Exhibit A

Steamboat Springs Local Marketing District 2016 Operating Plan

The Local Marketing District (LMD) of Steamboat Springs was formed pursuant to the Special
District Act of the State of Colorado. As such, under Title 29 Article 25-110, the LMD is
required to file an operating plan and a proposed budget for the next fiscal year with the clerk of
the local government (City of Steamboat Springs) no later than September 30 of each year.
Background:
The Local Marketing District collects a 2% tax on nightly accommodations within the District
boundary.
The LMD was approved by the voters in the District in the 2004 election, and began collecting
the tax on January 1, 2005.
In November 2011, the qualified electors of the City of Steamboat Springs passed Ballot
Measure 2B by 60.74% allowing the City to increase the Sales Tax by 0.25% for a period of five
(5) years to support commercial winter air service with the goal of growing seats and rebuilding
reserves. The proceeds of the tax are provided to the LMD for this purpose. The tax was imposed
beginning January 1, 2012.
As a result of the sales tax initiative, the LMD was required to enter into an Intergovernmental
Agreement (IGA), which then required that the LMD draft and submit a set of Bylaws to the City
for acceptance. The IGA and the Bylaws were approved and adopted by both the LMD and the
City.
With the 2016 Operating Plan and Budget submission, the LMD has two funding sources to
manage; the legacy LMD 2% tax on nightly accommodations, plus the 0.25% Air Service Sales
and Use tax.
Purpose:
The LMD revenues are dictated by State Statute on what the funds may be used for, which
includes marketing, promotion, and business development. The statute allows the funds to be
used for airline service as defined as business development.

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Funding:
x

LMD Funds (2% tax on accommodations within the District)

o Provide funding for air service contracts and for marketing of winter air service in
conjunction with agreed upon participation from the Steamboat Ski & Resort
Corp. (SSRC).
o Are not restricted to a certain season; the LMD Board plans to have a similar
summer air program in 2016 as in 2015, but will review the results from 2015
summer flights before making any commitments.
o Are collected and used for program expenses in the budgeted calendar year. In
other words, tax revenues generated in 2016 will be used for 2016 program
expenses.
o Provide a portion of the funding to supplement management of the air service
program.
o Can be used for marketing. Due to the growth of seats available in the 2015/16
season of approximately 13%, the LMD Board unanimously recommends a
marketing contribution of $300,000 out of the LMD funds to be included in the
2016 budget. This marketing would be supplemental to the $2.5-3 million of
marketing dollars put forth by SSRC and is subject to a specific air program
marketing plan produced by SSRC.
o Pay for other LMD expenses as approved by the LMD Board, including:
Community education
Contract management fee to SSRC
Legal fees, including tax renewal election expenses
Administration (contract with Steamboat Springs Chamber Resort Assn.)
Financial services (1% administrative fee to the City)
Miscellaneous and contingency
NOTE: The total number of property units and room rates add a variable to
forecasting and planning. The DestiMetrics information that the Chamber has
contracted for, the lodging properties are supplying information to, and the LMD
is financially supporting, will provide a more accurate outlook on bookings which
will help reign in this variable.
NOTE: City staff has worked very hard to ensure all the Local Marketing District
properties are submitting the LMD tax to the City, including rental by owner/
property management companies.
NOTE: The lodging community not only collects the Accommodations tax, it also
assists in marketing Steamboat Springs as a vacation destination. In addition to
the robust SSRC marketing campaign supplemented by LMD funds, the lodging
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community markets to their extensive past guest databases. The larger properties
also place advertising to sell the destination further supporting the marketing
outreach and sparking the interest of potential winter travelers.
x

Air Service Sales Tax Funds (0.25% tax on sales within the City)
o Provide funding for winter air service in conjunction with agreed upon
participation from the SSRC pursuant to the contractual agreement between the
LMD and SSRC.
o Are collected in the prior calendar year and then used for program expenses in the
next budgeted calendar year. In other words, tax revenues generated in 2015 will
be used for 2016 program expenses. 2016 tax revenues will be used for 2017
program expenses.
o Are subject to an administrative fee totaling 1% of revenues paid to the City to
provide collection and finance services.

LMD Board
o Contracts with SSRC to manage the air program.
o Administers the program pursuant to the terms and conditions of the Air Program
Contribution Agreement between the LMD and SSRC (and approved by City
Council), as modified by the First, Second and Third Amendments.
o Allocates funding for flights with consideration of:
Current economic dynamics of the airlines and traveling public.
Steamboats target markets.
Non-stop connections to hubs. Approximately 40% of passengers into
Hayden originate at a hub airport, with 60% from points beyond. Hub
airports offer connections to approximately 150 additional cities.
Proximity to Steamboat. The closer the originating city to Steamboat,
typically the lower the cost.
Diversification of carriers, and addition of new carriers to promote
competition.
Worst case scenarios, i.e., full-cap expenditures, taking into account past
performance and risk.

SSRC
o Contracts with air service carriers to secure competitive air service into Steamboat
Springs (HDN), by funding appropriate minimum-revenue-guarantees (MRG),
often based on opportunity costs.
o Provides extensive marketing and sales of the air program with a significant
budget of $2.5-3 million. Efforts include air-specific online advertising, emails,
webpages, cable TV, PR, events, group sales and more.

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o Presents specific flight or airline costs to the LMD in Executive Session, due to
the confidentiality of contractual details with air service carriers.
o Establishes and maintains partnerships with four to eight air service carriers as
well as relationships with several hundred key airline contacts in different
departments including Network Planning, Revenue Management, Pricing,
Marketing, Leisure Sales and Operations.
o Hosts an annual Airline Partners Summit in Steamboat every February with
approximately 100 key airline attendees.
x

Funding Waterfall
o As a result of the execution of the Air Program Contribution Agreement as
amended in the First, Second and Third Amendments, a funding waterfall has
been established that prioritizes each funding source. Please refer to the exhibit
2016 Winter Air Service Waterfall illustrating the funding based on the 2016
proposed budget.

Operating Information:
x

LMD funds are collected by the State of Colorado and deposited with the City of
Steamboat Springs. The LMD works closely with the City Finance Director to ensure
compliance with statutory requirements such as periodic tax audits.

The Air Service tax is included in the collection of overall sales and use taxes by the City.

The City collects a 1% fee of both the LMD accommodations tax and the portion of the
sales and use tax allocated to Air Service. The City then provides accounting and
oversight services, including recordkeeping, annual audits, fund investments, etc.

The LMD Board of Directors does not receive any compensation or fees, and does not
directly handle any funds.

It is the practice of the LMD and SSRC to budget the full MRG exposure (often referred
to as CAPS). It is possible that the MRG costs actualize lower than the CAPS and realize
a savings.

The LMD has established a reserve account that is projected and forecasted for every
year and is used at the discretion of the LMD Board as approved by City Council.

The LMD utilizes a calendar year as its fiscal period. Program costs are recognized in the
year when paid. For example, the actual air program expenses for the 2015/16 season will
be received often in June of 2016. The full expense will be posted to 2016 even though a
portion of the expense is attributable to December 2015.

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LMD Accommodations Tax revenues are accrued in the year the tax is collected.

The Steamboat Springs Chamber Resort Association provides organizational and

administrative assistance to the LMD for a nominal fee to offset their time and expenses.

2016 Air Program Notes:

x

SSRC, with approval from the LMD Board, has established a program of approximately
122,500 round-trip available seats for the 2015/16 winter season which is an increase of
13% of seats flown in the 2014/15 winter season; 22% over 2013/14. The increase in
available seats is on peak dates and days of week. The 2014/15 season had 108,750 roundtrip available seats with a 69% load factor (percent of available seats). The 2013/14
season had 100,000 round-trip available seats and a 70% load factor.

SSRC contracted with United to expand frequency of nonstop flights in 2015/16.

o Washington, DC expands from 13 Saturdays to 27 Saturdays and Sundays
o Newark goes from 15 Saturdays to 27 Saturdays and Sundays
o Los Angeles expands from four per week to daily, a 71% increase

The Delta service from Minneapolis/St. Paul (MSP) expands with an extra Saturday flight
February 13 March 26.

The nonstop jet service from Seattle (SEA) on Alaska Airlines will fly four times per
week; an increase from three flights per week over the 14/15 season.

An additional flight from Dallas is in place over the holidays for the second year.

United expanded weekend flights from Chicago to daily most of the season. This flight is
outside of the MRG program. These flights are significant in that they provide competition
on pricing, offer more flights for visitors, and SSRC/LMD does not have to pay regardless
of performance. This is possible due to the overall MRG program with United.

The LMD contracted nonstop summer flights daily from Houston in the summer of 2015,
from June 25 through September 7. This doubled capacity over summer 2014. The flight
is performing at expected load factor levels.

The air service contracting environment continues to be a challenge as airlines are still risk
adverse and choose to fly routes that are the most profitable, usually business routes.
SSRC and the LMD have responded by increasing seats only on higher demand dates and
days of the week so as to more closely align capacity with demand.

Yampa Valley Regional Airport (YVRA) collected about $4.3M in landing fees, sales tax
on fuel, security fees, and rents. YVRA operations are self-funding. The air service, made
possible with the MRG, assists in bringing in sufficient operating revenues to YVRA to
allow the airport to function without subsidies from the County.
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Please refer to the map enclosed for cities served.

Enclosed documents:
x 2016 Proposed Budget
x 2016 Winter Air Service Waterfall
x Map of cities served
x Map of Local Marketing District

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Local Marketing District

Unaudited Financial Presentation

ACCOMMODATIONS TAX
2013

2014

2015

2015

2016

Actual

Actual

Budget

Projected

Budget

303,093

$ 1,272,771

$ 2,053,930

$ 2,053,930

$ 2,816,630

$ 1,369,268

$ 1,626,301

$ 1,300,000

$ 1,500,000

$ 1,500,000

2,605

3,567

2,700

2,700

3,500

$ 1,371,873

$ 1,629,868

$ 1,302,700

$ 1,502,700

$ 1,503,500

723,016

$ 1,700,000

340,000

$ 1,210,114

as of 8/24/2015

Projected carry over

Revenue
2% Tax Jan - December (net of state fees)
Interest
Total Revenues

Expenses
Air Service Costs (From Accom Tax)

330,761

Winter Air Service Marketing

250,000

250,000

300,000

Summer/Fall Air Service Marketing

49,862

50,000

50,000

50,000

50,000

50,000

50,000

50,000

50,000

10,000

20,000

10,000

7,741

9,568

15,000

15,000

35,000

13,693

16,263

13,000

15,000

15,000

50,000

740,000

$ 1,720,114

(785,300) $

762,700

Winter Air Service Mngmnt Fee

Summer Air Service Mngmnt Fee
Administration/Legal
City Services 1%
Other Expenses
Total Expenses

402,195

848,709

$ 2,088,000

Revenue less Expenses

969,678

781,159

Accommodation Tax Reserve Balance

$ 1,272,771

$ 2,053,930

(216,614)

$ 1,268,630

$ 2,816,630

$ 2,600,016

$ 1,437,784

$ 1,437,784

$ 2,762,756

AIRLINE SALES & USE TAX

Projected carry over

$ 1,120,962

$ 1,272,350

Revenue
$ 1,290,196

$ 1,300,000

$ 1,300,000

$ 1,400,000

Building Use Tax

Sales Tax

$ 1,177,006
54,988

96,774

60,000

60,000

60,000

Vehicle Use Tax

37,478

47,385

45,000

45,000

45,000

Voluntary Assessment

15,730

19,486

17,000

17,000

17,000

Less Admin Fee

Total Revenue

(12,852) $

(14,538) $

(14,220) $

(14,220) $

(22,000)

$ 1,272,350

$ 1,439,303

$ 1,407,780

$ 1,407,780

$ 1,500,000

Air Service Cost (Sales/Use Tax)

$ 1,120,962

$ 1,273,869

$ 1,324,824

82,808

$ 2,762,756

Total Expense

$ 1,120,962

$ 1,273,869

$ 1,324,824

82,808

$ 2,762,756

Revenue less Expenses

82,956

$ 1,324,972

$ (1,262,756)

Airline Service Sales Tax Reserve Balance

$ 1,272,350

$ 1,520,740

$ 2,762,756

$ 1,500,000

Expenses

151,388

165,434

$ 1,437,784

Winter Air Service Program Cost Payment Waterfall

1. Steamboat Ski & Resort Corp.

2. Fly Steamboat
3. Sales and Use Tax (prior year)
4. Sales Tax Reserve
5. Accommodations Tax
(current year)

2015 Budget (CAPS)

2015 Actual

2016 Proposed
Budget (CAPS)

$1,111,732

$1,111,732

$1,111,732

$10,000

$10,000

$0

$1,324,824

$82,808

$1,324,972

Funding up to the amount generated by

the annual sales tax

$0

$0

$1,437,784

To the extent funds are available in the

Sales Tax Reserve Account

$1,000,000

$0

$888,114

Funds the remainder up to the amount as

approved by the BOD

Notes
First in, last out

Program is on hold

6. Accommodations Tax Reserve

$450,000

$0

$0

To the extent funds are available in the

Accomodations Tax Reserve account and
approved by the BOD

7. Steamboat Ski & Resort Corp.

$577,405

$0

$0

Any remaining balance of the approved

program expenses

$4,473,961

$1,204,540

$4,762,602

WINTER TOTALS:

In 2015, SSRC paid 92% of actual costs.

Actual costs were 27% of the total budget



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