Limiting development could hurt tax revenue
According to a recent economic study, propositions to limit the construction of new vacation accommodations in the valley are at odds with the city’s dependency on the tax revenue they generate.
The study was done by economic consulting firm Lewis Young Robertson & Burningham, Inc, on behalf of Landmark Design, the consultant working on land use ordinances for Moab and Grand County as the two look to regulate the development of overnight accommodations in the valley while their moratoria are still in place.
“A decline in overnight accommodation construction may result in a flat growth for transient room and resort community taxes as compared with the historic average annual growth rates of 10.6 percent and 7.5 percent, respectively,” the economic report reads.
In particular, this lessened growth would have a considerable impact on the City of Moab’s budget. The city relies heavily on tourism-related spending (particularly in hotels) to run its operations.
Together, transient room tax, which is charged when a person rents a room short-term, and resort community tax, which is charged on certain tourism-related sales, account for almost two-thirds of the city’s tax revenue.
Should the historically high growth in tourism-related tax revenue flatten, the city council and mayor would need to look to other revenue sources to maintain their current service levels.
Moab’s capacity to host visitors
In his comments on the economic report, Grand County Community and Economic Development Director Zacharia Levine said that the thrust of the study’s findings were that demand for hotels in Moab was not going to decrease. “The numbers suggest there is still a strong market for new lodging development based on historical trends of visitation growth and new development,” Levine said.
The LYRB report said that this high demand for lodging was outpacing the actual supply of rentals. “The number of tourists is growing at a faster pace than development of hotel/motel rooms,” the report reads.
According to the report, the ratio of rental rooms in Moab to the number of visitors has decreased each year since 2013, meaning that the development of new rooms has not kept pace with increases in visitation. “Continued development in overnight accommodations will be needed to match growth in tourism demand,” the report reads. “This growth will likely induce additional commercial development in the county.”
Framing the issue
Levine said the question now facing the city and county during their moratoria on overnight rental developments is whether they want to change “the rules of engagement” for businesses in Moab’s economy.
“Existing zoning regulations have contributed greatly to the market conditions in Moab,” Levine said. “In effect, they have created the rules of engagement.
“So, our respective legislative bodies are asking, ‘Do you want these ‘market rules’ and the resulting ‘market dynamics’ to dictate what gets built in the Moab Valley, or do you want to change the rules in hopes of influencing different community and economic development outcomes?'”
Should the rules change to completely disallow new overnight rentals, a change that would likely need to accompany that is how the city and county fund their civic operations.
Offsetting slowed growth
According to the report from Lewis Young Robertson & Burningham, the City of Moab has a few options for generating needed revenue should tourism-related revenue slow in growth.
One idea from the firm was that the city and county could use Community Reinvestment Areas to incentivize development. Such a program could pool tax revenue from municipalities like the Grand County School District, the city, the county, special service districts and others to spend on programs and developments that satisfy shared interests of those entities.
A Community Reinvestment Area was formed in 2018, which included at the time the city, county, school district a few special service districts and others.
The Grand County School District would have generated a bulk of the money spent by the CRA, but it pulled out after school board members said the school district didn’t have enough say in how the CRA spent the funds. The CRA has been on hiatus since February.
The third idea proposed by the economic firm was to raise property taxes, or in the case of the city, re-establish a property tax.
“Property tax increases may be necessary to offset changes in tourism-related revenue if overnight accommodation development decreases,” the report reads.
To learn more about Moab’s lack of a property tax, click here.