Ponderay seeks formula changes

PONDERAY — Under Idaho statute, the state is required to return 11.5 percent of all sales tax revenue to cities, counties and other taxing districts across the state based on a revenue sharing formula.

Recent talk about revenue sharing in the Legislature has prompted Ponderay Mayor Steve Geiger to get talking about his city’s portion of the allocations and the need to update the decades-old formula.

“Revenue sharing really impacts our city,” Geiger said. “Our city, with nearly 3,000 employees, 260 businesses are producing $300-plus million in sales every year, which is in turn giving Boise $18 million in taxes that we create.”

Per the current revenue sharing formula, Ponderay got back approximately $120,000 this past year after sending $18 million to the state, he said.

According to a 2007 memo, which Gary Houde from the Idaho State Tax Commission told the Daily Bee is still relevant to explain sales tax distribution, 28.2 percent of the 11.5 percent goes into a fund to be distributed back to the cities — the rest is allocated to counties and other taxing districts.

Some cities, however, receive more from the fund and some less as it is based on a formula. According to the memo, the amount each city receives is based on two equally-weighted factors. The first is population, based on the most recent official Census Bureau numbers, and the other is property values from the previous year.

“It’s a five-decades old formula that needs some change,” Geiger said, adding that while the city is such a large producer of sales, the population is small and the property values lower compared to other cities, such as Sandpoint.

According to the official 2017 Census Bureau report, Ponderay’s population was just over 1,100. Geiger said through his research he found that Sandpoint, with a 2017 population of nearly 8,400, generates approximately $130 million in sales, sends the state about $8 million and gets back about $760,000.

“And rightfully so — they deserve every nickle of that,” he said. “But our city and what we produce, getting back $120,000 … basically, our city is producing $50,000 a day.”

All incorporated cities, with a mayor and City Council, are eligible for the revenue sharing funds, according to the memo. Geiger said the nine eligible cities in Bonner County received a total of $1.3 million this year. With Ponderay giving $18 million in taxes to the state, at 11.5 percent, the city contributes about $2 million into the revenue sharing fund — more than what all of the cities in the county get back put together, he said.

“We are a growing city,” Geiger said. “We are the economic engine of Bonner County and we are just trying to cover the basic needs of our infrastructure.”

The background on revenue sharing dates back to the enactment of sales tax in 1965, when business inventories were subject to property tax. By 1971, business inventories, including livestock, were were exempt from property tax. To make up for the lost revenue to the various taxing districts, according to the memo, the Legislature enacted what was called the business inventory replacement to distribute funds directly to each taxing district.

The revenue sharing program actually started in 1984, according to the memo, to benefit cities and counties, providing a “more up-to-date” distribution formula than the business replacement program.

Some updates were made to the revenue sharing formula in 2000, guaranteeing that each district would receive at least the same amount that was distributed in the fourth quarter of 1999. Also, according to the memo, when the Legislature raised the sales tax from 5 to 6 percent in 2003, the percentage of sales tax revenue distributed to local governments was reduced proportionately.

Geiger said he has brought his concerns to the state, talking to local state officials, writing letters and speaking at the governor’s Capital for a Day held in Bonners Ferry recently.

“We are bringing it to their attention and they are noticing,” Geiger said, adding that he has received responses.

In the meantime, as Ponderay readies for two multimillion dollar projects — gaining safe public access to the lake and the Field of Dreams recreation center — the city needs money. Therefore, the city has proposed a five year, 1-percent local option tax that will go before voters in November. If passed, the additional tax to goods and services within the city would not apply to hotels or purchases larger than $999.99, Geiger said.

While there is no way to determine exactly how much money the tax would generate, Geiger estimated it could bring in $2 million per year.

Mary Malone can be reached by email at mmalone@bonnercountydailybee.com and follow her on Twitter @MaryDailyBee.