Ketchum construction; LOT cutline

Receipts from Ketchum’s local-option tax on building materials were up 7% year-over-year through the first half of the 2021-22 fiscal year.

Halfway through the 2021-22 fiscal year, receipts from local-option taxes in Ketchum are tallying significantly higher than the record-high 2020-21 fiscal year.

The favorable numbers come as the city is preparing for an election in which citizens will decide whether to allow the city to use revenue from local-option taxes to support affordable-housing initiatives and to raise the tax percentages to fund such programs.

In September 2021 through February 2022, Ketchum businesses collected approximately $1,829,000 in local-option taxes, up about $281,000—or 8.5%—from the total of the same months in the prior fiscal year. The funds were remitted by businesses to the city in October through March.

Ketchum’s fiscal years run from October through September. The city’s calculations for the year include the amounts it collects in those months, not the months they are collected by businesses.

In each of the first six months this fiscal year, the city’s LOT receipts have exceeded those in the first six months of the 2020-21 fiscal year, which culminated in the city collecting a record $3.3 million.

LOT receipts in October 2021—from sales transactions in September—were up more than 6%. Receipts were up more than 13% in November and December, and almost 21% in January. LOT collections remained strong through the winter, with the city bringing in approximately $329,000 in February and $364,000 in March. Those numbers are both up about 26% compared to the same months the year before.

The city collects a 3% LOT on room sales (including both hotel rooms and short-term rentals), a 3% LOT on by-the-drink liquor sales, and a 2% LOT on general retail sales and building materials (excluding groceries). The city is authorized by the state to collect the taxes through a law that allows small resort cities to tax specific sales categories to offset in their budgets the financial impacts of hosting large numbers of visitors. The funds are used to support a variety of city services and projects.

Those figures include a 1% LOT in the same sales sectors collected through a voter-approved initiative to support commercial air service in the Wood River Valley. Those tax funds are set aside and transferred monthly to the Sun Valley Air Service Board, which allocates the funding to subsidize and market commercial flights into Friedman Memorial Airport in Hailey.

The city keeps separate calculations for the so-called “1% for Air” tax. It has collected approximately $1.57 million in the first six months of the current fiscal year through the air-service tax, up about $218,000—just shy of 8%—over the first six months of the previous fiscal year.

In specific LOT categories, all sectors were up year-over-year in totals for the first six months.

In the retail sales category, the six-month total was up about 6%. LOT receipts from hotel-room bills were up significantly—about 22%— over the six months. Receipts from condominium rentals for the period were up about 10% and by-the-drink liquor receipts were up nearly 7%. Receipts from sales of building materials were up by slightly more than 7% for the period.

City aims to boost LOT collections for housing

While the strong LOT collections are a boon to the city’s budget, the money is not a pure windfall. LOT funds are used to pay city invoices for expenses ranging from providing emergency services to improving infrastructure.

Recently, inflation has pushed costs upward. The city is facing a bill of up to $2.59 million to rebuild and make other improvements to its section of Sun Valley Road this year, with up to $1.35 million coming from LOT coffers.

In response to the region’s ongoing affordable-housing crisis, the city is now pursuing an initiative to increase LOT percentages to raise money for housing projects.

In March, City Council members approved a plan to ask citizens whether to allow the city to spend some LOT revenue on housing projects and to add to LOT coffers by raising the taxes to specifically address housing needs. The ballot in the May 17 primary election will propose LOT percentage-point increases of .75% on retail sales, 2% on lodging, 2% on by-the-drink liquor and 1% on building materials.

If voters approve the plan, it could add some $2.8 million to annual LOT income—based on revenues from the last fiscal year—that would be used exclusively for affordable-housing initiatives.

Currently, eligible uses for LOT funds include transportation, recreation, capital improvements, emergency services, promoting the city to visitors, property-tax relief, and costs related to collecting and enforcing the taxes. Housing projects are not eligible.

Per state law, changing the city’s LOT law will need approval of at least 60% of Ketchum voters.

If approved, the initiative would raise the city’s LOT percentages to 2.75% on retail sales, 3% on building materials, and 5% on lodging and liquor. When added to the state sales tax of 6% (and other lodging taxes), Ketchum would have an 8.75% tax on retail sales, 9% tax on building materials, 11% tax on by-the-drink liquor and 13% tax on lodging and short-term rentals.

Voters must approve and renew the taxes. The current approval of the city’s general LOT lasts until the end of 2027. The “1% for Air” tax is approved until the end of 2023.

The city has determined that to meet demand for affordable housing, it must add hundreds of available units, by developing them, preserving them from being lost, or converting them to long-term rentals. One target has been set at adding 66 to 98 units in the city for each of the next 10 years. 

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