a flexibility standpoint, it would be better,” she said. 

The city estimates the tax increase would net the city about $2.5 million in tax revenues. Under the city’s plan, the rest of the looming budget deficit would be solved through merging street maintenance with Manitou Springs’ parking enterprise. 

There is another unresolved claim on Manitou Springs’ excise tax revenues, however, that may not see an answer before the proposed tax increase would go to voters in the November election. 

In June, an El Paso County District Court judge rejected a motion from the city to dismiss a lawsuit by the Manitou & Pikes Peak Railway Co., the company behind the cog railway to the top of Pikes Peak. 

The cog railway is owned by the Denver-based Anschutz Corp., whose Clarity Media Group owns The Gazette.

Cog railway lawsuit against Manitou Springs moves toward jury trial

The lawsuit claims that the city is obligated to pay back excise tax revenues over $500,000 for a period of 50 years. The agreement is in exchange for payments the railway company made to the city while the railway was under construction, offsetting lost tax revenue from 2017 to 2021. 

The city, in its motion to dismiss, claims that the railway company does not need to appropriate tax revenues “in an particular year.” The railway company claims the city owes over $600,000 in reimbursements not appropriated in the 2025 budget. 

If the tax increase goes through, the city estimated that the $67 price of a cog railway ticket would see a $6 tax increase. 

The lawsuit could still be heading to a jury trial after the failure of the city’s motion. No new rulings have yet been made in the case. 

The ballot initiative will return as a City Council item for a second reading and public hearing on Aug. 19.