After significant debate, the Hailey City Council passed a 3 percent property tax increase for fiscal 2021 with a 3-1 vote Monday.

The approved tax levy will raise property taxes by $6 per $100,000 in taxable property value, increasing Hailey’s property-tax revenue stream by 3 percent, or $81,200.

For a homeowner with a $360,000 piece of property, around average in Hailey, that translates to a $22 increase.

Overall, though, property tax payers can expect to pay a net decrease in taxes of $25 per $100,000 in taxable value compared to the current fiscal year, City Administrator Heather Dawson said. That’s because Hailey finished paying off the $3.5 million bond that built the city’s rodeo arena in the past fiscal year.

On Monday, council members had two main options regarding the city’s property tax levy. The first was to raise taxes by 3 percent—a move Dawson described as “business as usual,” since the city had consistently levied that amount in prior years and during the economic recession of 2008.

“This option would not directly increase property taxes by 3 percent. It would increase Hailey’s budget derived from property taxes by 3 percent over last year’s budget,” Dawson explained.

Option two was to eschew a 3 percent tax raise and instead accept property tax relief funds from Gov. Brad Little’s $200 million property tax relief program.

The governor’s grant initiative intends to cover cities’ and counties’ public-safety personnel salaries—normally funded mostly by property taxes—using redirected federal CARES Act COVID-19 relief funds, Dawson said, and would save homeowners $40 in taxes per $100,000 of taxable property value.

“Under this option, property taxes that the city levies would be reduced to a $2 million figure. Homeowners would pay less, the city would receive less money and the difference would be made up by the grant,” she said.

In addition to Sun Valley and Bellevue, Hailey is one of over 54 cities across Idaho that submitted a letter of intent to participate in Little’s program. The city was offered $513,000 in property-tax reimbursement money this month, Dawson said.

Prior to council discussion, City Attorney Chris Simms warned that Little’s state tax-refund program may not survive legal challenges. CARES Act funds are meant to be used by states to mitigate or respond to COVID-19—not to be used as replacement revenue, he said.

“We would be potentially participating in a lawsuit if we went this route,” he said. “Paying all of one’s emergency services payroll as if it were entirely related to COVID is quite a play on the intent of the CARES Act. Running a speeding ticket is not related to COVID.”

Simms said Little’s reimbursement program will soon be scrutinized in federal court and has already been challenged by members of the Idaho Municipal Attorneys Association.

“The worst-case scenario would be that the government would come to Hailey and demand the money back,” he said.

Councilwoman Heidi Husbands, who voted “nay” on the 3 percent property tax hike, said she supported Little’s program.

“If we could save people who have lived here for 20, 30 years an extra $200, they could use that for grocery bills or gas,” she said.

Council members Sam Linnet and Kaz Thea, however, were skeptical of the benefits and political motivations of the program. The tax cut would not benefit the 35 percent of Hailey residents who rent property, Linnet said, and would favor wealthy homeowners.

“This seems like a political creation that allows politicians to say ‘we didn’t raise taxes’ during the pandemic, with few actual benefits to the city,” he said. “The economic crisis we’re in is affecting our low-income earners the most, and those are the folks that are generally renting property. This type of tax break doesn’t sit well with me.”

Councilman Juan Martinez circled back to the question of risk.

“I’ll take a hard pass on lengthy litigation. If we want to create some actual help for residents, we should create an emergency fund,” he said.

Mayor Martha Burke said the city could technically pass a 2 percent tax increase and attempt to recapture some of that lost revenue through increasing taxes by more than 3 percent the following year—a good option if the city faces a steeper budget shortfall next year, she said.

“I don’t want to call ‘doomsday,’ but we may not be out of COVID next year. It might be just as hard,” she said.

Linnet said he was also worried about the economy in 2021.

“I would bet if I were a betting man that the economy is going to be in a worse place next year. At least from a conservative fiscally responsible perspective, I’d rather keep the increase at 3 percent,” he said.

After the 3-1 vote—and a nonattended public comment session—Martinez, Thea and Linnet said they hoped residents knew that passing the tax increase was a tough decision.

“I don’t want people to think we took this lightly, but we feel this is the best way forward,” Thea said. “The risk is too great from the governor’s grant program.”

Linnet said he hoped residents would see returns in their property taxes in the city’s snow removal, street maintenance, trash removal and police and fire services. He added that Monday’s meeting turnout was disappointing.

“I was hoping more people from the public would send in comments or participate in the [tax] discussion,” he said. “I would have loved to get a feel for what the community feels about this decision.”

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