The city of Eagle says it has found a way to save taxpayers money by making the purchase rather than paying to lease the structure.
On Nov. 6, the city is asking voters to approve a $1.5 million, 15-year bond to purchase City Hall for $1.9 million. Officials say the annual bond payment will be less than the annual lease payment, so there would be no need to raise property taxes.
A citizens group has rallied in support of the bond, but some people want to make sure that buying the building doesn’t lead to increased taxes over the 15 years.
Who owns City Hall?
After voters rejected bond measures for a new City Hall in 1997, 2003 and 2004, city leaders got creative. In 2006, they entered an agreement with Boise developer Hawkins Smith. The company agreed to build and own a 13,000-square-foot building on city-owned property near the library; the city agreed to pay Hawkins Smith a year-to-year lease of $240,592 to occupy the building.
The city also pays the building’s property taxes and insurance, about $20,000 annually.
If the city decided it wanted to purchase the building under that 2006 agreement, Hawkins Smith’s asking price was $2.4 million.
The economy. When city revenues plummeted, Eagle was able to renegotiate for a smaller lease rate of $142,405 annually. That deal expires Oct. 1, 2013, when the lease payment goes back to $240,592. Recently, the owner agreed to sell the building to the city for $1.9 million, a 21 percent reduction from the 2006 price.
What is the upside?
The city already has earmarked $603,000 toward purchasing City Hall. A task force crunched the numbers and thinks that Eagle can take on up to a $1.5 million, 15-year bond without increasing property taxes, and even save the city money annually.
After the cash down payment, the city might not need the entire $1.5 million for the building and the bond interest and fees.
“Ownership means less cost than leasing,” said Jeff Kunz, a citizen who served on the task force and is heading up the citizen effort to get the bond approved.
He also said buying City Hall would save the city money by eliminating paying for Hawkins to insure the building and eliminating property tax payments, since government-owned property is exempt.
“If you subtract out the bond payments of $116,000, you end up with net annual savings of roughly $145,000,” he said. “That is the logic behind the idea.”
What is the downside?
The downside is that the city must ask voters for permission to increase taxes, even though that is not in the city’s plan.
The proposal calls for no property tax increase to make the bond payment. The city says replacing the line item for the lease payment with another line item for the bond payment will, at most, be “revenue neutral.”
But to sell the bonds, the city needs voters to give it the authority to levy a tax to pay them back. The city doesn’t expect to raise taxes, but without that specific authority, the city may not be able to get the lowest bond rate of 2 to 3 percent.
The city sets its budget and levies taxes one year at a time. The current council might agree not to levy a tax to make the annual bond payment, but it cannot commit future councils to make that same decision.
Is that why voters are wary?
More than a dozen people attended a town hall meeting Oct. 17 about the proposal. All who spoke or asked questions thought that owning would be better than leasing, but several people expressed concern about making sure property taxes don’t go up.
“I see the wisdom in buying City Hall. I just want make sure that ‘no property tax increase’ means no increase in property taxes,” said Eagle resident Bob Van Arnem.
“We cannot bind future councils. We cannot predetermine what budget decisions they will make,” Councilman Norm Semanko said.
“That’s an annual decision that has got to be made by the council,” City Councilman John Grasser responded. “For 15 increments, each of those years, the council, whoever they might be, has to make that decision.”
“Just because you have the authority doesn’t mean you have to exercise it,” former Eagle Councilman Stan Bastian pointed out.
Can the council get involved in favor of the measure?
The city can provide information but can’t spend taxpayer resources advocating for or against the bond, and council members attending the town hall meeting were careful when answering questions. The council is considering a “factual” information mailing before the Nov. 6 election.
But the council did vote to hold the election, and individual council members can advocate or oppose, depending on their views.
Who’s against the measure?
No group has formed in opposition.
If two-thirds of voters approve, what happens?
The city could issue the bonds and purchase City Hall as soon as February.
If voters don’t approve, what happens?
The city continues leasing the building until it can find another solution.
Want to learn more?
The Eagle City Council will hold a question-and-answer session Tuesday at 5:30 p.m. at City Hall, 660 E. Civic Lane.
Cynthia Sewell: 377-6428, Twitter: @CynthiaSewell