For the past couple of sessions the Idaho Legislature has talked about doing something about a perceived inequality and out of control increase in property taxes. The debate has actually been going on for decades with numerous tweaks and adjustments made, some by the Legislature and others by public initiatives.
The issues go back to the roots of property taxes. The concept and mechanism of property taxes was created decades ago as a way that local government services designed to protect property and property values, primarily fire and police, would be proportionately assessed by the value of the property being protected.
Over the years there have been a number of points where either the citizens or the legislature objected to escalating property taxes and the scope of services that were now under the property tax umbrella. Initiatives and legislation have resulted in a series of limitations on the total tax based on a percent of taxable property value, creation of homeowner and ag exemptions, uniform implementation of assessment standards across the state, and creation of a circuit breaker exemption for lower income property owners.
One of the more confusing pieces of the puzzle for many taxpayers is to hear that their tax levies have gone down, yet their tax bill has gone up. That is the result of the primary mechanism the Legislature has put into place to continually adjust property values to current market values. In reality if market values were going down, the levy rates would be going up to meet the budget requests of local government entities. That happened in 2008 after the last major recession.
Since then, however, property values in Idaho and Gem County have been making double-digit increases almost annually. Those value increases have been driven entirely by market values and the going rate for property based on supply and demand – as designed by State legislation and statute. Because almost all of the demand has been for housing, homeowner values have escalated dramatically over the past decade while commercial and farm property have remained mostly stagnant.
While the current escalation has been according to design, the unintended consequences are being felt particularly by long-term homeowners who have no intention or desire to sale their homes and take advantage of the dramatic increase in values. For those wanting to remain where they have for years, those values are purely paper values even though their annual tax statements are more than paper.
This is particularly acute for retirees on fixed incomes who perhaps purchased their home decades ago.
Solutions that have been talked about in the Legislature, but no action taken as yet, could include expanding the Homeowner’s Exemption and increasing the Circuit Breaker Tax Relief eligibility levels.
The Homeowner’s Exemption currently reduces a homeowner’s taxable value by 50% of valuation up to $100,000. For those with home values in excess of $200,000 the exemption is capped at $100,000. That exemption has not been adjusted since 2016.
Proposals have been floated that would remove the cap and make 50% of home values exempt regardless the value. Others would simply move the cap upward to provide the benefit on just the first $300,000 or $400,000 which would more closely equate the average sale price of single family homes in the current marketplace.
The Circuit Breaker Tax Relief mechanism is limited to homeowners age 65 or older and a handful of other status requirements and only for those with an income of $31,900 or less in 2020. You have to file for the relief each year with the county assessor’s office. The maximum relief is currently $1,320 and has not been changed since implemented. Proposals last year suggested moving the relief maximum to $2,000.
While both of those proposals are somewhere in Legislative committees, the primary rhetoric and plans being publicly touted by the Legislature this year is pointing fingers at the county and city budgeting process and proposing additional restrictions on what local government can do with their budgets.
The complicated formula currently in place limits city and county governments to no more than a 3% annual increase in their budget, with some exceptions for new construction values and catch-up provisions for years when the 3% increase was not taken. Additional restrictions are being considered by the Legislature and that is not sitting well with city or county officials.
“The real math is we get about a 3% raise per year (sometimes less if there is a “recession”) and whatever the value of the new buildings put on line from the year before…which has averaged between $50,000 to $60,000, which won’t buy a block of new street,” explains Emmett Mayor Gordon Petrie.
“So, whatever your data shows is one thing, our reality is we don’t cover the cost of living increase in some years,” Petrie said. “Lots of confusion about how ad valorem really works, who sets the rates (it’s a zero sum game, by the way…what goes up in one line must come down in another…at least at the city level) and who establishes what property is worth for tax purposes.”
Those proposed limits could be extended to remove or limit the new construction and annexation exceptions currently assisting local governments to deal with new growth. Growth that most Idaho cities and counties are well behind the curve in relation to population increases.
According to the Office of Performance Evaluation, Idaho county budgets grew 27% for the twenty year period ending in 2016, while the populations they serve grew 39%. The pressure on the local governments is magnified also by mandates that the state has imposed on the local entities to provide in regards to public defense services, driver’s license issuance, indigent medical costs, court and jail facilities, and technological implementations that have been less than smooth.
Property Taxes Don’t Carry All the Burden
One of the biggest misconceptions for taxpayers is that property taxes are the primary, if not sole, source of revenue for local governments to provide their administration and services. In most cases those taxes do not even provide the majority of a city or county budget income. In the case of public schools that support level is often less than ten percent of the school’s total budget.
Gem County receives 40% of its budget from property taxes in the 2020 budget cycle. The City of Emmett receives 22.7% of its budget from property taxes. In both cases the property tax revenue does not quite cover the cost of the fire and law enforcement services it was originally designed for.
The Emmett School District in 2020 fulfills 7.4% of its annual budget with property tax revenues. If voters do not approve either of the two levies being proposed on a March 9 ballot, that percentage would essentially disappear in 2021.
Comparing property tax levy rates from 2010 with 2020, almost all Gem County entities have seen a marked decrease in the rate. Note that the data provided here is averaged and does not reflect every individual case as there are numerous small entities that may effect only a small portion of the property parcels.
Gem County’s levy rate in 2010 was equal to a $508 assessment per $100,000 of taxable value. In 2020 that rate is $421, a 17 percent decrease. City of Emmett was $566 in 2010, and is $528 today. Emmett Schools had a 2010 levy rate that equated $337 per $100,000 of taxable value and in 2020 that is $140.
Those numbers also reflect the nature of property valuation increases in Gem County over the last ten years. The majority of the demand for property and the largest increase in sales prices have been for small acreages in the county. The higher the property evaluations the lower the levy rate as long as government budget increases are smaller than valuation escalations – which is almost guaranteed under current restrictions.
Gem County’s total assessed taxable value in 2010 was $797,802,980. In 2020 that value is $1,469,612,030. That is an increase of 45%. That translates to tax bills totaling $11,263,156 going out to 10,414 taxable parcels last November.
Who Carrys the Load?
There are a number of additional misconceptions regarding just who is paying the property taxes in Gem County. As home values have escalated, the larger share of taxes collected has shift to homeowners. The largest taxpayers in the county, however, are more diverse.
Of the top twenty taxpaying entities in 2020, paying collective $659,858 or 5.8% of the entire county tax bill, three of them are classified as operating property or utilities.
Idaho Power is actually the number-one taxpayer in the county, assessed over $120,000 in 2020. Intermountain Gas and Century Link also appear in the top 20.
The only industrial firm that appears on the list is Woodgrain Lumber. The commercial buildings and property of Albertsons, BiMart, D & B and Walgreens also make the list.
The remainder of the top-twenty are either apartment complexes, groups of rental properties or senior health care facilities. None of the top-twenty have the advantage of a homeowners exemption.
You can stack data on top of data to find patterns and interesting comparisons but none of that will answer the dilemma that cities and counties have in trying to deliver the services their citizens demand. Nor will it makeup the backlog in infrastructure maintenance and enhancements they are commissioned to deal with.
The issues are not specific to Gem County. They are rampant across the state as well as the nation. A recent report to the Idaho legislature places the current funding shortfall for transportation needs alone at $242 million per year.
An historic State budget surplus may provide this year’s Legislature some operating room but its no where near enough to wipe out backlogs of needed road repairs and other services. Boosts in education funding may perhaps reduce the growing trend of more and more school levies seeking local taxpayer support. Calls for income tax cuts and direct property tax relief are also being considered.
The most difficult piece of the property tax puzzle, however, appears to hinge on the formula that the State mandates for property value assessments and the impact it has on realized tax billings. How the legislature addresses that piece of the puzzle and what additional mandates and restrictions it imposes on local government could have direct bearing on other funding options being considered as alternatives.
Gem County and the City of Emmett are both exploring the use of Impact Fees and Capital Improvement Plans to shift even more of the cost of maintaining services and managing growth away from property taxes. The Messenger Index will have more on those measures in the coming weeks.