Idaho sets special session to address tax relief, ed funding

Aug. 24—Immediate and ongoing tax relief, plus a big boost in education funding, will be the focus of a special session of the Idaho Legislature next week.

Gov. Brad Little issued a proclamation Tuesday calling for the session, which begins at 7 a.m. PDT Sept. 1.

"We're calling an extraordinary session to address the crushing impacts of historic inflation on Idaho families and schools," Little said during a news conference. "Idaho's powerful economic engine, combined with years of fiscal conservatism in state government, mean tax revenues have outpaced government spending. ... With the emergency before us, we're going to give (the surplus) back to the people and help our schools."

Much of the projected surplus was generated during fiscal 2022, which ended June 30. Updated revenue projections indicate the surplus will grow to about $2 billion by the end of the current fiscal year.

The sole focus of the special session will be a single omnibus bill that would appropriate about $1.07 billion of the surplus. The legislation includes:

$500 million for a one-time tax rebate

The rebate would equal to 10% of a taxpayer's 2020 income tax payment, or a minimum of $300 for single filers and $600 for joint filers.

Similar to the $350 million rebate that went out earlier this year, the rebate will only be available to full-time Idaho residents who filed tax returns in 2020 and 2021.

Senior citizens and others who don't pay income tax can still qualify for the rebate, so long as they filed a Form 24 both years, requesting the annual grocery tax credit.

The State Tax Commission could start disbursing this money as early as September.

$161 million in ongoing tax relief

The bill would replace the state's existing income tax brackets with a 5.8% flat tax for individuals and corporations.

Idaho currently taxes every dollar of taxable income on a graduated scale, beginning at 1% and increasing to a top rate of 6% for taxable income in excess of $5,000. Corporate income is currently taxed at 6%.

Under the flat tax proposal, the first $2,500 in taxable income, or $5,000 for joint filers, would be exempt. Consequently, officials say this proposal will result in a tax cut for everyone who pays state income tax.

$410 million in combined education funding

The bill calls for a permanent increase in K-12 funding of $330 million. Another $80 million in ongoing support would go into a newly created "in-demand careers" fund.

This money would come from the state sales tax receipts, beginning in July 2023. The bill also includes an inflation adjustment, so the set-aside would grow at the rate of 3% per year.

The legislation doesn't detail how any of this money should be spent.

Lawmakers will decide that next session, just as they do with any other education funding.

There has been talk, however, about using the "in-demand careers" money to boost higher education enrollment in areas where the state suffers from a severe shortage of employees, such as nursing or STEM education.

Another section of the bill also provides some additional money for substance abuse programs in the public school system, as well as to counties for juvenile probation services.

Effective date

The tax rebate portion of the bill would take effect as soon as it's signed into law. The flat tax, however, wouldn't be enacted until Jan. 3.

That date was specifically chosen to supersede the Quality Education Act ballot measure, which voters will decide on in November.

The act proposes a 10.925% tax on high income earners and raises the corporate tax rate to 8%. Collectively, those changes would raise an estimated $323 million for K-12 education.

If voters approve the act, the new rates would take effect Jan. 1. They would then be replaced two days later by the flat tax portion of the special session bill, effectively nullifying the entire ballot measure.

Luke Mayville, co-founder of Reclaim Idaho, the grassroots organization that sponsored the Quality Education Act, said this proposed $410 million investment would be "a big step forward" for Idaho.

"Even as the proposal aims to supplant the Quality Education Act, it hands a major victory to the thousands of volunteers and supporters who circulated and signed the initiative," he said in a news release. "An investment of this scale would never have been on the table if not for the Quality Education Act campaign."

Advisory vote

Another clause in the special session bill calls for an advisory vote to be placed on the November ballot, asking voters if they approve or disapprove of using the projected budget surplus for tax cuts and education.

Lawmakers are not obligated to abide by the advisory vote, but the bill indicates the results "will guide the Legislature as to whether the ongoing elements of this act shall continue."

A total of 62 co-sponsors have already signed on to the omnibus bill. That includes a majority of lawmakers in both the House and the Senate, as well as a majority of the House Revenue and Taxation Committee, where the legislation will be introduced.

Co-sponsors in north central Idaho include Sen. David Nelson, D-Moscow; and Reps. Caroline Troy, R-Genesee, Brandon Mitchell, R-Moscow, and Lori McCann, R-Lewiston.

"I'm fully supportive of the education funding proposed," Nelson said. "I would prefer Idaho enact property tax reform instead of income tax cuts, but I can support this bill to lock in the education funding now."

House Republican leaders issued a news release saying their caucus understands "the urgency of returning Idaho's record tax surplus to hardworking Idaho taxpayers as they struggle to make ends meet."

The Idaho Education Association also issued a statement saying its members "enthusiastically endorse the stated education goals of the upcoming special session."

"Injecting record new funding into the public school income fund by statute would be the Legislature's first serious step in generations toward meeting its obligation" to properly fund public schools, the association said.

The Legislature has increased state support for K-12 education by more than $630 million, or 38%, in the last five years, including a record $258 million increase earlier this year.

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