A LOT to Lose

"Our local option tax changed the way we are able to deliver services. It made a huge difference in terms of quality of service to our community. It's an important element."


Several Idaho towns have seen their populations rise in recent years, but like any growth spurt, those expansions have been accompanied by an awkward phase or two. While growth typically brings with it the benefit of a broader tax base, some Idaho towns could instead end up losing revenue, depending on the results of the all-important 2020 census. For example, officials in the North Idaho city of Sandpoint are nervously eyeing growth projections that could jeopardize their access to local option taxing.

Sandpoint is one of 14 Idaho cities allowed to use local option taxes. Originally implemented by the state in 1978 as a tool for counties with populations of 20,000 or less, LOT authority was refined in 1984 to benefit communities with populations of 10,000 or less. In particular, the LOT authority was intended to benefit resort communities and the state statute allows for qualifying cities to implement taxes on hotel stays and/or by-the-drink liquor sales. In effect, a good portion of the tax burden is shifted to tourists.

But Sandpoint is rapidly approaching the LOT population limit of 10,000, at which point it no longer qualifies for resort city revenue.

"The artificial population cap is contrary to the voice of our voters and is not in the best interest of our residents, businesses and visitors," wrote Sandpoint City Administrator Jennifer Stapleton in a recent analysis, adding that the community is at real risk of losing LOT revenues. In 2010, Sandpoint's population was measured at 7,457. The 2017 estimated population was 8,390, and based on city data, Stapleton believes that number will only grow higher.

"Our own estimates, based on city utility and housing vacancy data, project that our city population will likely pass the 10,000 [resident] resort-city threshold in the 2020 census," she wrote. "If not that year, then definitely within the next one to two years."

Sandpoint isn't the only resort city in danger of losing the revenue mechanism. The Wood River Valley community of Hailey is also creeping toward the population cap. Hailey's 2010 population was 7,960, and it climbed to 8,282 in 2017. According to Hailey City Administrator Heather Dawson, that city's officials aren't immediately worried about crossing the line by the 2020 census. That said, she added that Hailey is keeping a close eye on growth patterns because losing LOT revenues would be debilitating.

"Our local option tax changed the way we are able to deliver services," said Dawson. "It made a huge difference in terms of quality of service to our community. It's an important element."

Meanwhile, LOTs continue to be a source of tension between some Republican lawmakers at the Idaho Statehouse and a number of Gem State municipalities that yearn to institute their own LOTs. According to Mike Journee, spokesman for the City of Boise, LOTs would be a tool that could be used to great effect in the City of Trees, where LOT revenues might help create and sustain improved public transportation options. In the current economic model, modest public transit options are funded via the city's general fund. Public transit would just be one possible beneficiary of LOT revenues in Boise. Other projects, such as possible initiatives to promote affordable housing, could also stand to benefit. City of Boise officials have tried repeatedly for more than a decade to initiate a hearing on LOTs at the Idaho Legislature, but to little avail.

"It's a bit ironic that a state government that talks so much about local control is unwilling to give cities like Boise ... the benefit of the doubt," said Journee.

Meanwhile, officials in some of those Idaho cities small enough to qualify for LOTs have used the revenues to open new horizons. For example, Sandpoint has relied on resort city taxes for nearly two decades. Voters there approved their first LOT, a 5 percent tax on local hotel stays, in 2002. Thirteen years later, voters increased the LOT to 7 percent, renewing for another 10 years. The hotel tax helps fund public transportation, police and fire protection, parks, invasive species control and much more.

Not all of Sandpoint's LOT revenues are designed with tourists in mind. A sales tax approved by voters in 2015, for the purpose of funding recreation projects, impacts tourists and locals alike. Voters approved the new sales tax with a 73 percent majority. The subsequent revenues helped fund the reconstruction for the city's War Memorial Field and its crumbling grandstands. Overflow funds were earmarked for other parks projects. To date, the tax has raised nearly $4 million in revenue, funding the grandstand construction and a forthcoming replacement of the field turf.

Stapleton said she's hopeful a legislative solution will prevent the community from losing resort-city tax dollars. To that end, she's in communication with District 1 legislators.

According to Idaho Sen. Jim Woodward (R-Sagle), and House Rep. Sage Dixon (R-Ponderay), Sandpoint and Hailey officials have at least one reason to breathe a temporary sigh of relief. According to a recent Idaho Attorney General opinion, resort-city taxes are legally permitted to run the course of their voter-approved lifespan, even if the city grows past 10,000 people during that time. That means that Sandpoint would have access at least until its voter-approved hotel tax expires in 2026.

"This opinion gives us a little more time to consider a path forward should the 2020 census reveal that our population has exceeded 10,000," said Dixon.

While that gives the city some breathing room, Dixon was quick to add that it's still not a permanent solution. Nevertheless, lawmakers said they have some conceptual ideas they're eager to develop.

"We're still actively working on a legislative fix," said Woodward. "We have a draft bill that I put together with a little help. Rep. Dixon is working with his House colleagues to clear a path for it. I think I can get it through the Senate."