Speaking in detail for the first time about Cortez’s sales tax error, City Manager Drew Sanders said Tuesday the $2.8 million overcollected since 2022 is “literally in the bank” as Cortez works with attorneys to decide next steps.
The city unintentionally collected a higher sales tax rate for nearly four years because a required council ordinance was never passed. Officials are seeking outside legal guidance on remedies and how to handle the excess funds.
Sanders said in mid-October that the collection rate of 0.55% – meant to be reduced to 0.35% in 2018 – had gone unnoticed for years. All money has been used to sustain the recreation center, Sanders said.
City Council addressed part of the problem last month by approving an ordinance lowering the tax rate to 0.35% — the rate voters approved in 2018 to replace the 0.55% mistakenly collected since 2022.
The corrected rate takes effect Jan. 1, 2026, ending the overcollection.
In November, he promised to deliver a “full autopsy” of the problem on Dec. 9.
However, on Tuesday he said the city cannot decide how to use the $2.8 million until attorneys clarify what’s legally allowed, a process requiring more time and analysis.
“As expected, it’s not as easy as it sounds,” he said.
The attorneys are based on the Front Range. Sanders said the goal is to move “expeditiously” while narrowing options. He expects to brief the council in an executive session early next year.
“There’s going to be a lot more we need to put into this and make sure we take the right steps and guide the council appropriately toward a final action,” Sanders said. “We want to avoid making anything worse.”
During Tuesday’s work session, Sanders explained the estimated totals, how the error occurred, possible actions and confirmed the funds are secure.
He reviewed the two-decade history of the recreation sales tax used to build the center.
Voters approved a 0.55% sales tax in November 2001 for operation, maintenance and debt service of the new building.
The tax was set to end when the bond was paid off or by Dec. 31, 2021. Sanders said he believes it should have ended in 2022, but “that’s neither here nor there.”
In 2017-18, as the original tax neared its end, the council placed a ballot question to create long-term funding for the center.
“Which was a really good move and speaking to the former city manager at the time… He told me they did that, thinking, if it didn’t pass they had maybe one more bite of the apple to try to go back to voters in 2020 to do that, but it passed in 2018,” Sanders said.
Voters approved reducing the tax from 0.55% to 0.35% in 2018, effective at the end of 2021.
However, Sanders said the council never passed the required ordinance to enact the 0.35% rate.
“We can’t just take the vote and enact the tax measure, it has to be done by ordinance,” Sanders told the council. “However, the required ordinance back in 2018 and beyond never occurred.”
When the bond was paid off in late 2022, nothing triggered the rate drop, so 0.55% continued to be collected unnoticed.
The issue surfaced in September during budget work, when staff reviewed recreation funding and found the 2018 ballot language. Internal review confirmed the oversight, and staff notified council and the public.
The numbers, steps and dates
What kind of tax is it?
It’s a sales tax, on the money spent every day when making a purchase at stores, restaurants and businesses.
Which fiscal years does it involve?
The fiscal years 2022-2025.
When was the oversight discovered?
September 2025
How much tax revenue was collected?
Amount overcollected, 2022-2024: $2,114,830.
Projected overcollection for 2025: $730,066.
Total projected by the end of fiscal year 2025: $2,844,896
Corrected tax rate takes effect: 0.35% on Jan. 1, 2026
What’s next?
Advisement from outside legal counsel, until then, Cortez City Manager Drew Sanders said, “the money is accounted for, in the bank” and “ready to be used and disposed of as appropriate.”
At the work session, Councilor Bill Lewis asked why the $2.8 million can't just be refunded.
“That’s a great question,” Sanders said. “It would be extremely difficult to do: It’s sales tax. The problem is we don’t know who all those people are. Likely we could say, ‘Well, Cortez residents or Montezuma County’ … but who lived here, when, how long, where did they go, you’re looking at years of work that still might not get handled properly.”
He noted sales tax is collected at purchases, unlike property tax tied to an owner and parcel.
Mayor Rachel Medina, attending virtually, asked if the city could temporarily collect less than 0.35% to offset the overcollection.
Sanders said that option could be explored with attorneys.
The Cortez Recreation Center is aging and needs costly repairs, Sanders said. Funds have covered boiler, heater and shower failures. The 2026 budget includes about $2.1 million in repairs and deferred maintenance, all from the recreation fund.
“Is the community there? Have we been hearing a lot from the community?” Medina asked.
“We are not hearing an awful lot of uproar on this,” Sanders replied.
“I mean there are some upset people, and then there are some people I have spoken to as early as today that aren’t even aware of it. I think the community was waiting for us to get here tonight and give an explanation, so that may still be coming.”
In a written statement, Cortez Parks and Recreation Director Creighton Wright said:
“This is an unfortunate issue. ... It feels like we have finally gotten the Recreation Center back on track after dealing with staffing shortages and ongoing infrastructure failures that have led to closures and impacts on the community. With leadership from City Manager Sanders, and guidance from Finance Director Randy Bailey and Attorney Patrick Coleman, I am confident that we will move past this.”
