House mulls tax freeze and more

After three days of hearings and hours of testimony from county and city officials, an Idaho House panel has approved a bill that would temporarily freeze the portions of local government budgets funded by property taxes.

Property taxes make up 54% of county revenues according to the Idaho Association of Counties, and House Majority Leader Mike Moyle, R-Star, says that cities use property taxes to fund about 20% of their budgets. His proposal — House Bill 409 — would impose a one-year freeze on those property tax budgets.

The House Revenue and Taxation Committee approved the bill last week with a do pass recommendation on a 12-3 party line vote. The bill is scheduled for a vote Thursday in the full House.

The bill prohibits local governments — except for school districts — from certifying a property tax budget or levy in 2020 that exceeds the amount budgeted in 2019.

“Property taxes have been an issue in the state of Idaho for a long time,” Moyle told the committee. “In 1978, around the same time the state of California passed Prop 13, the state of Idaho passed what was called the One Percent Initiative.”

The 1978 voter initiative limited property taxes to one percent of property market value, alongside a slate of other tax limitation measures. The proposal qualified for the Idaho ballot amid a wave of virtually identical initiatives that year dubbed the taxpayer revolt.

“We basically whited out ‘California’ and typed in ‘Idaho,’” tax reduction advocate Grover Norquist told the Spokesman Review in 2013.

Unlike in California, however, the Idaho Supreme Court ruled the voter initiative unconstitutional. As a compromise, the Legislature froze property-tax-funded budgets at 1978 levels rather than modifying the taxes directly.

Today, Idaho counties, cities and other taxing districts are allowed to increase that property tax amount in their budgets by three percent every year, in addition to value generated by new construction or land annexation.

“The Legislature [in 1979] said let’s take a step back,” Moyle said.

“They froze the property tax portions of the budget for a year. They had an interim committee where they sat down to discuss the issue to find out a solution that would address the concerns of the citizens.”

Moyle intends for this one-year budget freeze to mimic the compromise four decades ago, as an incentive for local governments to collaborate with the state on more comprehensive plans. A resolution authorizing an interim property tax relief committee has been introduced in the Senate. Lawmakers last year participated in a ten-member Property Tax Working Group, which Moyle described as more of a learning group. He called for a larger interim committee to continue the work of that group in partnership with cities, counties and school districts.

“There were no solutions talked about,” he said. “As legislators and as citizens we don’t understand property taxes. A lot of the time was spent on learning how they work, learning the numbers, seeing who was spending what where and when.”

He warned that the state government could lose control of the situation if the problem is not addressed soon.

“If the Legislature does not act, the people will act,” Moyle said. “This is one of those issues that is near and dear to every Idahoan citizen. They will get an initiative on the ballot just like they did in 1978.”

There testifying in favor of the freeze were homeowners who have seen dramatic increases in their property taxes. Darryl Ford, a Caldwell resident, told the committee that new neighborhoods springing up in his formerly rural area were doubling property values — and in turn, his taxes.

“I’m on a fixed income now and I’m afraid they’re going to tax us right out of our house. We paid for the house, it’s ours,” he told them. “We’re not going to be able to live those golden years the way you think the golden years should be.”

“I’m even having trouble feeding my horses now,” said Ford.

Also speaking in favor of the bill was Fred Birnbaum of the Idaho Freedom Foundation. “We need to hit the pause button,” he told lawmakers.

A long line of county commissioners and city officials testified before the committee, urging them to vote against a freeze to their budgets.

“This is not a pause or a slow down,” said Commissioner Brent Mendenhall of Madison County. “House Bill 409 is slamming on the brakes on an ice-covered road.”

Mendenhall said Madison County is struggling to fund adequate snow plowing and enough EMTs to operate their ambulances. He also has concerns with state plans to appropriate county savings from Medicaid Expansion to pay for the program itself.

In information about property taxes and budgets provided to the committee, the Idaho Association of Counties says that 44% of county expenditures are for justice and public safety.

“I need to hire three more prosecuting attorneys,” said Bannock County Commissioner Terrel Tovey. He said a freeze would force his county to eliminate county employees that provide state functions. “How would I do that? I’m going to get rid of the fair, I’m going to get rid of the fair board, I’m going to get rid of 4-H.”

Oneida County Commissioner Bill Lewis told legislators about their struggles to comply with the Americans with Disabilities Act. He says they have failed for twenty years to pass the necessary bonds to fund building upgrades. Lewis described attempts to save small budget amounts here and there to devote to the issue, but worried that a budget freeze would risk further lawsuits.

“Even after a one-million-dollar judgment against the elementary school this past year, the next bond attempt still failed,” he said. “We carried — I saw it personally, this — we carried two individuals up our stairs into our courtroom because of ADA compliance issues. One of whom was the person who sued the elementary school.”

Commissioner Wayne Butts of Custer County said that the vast majority of land in his area is untaxable, which limits their budget across the board.

“What am I going to cut? We have seriously had the conversation in our county in the last year between the commissioners,” he told them, “that there’s a possibility that we’re going to have to look at dissolving our county. As a county commissioner, do you know how that makes me feel?”

Urban city officials face the opposite problems of sparsely populated rural counties. The unprecedented growth they’re experiencing has come with a different downside — unprecedented strain on public services.

“A one-year freeze is a one-year problem with a multi-year impact for us,” said Doug Racine, Nampa Director of Finance. His city is struggling with infrastructure maintenance and staffing their fire and police departments. “Growth brings cost. If I do not have revenues associated with the cost of the growth that means we have to cut services.”

Canyon County Clerk Chris Yamamoto said that officials’ time would be better spent if they were working on a comprehensive tax overhaul. “But we’re not. We’re just freezing the budget, and a bunch of people are going to see their taxes increase, and we’re all going to look stupid,” he said.

Moyle and Treasure Valley officials agreed that — due to shifts between classes of property and rising market values — most homeowners would still see an increase in next year’s tax burden in spite of the freeze. Local governments said that increasing the homeowner’s exemption and circuit breaker program would help shift property taxes to more equitable levels. Moyle disagreed.

Democrats asked why the committee should pursue a freeze if the approach is not guaranteed to help taxpayers.

“We’ve heard a lot of testimony about this not helping with people’s property taxes,” said Rep. Rob Mason, D-Boise. “I know we’ve had a lot of discussion also about the need for local governments to survive a freeze. These are two different conversations.”

The most obvious effects of the changes made in response to the 1978 initiative were decreased property taxes. However, Education Week reported in 1982, along with tax relief came dramatic cuts to school budgets that led to an immediate uptick in supplemental levies and withdrawals from the general fund.

“With cuts, the schools will never be as good again as they are now,” then-State Board of Education President Cheryl Hymas told the 1982 Joint Finance-Appropriations Committee. “We’ve lost so much by not doing timely maintenance, by not making timely purchases, and by letting the morale of our teachers drop, that even with immediate full funding, it would be decades before we could catch up.”

Moyle had introduced a draft of the bill earlier in the session, then introduced this version — HB409 — which excludes school district budgets from the one-year freeze. It also prevents taxing districts from claiming a foregone property tax balance from the freeze.

If a local government increases their property tax budget by less than the three percent maximum in a year, the State Tax Commission keeps track of the difference. These balances accumulate year after year, and local governments have the right to go back and collect those unclaimed taxes in subsequent budget years.

A bill that reverses that arrangement passed the House and is pending a vote in the Senate. If passed into law, the bill from Rep. Steven Harris, R-Meridian, would require local governments to designate a specific dollar amount to keep available for future budgets and notify the public, rather than the state tax commission quietly reserving increases by default.

The taxation committee has not yet scheduled a hearing on another proposal from Moyle, which would require values from new construction and annexation to be included in the three percent growth maximum instead of being added on top. He did reference the proposal in the freeze hearing, listing a number of scenarios that would account for unlawful, reckless spending.

“Who’s checking to make sure these property taxes are applied correctly?” he asked. “Who’s checking to make sure that the new construction number wasn’t fudged? Who’s checking to make sure that this is all legit? Nobody!”

This drew a laugh from the local government crowd. An audience member stated, “The State Tax Commission.”

“Now, I’ve asked the tax commission to do it,” Moyle said. “Nobody’s looking at it.”

The Idaho Association of Counties and the Idaho Association of Cities both support the reform to foregone tax balances. Both organizations oppose both of Moyle’s property tax budget bills.

Logan Finney is an intern with the University of Idaho McClure Center for Public Policy Research and the UI JAMM News Service.