BOISE — The sweeping property tax legislation that the Idaho Legislature introduced and passed in three days last week rests on a major assumption: That local elected officials in Idaho have only one interest, and that’s to increase their budgets.
“They just want more,” House Majority Leader Mike Moyle, R-Star, who wrote the bill, told the Idaho Press last week, rubbing his thumb against his fingers to signify money.
Local officials who are in charge of providing services ranging from police and fire protection to libraries, parks, roads and more, beg to differ. Moyle’s assumption is behind an array of new limits on local government budgets in fast-growing areas included in the bill, which he claims are the only way to reduce property taxes for hard-hit Idahoans. But in reality, local government budget increases tied to growth in themselves have zero impact on local property taxpayers’ bills.
Here’s why: Under current law, local governments are capped on how much they can increase their budgets from property taxes each year at 3%, plus allowances for new construction, annexation, and in rare cases, expiring urban renewal districts, including an upcoming one in Caldwell, where the assessed value of the expiring district can be added to the new construction roll. But when those factors cause budget increases, the new taxpayers — the newly annexed properties, the newly built ones, and the ones in expiring renewal districts — begin paying taxes to the local taxing districts at the same rate as existing property taxpayers. That means that that factor alone doesn’t raise anyone’s property tax.
“There’s no change in the rate,” explained Alan Dornfest, property tax policy supervisor for the Idaho State Tax Commission. In mathematical terms, both the numerator and the denominator increase by the same percentage, resulting in the same rate.
That doesn’t mean no one will see tax increases. Other factors, chiefly the huge gulf between soaring residential property tax values and the taxable values Idaho assigns to other types of property, such as business property, that haven’t been growing, result in a tax shift onto homes. That’s why Idaho homeowners have been hit with property tax increases that in some cases, especially for those on fixed incomes, are so huge they can no longer afford to stay in the homes they own.
That can occur even if the local government’s property tax budget doesn’t increase at all, or goes down. It’s because the city or other taxing district’s budget is divided by the total taxable value in the district to determine the rate. The combination of rate and taxable value determines what each property pays.
In fact, it’s local government officials themselves who decide whether to add the full value of new growth to their budgets; if they add less than 100% of that value, everyone’s tax rate goes down. Moyle’s bill, HB 389, takes that decision out of their hands, forcing new limits on fast-growing parts of the state including the cities of Caldwell, Nampa and Boise.
Moyle told the House as it debated the bill on May 4, “This will slow down what they can grab.”
Nampa Mayor Debbie Kling said Monday, “I’m baffled, I’m disappointed, but beyond that I’m deeply grieved as I have watched the discussion and listened to the rhetoric.”
“It almost appears that the Legislature does not respect or value the work that is done at the local level,” she said.
Kling noted that Nampa is experiencing “crazy growth.” This year, with the construction of the big new Amazon facility going on the tax rolls, “This was a great year for Nampa to try to get ahead because of the new construction,” she said. “Our intent was to not use any of the 3% that we would be allowed for a tax increase, to where there’s no tax increase and we do everything that we need to do with new construction. Unfortunately, with this bill, we will not be able to.”
Gov. Brad Little has signed HB 389 on Wednesday morning. In a letter to House Speaker Scott Bedke, R-Oakley, Little said, “I support the bill sponsors’ intent to provide overdue and much-needed property tax relief for Idahoans, and they should be applauded for their attempt to curb unsustainable increases in property taxes due, in large part, to the rapid surge in home prices.”
Little continued, “I am supportive of the increase in the homeowner’s exemption from $100,000 to $125,000, but the near-exponential increases in home valuations mean the exemption will only slow the property tax increases for many Idahoans and not provide long-term relief. I am also supportive of updating the circuit breaker credit to ensure that our veterans, elderly, and lower-income populations can afford to stay in their homes, but I fear these changes may have unintended consequences for some individuals and families.
“I have always subscribed to the adage that our taxes need to be fair, simple, competitive, and predictable. When considered against these pillars of tax policy, House Bill 389 falls short. The bill is an aggregate of complex and nuanced changes to Idaho’s property tax code, and I am troubled that this was introduced in the waning days of the longest legislative session in Idaho history.”
Kling said she’s hearing from other mayors across the state that their cities are facing the prospect of cuts in critical services if the bill becomes law. In Nampa, a “devastating” impact is forecast, she said.
The city of Boise isn’t foreseeing as drastic of an impact in the short term, according to Kathy Griesmyer, director of government affairs. But she said, “It’s not going to end up providing relief to residents, especially with the large tax break for businesses through the personal property tax” on business inventory and equipment.
“The city feels very strongly this idea that property tax relief is contingent on cities reducing their budgets is a misguided focus,” Griesmyer said. “The city took a zero percent base property tax increase last year, in response to the economic needs of the community with COVID. The city also participated in Gov. Little’s property tax reduction plan,” which tapped federal CARES Act funds to offset local first-responder costs. “If that program had not existed, homeowners would have still seen an increase in their property taxes this year.”
“I think the urban renewal piece will be more difficult for the city in coming years,” Griesmyer said, “because we have several urban renewal areas that are due to expire.”
Caldwell is the poster child for impact from an expiring urban renewal district. The city’s successful downtown redevelopment around Indian Creek Plaza and the Sky Ranch development is set to expire in 2022, expected to bring up to a billion dollars — the numbers aren’t in yet — back onto the city’s tax rolls. Currently, roughly 22% of the city’s tax base is being diverted to urban renewal; that will end when the district expires.
If the city decided to use its full new maximum budget capacity, under current law, taxpayers’ bills wouldn’t change. But if it decided to tap less than the full amount, every property taxpayer in Caldwell would see a decrease in their rates. Rather than letting the city decide, HB 389 says the city could recognize a maximum of 80% of the newly returned value.
“Our biggest concern is with the reduced funding we’ll get, we’re going to have to reduce public safety services,” said Chelsea Wilson, Caldwell public information officer. “If growth doesn’t pay for itself, then it hinders our ability to add new, needed police officers and firefighters.”
Canyon County Commissioner Keri Smith, who was the founder and president of Destination Caldwell, said the urban renewal district, which formed in 1998, has had a decidedly positive impact on Caldwell.
“We literally did transform downtown Caldwell,” she said. “We created a place where locals want to stay and play and dine and shop.”
Under current law, local officials can opt to forgo budget increases attributable to growth and instead bank those potential increases against future needs in subsequent years; that provides an incentive for them to not increase their budgets each year by the full amount allowed, because it’s not a use-it-or-lose-it situation. HB 389 would also place new limits on that “forgone” balance authority.
Under HB 389, the communities that will see the biggest impacts are those with new construction, annexation or expiring urban renewal districts. In addition to specific limits on the allowable growth attributed to each of those categories, the bill includes a new 8% cap on all local government property tax budget growth, for any reason.
Kelley Packer, executive director of the Association of Idaho Cities and a former GOP state representative, said she’s heard from at least 21 cities so far that would be harmed by that 8% cap. They range from fast-growing Rathdrum in North Idaho to tiny Inkom in eastern Idaho, Packer said. Other cities facing big impacts, she said, include Kuna, Star, Eagle, Lewiston and Kimberly.
“Levy rates in many of our cities have gone down,” Packer said. “It’s not the budgets that are the problem. It is the assessed values.”
With new growth, she noted, “You have more people sharing the burden.”
Similar, and in some cases, identical provisions limiting budget growth in fast-growing areas were included in SB 1108, another property tax bill proposed by Sen. Jim Rice, R-Caldwell, that died by one vote in the Senate two months ago, on March 18. HB 389 passed the Senate last Tuesday on a 19-16 vote.
The Senate committee hearing on the earlier bill, SB 1108, drew nearly all negative testimony from an array of local government officials around the state, many of whom said it would force fast-growing cities and counties to cut crucial services like police and fire protection.
HB 389 had only a brief Senate committee hearing on short notice; it passed despite strong testimony against the bill from local officials, including Rudy Rudebaugh, chairman of the legislative committee for the Idaho State Fire Commissioners Association. He told the senators, “This bill as written will result in loss of life and preservation of property, by hampering those responsible for providing emergency services.”
The Idaho Association of Realtors, now renamed Idaho REALTORS, was the lead proponent of the 2016 law that capped Idaho’s homeowner’s exemption at $100,000 and removed its annual indexing to home values, which had been allowing the maximum exemption to go up and down with housing prices. If that hadn’t been removed, the homeowner’s exemption would now be half again as high — $150,000.
Because that freezing of the exemption came right before Idaho home values soared, it resulted in big tax shifts. That’s why many lawmakers from both houses and both parties this year and last year called for increasing the exemption and restoring the indexing.
Rep. Bruce Skaug, R-Nampa, proposed such a bill this year, raising the exemption to $150,000 along with other changes, and drew widespread support, but House GOP leaders never allowed it to be introduced. When the House passed HB 389, Skaug debated against it, especially taking issue with Moyle’s contention that this was the only option for property tax relief this year.
“I’ve heard you say this bill is better than nothing and it’s all we have,” Skaug said. “Well, why is this all we have? Why is this process done in 24 hours, when we had an interim committee over the summer, we’ve had all this session to talk about taxes, and it’s here, take it or leave it, this is all there is?”
HB 389 includes a 25% increase in the homeowners exemption, to a maximum of $125,000; and a small boost to the “Circuit Breaker” tax break for needy seniors, which hasn’t been updated for inflation since 2006. However, it also calls for the circuit breaker to be scaled back in 2022 by booting off all low-income seniors whose home values exceed 125% of the median value for their county, removing 15% of those now receiving the break from eligibility. Moyle said that’s aimed at preventing seniors living in “million-dollar homes” from getting the small tax break.
There’s no evidence that’s been occurring; the maximum circuit breaker property tax relief for needy seniors is currently $1,320 per year. In most parts of Idaho, that’s roughly a 10th of the annual property tax on a million-dollar home.
HB 389 also includes a major new property tax break for large Idaho businesses, by increasing the tax exemption for business equipment, which is classified as “personal property,” from $100,000 per county to $250,000. And it includes a major new break for developers, by extending the property tax exemption for site improvements on land held by a developer from the date when the property development, such as home-building, begins, to the date that it’s completed. Like many provisions of the bill, the impact of the new break has yet to be quantified, but with some developments taking years to build hundreds or thousands of homes, it could be significant.
Moyle says his bill’s 90% cap on the amount of new construction value local governments can recognize in their budgets will provide property tax relief by forcing budget cuts, resulting in everyone paying a little less. He suggested an example of a neighboring property being developed with a pricey new home and swimming pool. “In my humble opinion, when they build that big house and that swimming pool, I should get a little bit of tax relief, I’ve already paid for the roads,” he said.
Forcing budget cuts would lower the total taxes collected, so that theoretical resident could get a reduction. But it’d come at the cost of cutting local government services the resident currently enjoys, such as road maintenance. And if the fancy new neighboring home pushes up market values for the neighborhood, all residents would end up paying more as a result.
Steve Onofrei, senior systems analyst for Canyon County, said based on his analysis of HB 389, “Residential property owners will still see a tax increase.” That’s because the 25% boost in the homeowner’s exemption isn’t enough to offset the much larger jumps in home values in the county.
He noted that taxing districts in Canyon County have held the line on budget increases for the past two years, amid the pandemic. “I don’t think any one of them asked for the maximum allowable,” he said. “And yet we’ve seen a skyrocketing tax burden fall on residential property owners, while large commercial businesses have seen tax breaks. And that trend, even with this bill, based on initial analysis, will continue.”
Idaho Press reporter Paul Schwedelson contributed.