Wednesday, October 3, 2012

Attorneys: LOT agreement is legal

Idaho law does not block public funding of MRGs, says firm

Express Staff Writer

Third in a three-part series about the upcoming local-option tax vote and the debate surrounding its impact on the community, effect on local businesses and the legality of the proposed agreement to use public funds for air service.


 A November vote on whether Ketchum, Hailey and Sun Valley should levy a 1 percent local-option tax to fund air service has been on city and county radar only since June. 

But the process of determining whether it’s legal to use public funds for airline minimum revenue guarantees has been in the works for years, those involved say. 

The process officially started nearly two years ago, when state Rep. Wendy Jaquet, D-Ketchum, contacted the Idaho Department of Commerce and the office of the governor for advice. But Jaquet said the idea has been germinating for almost two decades.

“It really started when I was working at the [Ketchum] chamber in the 1990s,” she said. “I’ve been involved with it for a really long time.”

Jaquet said she was discouraged from continuing by the Governor’s Office and the agency, which felt that the state Constitution and statutes would prevent the type of funding she was thinking about at the time. However, she said she kept going because she felt that it was the best way to boost economic development.

“We could have another Wagon Days and have another good weekend,” she said, “But to me, this [better air service] is what will really gets visitors. If you look at other resorts, they have been doing this for 10 to 20 years. This is so important.”

Jaquet contacted the law firm of Hawley Troxell in Boise in December 2010, partially due to attorney Mike Stoddard’s work on a constitutional amendment regarding airport funding and public debt that year. 

Stoddard and his colleague Nick Miller agreed to take on the task of figuring out whether using public funds to secure commercial air service for a publicly owned airport is legal in Idaho—as it is in Wyoming and Colorado—and were hired by the Fly Sun Valley Alliance, using private funds, in mid-2011.

“We looked at [the situation] and concluded that we could work through these issues,” Miller said.

The issues were three-fold, Stoddard and Miller said: whether an agreement to use public funds for air service would constitute “lending public credit” to a private agency; whether using public funds for air service would qualify as fulfilling a public purpose; and whether public funds could be used for air service without incurring debt.

Lending of public credit to a private institution is prohibited by the Idaho Constitution, Article VIII, Section 4. The section essentially says that local governments and other taxing districts cannot guarantee the debt of a private corporation or individual.

Miller said that in this case, the section is often misunderstood and read too broadly.

“Lending of credit is a pretty confined thing,” he said. “It grew out of the early days of statehood, when cities would try to guarantee the debt of the railroad to get them to come through town.”

“From our perspective, the most important aspect was that there was a public purpose behind this [funding].”
Mike Stoddard
Hawley Troxell law firm

However, Miller added, promising minimum revenue guarantees would not be the same as, for example, promising to pay a debt that an airline might owe to a bank in exchange for the airline’s operating out of Friedman Memorial Airport.

He said that in this case, the Sun Valley Air Service Board, created by a joint powers agreement, would simply be entering into a contract for service.

“When you think about it, governments enter into contracts with private entities all the time,” he said.

For example, Blaine County currently contracts with the Animal Shelter of the Wood River Valley to provide impound services, and the county and cities contract with Mountain Rides to provide public transportation.

Stoddard said that in the case of contracts with private entities, the money must be shown to be going for a public purpose.

“From our perspective, the most important aspect was that there was a public purpose behind this [funding],” he said.

According to a March 2012 opinion by Idaho Attorney General Assistant Chief Deputy Brian Kane, Idaho code considers the operation of a viable airport to be a public purpose, and therefore local governments have the authority to use public funds for maintenance and operation.

“The attorney general’s opinion said that there is a requirement to operate the airport and a requirement to keep the airport viable,” Jaquet said. “If minimum revenue guarantees are required to keep the airport viable, how do we do that? With a joint powers agreement.”

The attorney general’s opinion also stated that operating and maintaining an airport could be done through a joint powers agreement—such as the one that already exists through the Friedman Memorial Airport Authority—and that such an agreement could be used to enter into contracts with corporations that provide air service.

However, there was one more consideration—incurring multi-year debt and liability as prohibited in the Idaho Constitution, Article VIII, Section 3.

Stoddard said that that prohibition does not apply in the case of the MRGs, because contracts for air service are not longer than one year.

“We’re not signing a five-year note to obligate the tax collection for the next five years,” Miller said. “The airlines don’t want that and we can’t do that.”

Fly Sun Valley Alliance, Stoddard and Miller said the agreement and the use of funds is legal—despite criticism on the Idaho Mountain Express comment boards stating that the local-option tax and its proposed use would be in violation of state law.

“We have looked at this very carefully, and I think the people who are saying it is illegal are not looking at it in depth,” Miller said.

Eric Seder, president of the Fly Sun Valley Alliance board, said he also believes the proposed plan is legal.

“If it’s illegal, we ought to find out, because this is the only way that we have of actually getting additional air service,” he said.

LOT ballot question

The official ballot language for the local option tax ballot question is available at, under the “Learn More” tab.

Kate Wutz:

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