The Brown Ranch capital gap is between $9.9M and $42M, depending on how much STR tax revenue future councils allocate to various infrastructure projects.
The Gist: The city's capital gap is between $9.9 and $42 million at the end of the project in 2044.
The Brown Ranch Annexation Agreement does not identify a specific number as the city's so-called “capital gap” for project infrastructure, as the annexation agreement itself does not identify the revenue the project is expected to create.
Instead, the capital gap has been viewed by city officials in various ways and based on different assumptions through the annexation negotiation process.
Perhaps the most important factor in assessing the capital gap is how much of the city’s share of short-term rental tax revenues will be allocated to the project — a decision that will be made by future City Councils, not the annexation agreement being considered on March 26.
In fact, the annexation agreement does not legally bind any city revenues to the Brown Ranch.
The only money that is allocated to Brown Ranch in the agreement is the 75% of STR revenues that voters approved in November’s 2I city ballot measure. If infrastructure projects do not get built because the city doesn’t have the funding, the city council at that time can stop issuing building permits.
(When this story mentions the city's share of STR revenues, it means the 25% that has not already been allocated to YVHA via ballot measure 2I)
In the annexation agreement itself, the city of Steamboat Springs is allocated $135.5 million worth of infrastructure costs in projects like highway widening, water treatment facilities and park development, among others. This is known as Exhibit E and will be updated every year on Aug. 1 so cost estimates are up to date, according to a provision of the annexation agreement.
When council assessed the capital gap specifically, water-related projects were generally excluded, as they are part of the city’s water enterprise fund. That fund — with proper rate adjustments over the coming decades — will be able to cover the city’s part of a new water infrastructure, according to public works director Jon Snyder.
(The city’s capital gap also does not consider costs that are exclusively allocated to the Yampa Valley Housing Authority in the agreement. Those costs total $347.5 million for upgrades like a new electrical substation, core trail expansion and onsite roads, among others.)
Without the water projects, the city’s costs stem from a dozen road projects, the city’s share of the new public safety building and the cost of two community parks. Those costs total $120 million, according to a table of costs prepared by city Finance Director Kim Weber that was presented to City Council on Oct. 17 when council approved annexation.
Three road projects have been planned and allocated funding, while two more the city hopes to be awarded grant funds to cover. These are the only grants factored into the city’s capital budget. The other seven road projects — widening four stretches of U.S. 40, improving two intersections and upgrading County Road 42 — total $52.7 million.
The public safety facility — which will house both fire and police — is projected to cost the city $5.4 million, which is 25% of the total cost of new building. YVHA pays for the rest.
Finally, the parks are expected to cost a total of $53.5 million, which stems from a Parks Department estimate of $1.35 million per acre. That number was questioned as being high at times times, but Parks and Recreation Director Angela Cosby has repeatedly stood by that estimate, saying it is based on what the city will pay for construction at Bear River Park.
Excluding the five road projects with identified funding, the city is on the hook for $111.7 million in infrastructure in the annexation agreement. That said, this number is not the capital gap.
Brown Ranch is expected to produce one-time revenues associated with construction like building use and excise taxes that have been estimated by consultant RCLCO to total just shy of $28 million over the life of the project. The Yampa Valley Housing Authority is also required to contribute $7.5 million to the city for the construction of community parks.
Weber also allocated $2 million in Fire/EMS reserves as revenue in the projection she shared with Council. With those three revenue sources factored in — but not yet including any of the city’s STR tax revenue — the unfunded number sits at $74.2 million.
The city’s capital gap because of the Brown Ranch is the difference between that number ($74.2 million) and how much of the city’s short-term rental tax revenue is allocated to the project.
If the city allocates half of its share of STR taxes over the life of the project, a total of $32.1 million, the capital gap for the city will be $42 million in 2044.
If the city were to allocate 100% of its STR revenues to Brown Ranch, a total of $64.3 million, the capital gap for the city would drop to $9.9 million by 2044.
Based on the numbers prepared by Weber, the capital gap for the city of Steamboat Springs because of Brown Ranch infrastructure is between $9.9 and $42 million, depending on how much STR revenue is allocated to various projects by future city councils.
How does the capital gap change over time?
The capital gap at the end of the project is different than it is at the end of each phase or in any given year because many of the infrastructure projects are needed earlier in the build-out of Brown Ranch.
For example, from 2025 to 2029, Weber projects the city would be in the black as it collects use and excise taxes and allocates STR revenues ahead of the first big U.S. 40 projects. Then in 2030 Weber has three key projects, including highway widening, that together will cost the city more than $20 million.
When funds are spent on those projects, the city’s capital gap would range from $1.9 million to $14.5 million, depending on if council allocates half or all of its share of STR revenues. By the end of phase one in 2034, the gap ranges from $340,000 if all city STR revenues go toward these projects and $19.5 million if just half of them are allocated.
The next year, when phase two starts, the gap increases again as the city projects it will spend money on two widening projects. By the end of phase two in 2040, the range in capital gap would be between $24.2 million on the low end (all STR revenues allocated) and $53 million on the high end (half STR revenues allocated).
There are not any significant infrastructure projects planned to happen in phase three of the Brown Ranch, so the final four years of the project allow the city to recoup dollars it theoretically already spent. After phase three, the capital gap sits between $9.9 million and $42 million.
Who decides how to allocate funding to the city’s share of infrastructure?
All of the projects allocated to the city in the annexation agreement are subject to an appropriation clause, meaning the city is not obligated to build anything if it does not allocate the money to do so.
“The City shall be responsible for identifying funding sources for that portion of the costs of constructing Offsite Improvements not attributable to YVHA from the City’s Capital Improvements Fund, other developer contributions, grant funding, and other sources,” the annexation agreement reads. “The City does not guarantee a completion date for Offsite Improvements. Their completion is expressly conditioned on the appropriation of funds by the City to satisfy the City cost share.”
The annexation agreement lays out a process for how future City Councils and the Yampa Valley Housing Authority will continue to update anticipated costs of various infrastructure projects on an annual basis. This will be done by Aug. 1 of each year so that the city can consider these projects as part of its Capital Improvements Program budgeting process.
These Brown Ranch-related infrastructure projects would then be considered alongside other city projects in the CIP budget each year. Various projects are scored based on metrics developed by city staff and then council budgets which will receive funding in a given year.
It is not unusual for a project to sit on the CIP list of projects without being funded for an extended period of time. For example, the city has owned land at Bear River Park for nearly two decades and has only recently been able to allocate funding to building out the park.
The CIP budget is approved annually by City Council as part of the larger city budget.
What if a future city council can’t allocate funding to Brown Ranch infrastructure?
If a future city council cannot afford its share of a required infrastructure upgrade, that group could simply choose not to fund the project. As stated, nothing in the annexation agreement compels the city to allocate funding.
At that point, the future City Council could also choose to stop issuing building permits until funding is identified to pay for the city’s share of infrastructure costs.
That means if a future city council feels traffic on U.S. 40 cannot sustain more units, but they cannot afford to complete needed upgrades to the roadway, they can essentially stop Brown Ranch development until funding is found.
“There is no mechanism in the annexation agreement that would allow anyone to force the city to commit general fund monies to the project,” City Attorney Foote told Council on Oct. 17, when council approved the annexation agreement. “Instead, you could either allow the project to proceed and let the highway impacts build up, or you could stop approving land use applications and pause the project essentially.”
What is this talk about not building parks?
As a way to understand the capital gap, city council members tried to imagine what would happen if they were to not consider the cost of constructing parks. If the total cost for parks is removed from the capital budget, there is no capital gap over the life of the project.
While there was talk of removing this cost, it is still part of the annexation agreement. The annexation agreement does not commit the city to build parks. It does commit YVHA to turn over the land for parks.
“If the parks are built, it is the city’s responsibility to build them,” Foote said. “But there is no legal obligation for us to build them.”
Parks are thought to be the least urgent of infrastructure projects allocated to the city. As Weber explained how Brown Ranch infrastructure projects will be considered as part of the annual CIP budget, she speculated that parks would likely draw the short straw for funding.
“The first things you are going to hear is about traffic and so I think the highway projects will need to be addressed first,” Weber said. “Unfortunately, the parks will probably be the ones you will have to delay funding on because you won’t have the funding for both.”
The first community park is slated to be built during phase one of the Brown Ranch, which is considered 2025 to 2034. That park, which is 22.5 acres, is expected to cost roughly $30.3 million. The second community park, which is 17.2 acres is projected to be built during phase two of Brown Ranch from 2034 to 2040. That park is estimated to cost $23.3 million to build.
“If all other assumptions are correct, you sit positive (in 2044) if you take out both parks,” Weber said.
Top Photo Caption: Steamboat Springs Finance Director Kim Weber gives new City Council members a presentation about the city's budget. (Dylan Anderson/The Yampa Valley Bugle)