CFO: sales tax tracking to budget so far but LART faces shortfall; hotel rates cited as driver

Shari McDaniel, the city’s chief financial officer, presented a quarterly financial report on Monday that framed 2026 budget assumptions and flagged a potential shortfall in the tourism (LART) fund driven mainly by lower hotel room rates.

McDaniel said the 2026 sales‑and‑use tax budget was set at $251,800,000 and that a single data point — January activity, reported in March — showed a 0.88% increase vs. the prior year month (rounded to 0.9%), which she said is the threshold the city looks for to track to budget. “So with one data point so far in the year, we’re tracking to budget,” she said.

She explained the five largest sales‑tax categories (auto dealers; building materials; furniture/appliances/electronics; general retail; restaurants) make up about 70% of collections and noted that building materials were down roughly 10% year‑over‑year while most other categories were positive.

McDaniel moved on to LART — the lodging, arts and recreation/tourism fund — and said 2025 actuals trailed the 2025 budget (budget $10.5M; end‑of‑year estimate ~$10.2M), and 2026 revenue was budgeted at roughly $10.1M. That combination produced a projected negative starting balance of about $215,000 heading into the 2027 LART budgeting process. She said the main driver appears to be a decline in average daily rate for hotel rooms (average daily rate fell about 6.2% year‑over‑year), not occupancy, and credited Visit Colorado Springs for the pricing and occupancy data.

Council members asked about use tax monitoring for construction purchases, refund/exemption processes for tax‑exempt projects and whether the city should communicate reduced LART awards sooner to applicants. McDaniel said construction monitoring and audits are used to capture use tax, and that some refunds/returns occur when tax‑exempt entities request them; she recommended the council or the LART committee handle communications to the community about likely awards.

McDaniel also reviewed other funds, noting the recreational marijuana 5% tax came in stronger than expected for 2025 (estimate rose from $1.7M to ~$2.17M) and that the 2026 budget includes $2.4M for public‑safety and related programs.

Council did not take final action during the work session; McDaniel offered follow‑up briefings and suggested scheduling regular meetings with council to engage earlier in the 2027 budget process.