How Diverting Tourism Funds for Housing and Childcare Could Devastate Colorado’s Economy—and Why It’s a Warning to the Nation

The tourism industry in Colorado is facing a significant challenge following recent legislation (House Bill 22-1117, commonly referred to as HB1117) that allows counties to redirect lodging tax revenues—previously dedicated to tourism promotion—toward affordable housing and childcare. While these causes are undeniably important, the law creates a difficult choice for local governments: continue to fund tourism, which plays a critical role in the economy, or shift that funding to address housing and childcare needs. One crucial issue is that Colorado counties are capped at a 2% lodger’s tax, and most are already at that limit, with all the revenue being used for tourism marketing. While the new law expands the allowable uses of these funds, it does not increase the 2% cap, forcing counties to choose between tourism and social services.

The Impossible Situation for Tourism

The dilemma tourism professionals now face is nearly impossible to navigate. They are being asked to either give up critical funding or risk appearing unsympathetic to essential causes like housing and childcare. Any attempt to defend tourism marketing and stewardship funds is quickly met with accusations of greed or indifference toward local families, children, and essential workers. The result is that tourism leaders are left in a no-win situation: fight for your industry and risk being cast as the villain, or watch funding disappear and hope your destination can continue to attract visitors without promotion.

Understandably, voters tend to prioritize housing and childcare when given a choice. But the long-term consequences of diverting tourism funds could be far more harmful to the local economy than many realize.

The Tourism ROI vs. Housing Impact

There’s no question that investments in housing and childcare are necessary, but when compared to the return on investment (ROI) from tourism marketing, the difference is stark. According to a report by Dean Runyan Associates, every $1 spent on tourism marketing in Colorado generates between $8 to $10 in visitor spending. This spending circulates through the economy, benefiting a wide range of industries—from restaurants to retail to transportation—and helps sustain local jobs and tax revenue.

On the other hand, those same funds diverted towards affordable housing or childcare are just a drop in the bucket . For example, reallocating $1 million from tourism marketing to affordable housing might result in a handful of new homes, but it won’t produce the same broad-based economic impact that $1 million in tourism marketing could generate, potentially resulting in $10 million in visitor spending.

The Real Problem: Colorado’s 2% Lodging Tax Cap

A significant part of the problem lies in the 2% lodging tax cap imposed on counties in Colorado. Since most counties are already at the maximum allowable rate, all of their lodging tax revenue is currently committed to tourism promotion. The new legislation opens the door for using these funds for housing and childcare, but it doesn’t allow counties to increase the tax rate to raise additional revenue. As a result, counties are faced with the difficult decision of cutting tourism funding to support housing and childcare initiatives.

Instead of passing ballot measures to increase the lodging tax rate to cover all allowable uses—tourism, housing, and childcare—local governments are being forced to take funds directly from tourism, risking long-term damage to the most important industry for many Colorado communities.

The Misconception That Tourism Doesn’t Need Marketing

A common misconception that fuels this debate is the belief that once a place is well-known or popular, it no longer needs tourism marketing. Many residents believe that their town or city will continue to attract visitors without any promotional efforts. However, history has proven this assumption to be wrong, most notably in Colorado’s own experience when the state drastically cut its tourism marketing budget.

In the early 1990s, Colorado became a case study in what happens when tourism promotion is neglected. After drastically reducing its marketing budget, the state saw a dramatic decline in visitation, losing nearly a third of its market share of domestic tourists. This period is detailed in the “Rise and Fall of Colorado Tourism” case study by Longwoods International, which highlights how a once-thriving tourism industry can quickly falter without sufficient promotion. It took years and substantial reinvestment to recover the lost ground, demonstrating the vital importance of consistent tourism marketing.

The Shift Towards Stewardship

Lodging tax revenues play a vital role in not only promoting destinations but also in managing the impacts of tourism on local communities and environments. These funds support initiatives aimed at preserving natural landscapes, safeguarding cultural heritage, and educating tourists about responsible visitation practices. By investing in sustainable tourism practices, lodging taxes help ensure that destinations remain attractive and viable for both residents and future travelers.

The Unintended Consequences

The irony is that diverting lodging tax dollars to fund housing and childcare could actually harm the communities that need those services the most. Without robust tourism marketing, fewer visitors will come, resulting in less visitor spending, fewer jobs, and reduced tax revenues. This could, in turn, make it even harder for communities to fund housing and childcare initiatives in the future.

Tourism is a cornerstone of Colorado’s economy, generating billions of dollars in visitor spending and supporting over 180,000 jobs statewide. Cutting tourism promotion in favor of other priorities may seem like a quick fix, but it’s a short-sighted approach that risks long-term economic damage.

Ironically, cutting tourism funding might fix the housing crisis in a way no one hopes for. With fewer tourism jobs, locals would need to move away for work, shrinking the population. In a cruel twist of fate, fewer people could mean the existing housing becomes enough to meet demand.

The Ripple Effect Across Colorado

The new law directly affects county lodging tax revenues, but its impact is being felt across the entire state. Communities with city lodging taxes and other local funding mechanisms, that have taken note of HB1117, have already moved forward with reallocations and many more are considering a shift. Tourism is increasingly being asked to fund a variety of local quality-of-life issues, such as transportation, infrastructure, arts, events, and even healthcare, even though the industry itself relies on these funds to continue attracting visitors.

A Cautionary Tale for the Nation

This trend is not unique to Colorado. As more communities watch the situation unfold, the ripple effect is spreading beyond the state’s borders. What’s happening in Colorado should serve as a warning to tourism professionals across the country. Other states and communities are closely watching how Colorado handles this situation, and there is a real risk that the same approach will be adopted elsewhere. 

Tourism professionals nationwide must stay vigilant and advocate for balanced solutions that address housing and childcare needs without sacrificing the funding that sustains local tourism economies. Colorado’s experience shows just how precarious the balance can be, and the consequences of getting it wrong could be catastrophic.