Aspen residents may soon face a choice – pay more in taxes or cut city services – as a result of a lawsuit filed last week against the city.

The city’s 29-year-old “food tax rebate” program is the target of a lawsuit by two Basalt residents and a man from Mobile, Ala. They claim the rebate program is unconstitutional.

City officials received word of the lawsuit on April 6, and are now formulating their response, which must be filed with the U.S. District Court in Denver within 20 days.

The city collects between $340,000 and $400,000 per year from its sales tax on food, according to City Finance Director Tabatha Miller. Of that amount, more than $100,000 a year is paid back to local residents who qualify for the city’s food-tax rebate program by showing proof of having lived in the city for the entire year.

And, she said, “That doesn’t take into account the cost of administering the program, which is considerable.”

She said that for the 1999 budget, the city’s food-tax receipts are expected to amount to roughly 5 percent of the municipal sales-tax receipts, estimated at around $6.8 million. The city also anticipates receiving some $5.4 million from Pitkin County as the city’s share of the county’s two-cent sales tax, for total sales-tax revenues of more than $12 million.

Sales taxes, according to the city’s 1999 budget, account for about one-third of the city’s overall revenues.

The rebate program was started in the 1970s as a way to entice voters to approve sales-tax increases for specific municipal needs, such as parks, transportation and the construction of the pedestrian malls.

Aspen is one of fewer than a dozen Colorado cities that assesses a sales tax on grocery items, then returns some of the revenues directly to residents, according to Miller. Others include: Telluride, Steamboat Springs, Crested Butte, Glenwood Springs, Estes Park, Greeley, Fort Collins, Arvada and Thornton.

In the lawsuit, plaintiffs Jon and Martha Ronay of Basalt and Steven Martino of Mobile, Ala. maintain that to only provide the rebate to Aspen residents is a form of unfair taxation for everyone who pays the tax in Aspen but lives outside the city limits. Denver lawyer Ted Trauernicht, representing the Ronays, called the rebate program “an unjust enrichment for Aspen residents.”

The suit has angered some locals, however, who argue that the rebate program is more of a symbolic gesture to acknowledge the hardships of living in a resort town than it is a meaningful financial boon.

“We pay big bucks to live here,” said one local worker upon learning of the lawsuit. “I’m broke all the time. The least they can do is give me back $50.”

While the city works on its response to the lawsuit, officials also are mulling over their options with regard to the possibility that the city might lose in court. Finance director Miller said there has been some talk in City Hall of simply doing away with the food tax altogether.

“We’ve talked about it, just in general, that it might be a fairer way to deal with it,” Miller said, noting that for an average resident who spends approximately $5,000 per year on food, killing the tax would save roughly $85 per year.

“That might be our fallback position [if the lawsuit is successful],” Miller said, noting that “there are a lot of municipalities that don’t tax food because it’s seen as an essential staple.”

Others in City Hall are not so sure it would be possible to do away with the food tax.

City Manager Amy Margerum noted that the city’s general fund, which is fueled by the sales-tax revenues, could not easily absorb the loss of the food-tax receipts.

“Taking a hit of $200,000 a year would be huge,” she said, adding that it would be up to the City Council to make such a decision.