Idaho lawmakers ponder tax relief options

Aug. 28—Idaho lawmakers hope to evaluate several opportunities for property tax relief this year, including creating a new exemption, getting rid of old ones and eliminating supplemental levies.

Nearly a dozen ideas were tossed on the table Friday during a meeting of the interim Property Taxes and Revenue Expenditures Committee.

Much of the focus during the three-hour session was on a new "dynamic exemption" proposal from Sen. Jim Rice, R-Caldwell, who co-chairs the committee.

The goal, he said, is to eliminate the property tax shift that occurs when one class of property — such as residential — rises in value faster than other classes.

Rice said Idaho's current property tax structure works fine, so long as assessed values remain unchanged. In that situation, local taxing jurisdictions can't increase their property tax budgets by more than 3 percent per year, so that's the most anyone would see their annual taxes go up.

The problem arises, he said, when one class of property increases in assessed value faster than others.

That's been the case in Ada and Canyon counties for the past several years, as well as other jurisdictions in the state: Assessed values for residential properties are soaring, while commercial, agricultural and industrial properties have grown at much lower rates.

As a result, even if the actual levy rate decreases, homeowners are often stuck paying hundreds of dollars more each year, simply because their property values have increased so much.

Rep. John Gannon, D-Boise, for example, noted that in some parts of Ada County, residential property taxes have doubled in the past five years.

Rice said the "dynamic exemption" concept would eliminate these differential increases in assessed values.

For example, if residential properties increased 20 percent one year while commercial properties increased only 5 percent, the residential properties would get an exemption that brings the increase down to 5 percent. If commercial properties increased more than residential, they'd get the exemption.

This dynamic exemption would be cumulative from one year to the next, Rice said. It would also be in addition to the normal homeowner exemption. When someone sold the property, the dynamic exemption would reset to zero.

"It's a stabilizing methodology to eliminate tax shifts from the property tax system," Rice said. "It's not a tax cut methodology, but it's intended to eliminate shifts in all economic times."

The ultimate goal, he said, "is that our citizens' taxes aren't going up faster than that 3 percent cap (on local property tax budgets). And if the local units of government decide to take zero, it really means zero increase for property owners."

Rice said he's working with county assessors in Ada and Canyon counties to evaluate how the exemption would work in a variety of economic conditions. He doesn't have a formal proposal ready for the committee just yet, but hopes to come back with more details later this year.

Other property tax relief concepts discussed Friday include:

Impact fees for local highway districts — State law currently allows countywide highway districts to impose impact fees on new development.

However, Ada County Highway District is the only countywide district in the state.

Rep. Jim Addis, R-Coeur d'Alene, raised the possibility of giving other local highway districts the same statutory authority. The intent is to have new development help pay for the impacts it has on existing infrastructure, and thereby possibly reduce the burden on existing property taxpayers.

Sen. Jim Woodward, R-Sagle, suggested county road departments could also benefit from impact fees. Rep. Lauren Necochea, D-Boise, said the same for school districts.

Expand the circuit breaker program — The circuit breaker provides targeted property tax relief for certain individuals, such as the elderly, disabled and military veterans.

With state general fund revenues coming in well ahead of budget, Necochea suggested the Legislature consider expanding the program.

"We have the funds available to increase property tax assistance, so let's do that," she said.

Use the state general fund surplus to enact long-term property tax relief — Rep. Jason Monks, R-Meridian, said the state is looking at a potential $500 million ongoing surplus in tax collections this year.

"We need to give some of that money back (to taxpayers)," he said. "We can do that in a multitude of ways. One method I think we should look at is in the property tax world."

For example, distributing the money to local governments in such a way that it reduced their property tax budgets would provide immediate and ongoing tax relief for property owners.

However, House Majority Leader Mike Moyle, R-Star, offered a note of caution. He noted that the Legislature tried to enact property tax relief several times in the past by allocating more state revenue to local entities.

"What happened in all those cases?" Moyle said. "It got backfilled. We didn't do a good job of making sure, when we provided that relief, that we didn't allow local district to backfill. A lot of them went back up to where they were. So if we go down this road, we need to make sure we don't create a benefit by supplanting local revenues and don't prevent (property taxes) from increasing in the future."

Use the general fund surplus to buy down debt — Rep. John Vander Woude, R-Nampa, said voter-approved bond indebtedness adds a considerable amount to property tax bills across the state.

Rather than use the general fund surplus for ongoing expenditures like local government operating budgets, he said, he'd rather use it to pay off long-term debt. That would provide immediate and permanent tax relief.

Shift certain expenses from counties to the state — Rep. Rod Furniss, R-Rigby, noted that public defense is a major expense for many counties.

Shifting that cost to the state could reduce local budgets and generate property tax relief, he said. A statewide public defense system would also be more efficient than a county-by-county approach.

Sen. Kelly Anthon, R-Burley, noted that inadequate state funding is responsible for at least some of the property tax burden across the state.

For example, when the state doesn't provide enough money for schools or roads, "we turn to the property taxpayer," he said. "These are some of the other issues I think we'll have to continue to look at."

Use the surplus to eliminate supplemental levies — Given the magnitude of the general fund surplus, Rice said, "we may have an opportunity ... to eliminate supplemental levies over time, without any tax increases. That would be a tremendous benefit to our citizens."

He didn't offer further details, but said this is something he and others are already working on.

"I think it would be worth taking a solid look at doing something where we actually eliminate one of the items on nearly everyone's property tax bill," Rice said. "We do it in a way that would be permanent, because we eliminate that tax type."

Review existing property tax incentives — Sen. Jim Guthrie, R-McCammon, noted that local governments currently have an option of using tax exemptions to attract businesses and other developments.

During periods of rapid growth, such as many parts of Idaho are experiencing, Guthrie wondered if those tax incentives created more problems than they're worth.

"Maybe (the interim committee) could get a report to see what's going on, and decide if it's appropriate to continue," he said.

Changing assessment methodologies — Currently, Rice said, the assessed value for most homes is determined by comparing the sales prices for similar structures.

Most commercial properties, by contrast, are assessed based on replacement cost — what it would cost to build a similar structure today.

Replacement cost tends to be a more conservative assessment method, he said. It also increases in value slower than sales cost comparisons. Consequently, when you use one for commercial properties and the other for residential, it exacerbates the tax shift to residential.

Idaho could use replacement cost for all residential assessments, Rice said. That's what Nevada does, and it tends to result in much fewer appeals.

However, it wouldn't be an easy transition, he said. It would take at least a year to implement. Every county would also have to switch to a new software system.

And perhaps most problematic, if the county lacked information on construction methods and other data needed to determine the replacement cost — particularly for older homes — then assessors would need to come in and inspect the structure.

"There are some complexities," Rice said.

By contrast, the dynamic exemption concept he put forward could be implemented much faster and would work with current assessment methods.

Spence may be contacted at bspence@lmtribune.com or (208) 791-9168.