Last week’s unique headlines — the Greenland/Denmark spat, the ramped-up trade war with China and the Trump’s crazy tweet spasm on Friday — obscured an Idaho GOP legislative forum last Tuesday in Meridian that highlighted Republican House leaders’ thoughts on tackling Idaho’s climbing property valuations.
House Speaker Scott Bedke signaled that Idaho legislators are hearing from their constituents on soaring valuations and, in some areas, higher local property taxes. He told the Idaho Statesman that “[t]his property tax thing, we are at critical mass here.”
Rep. James Holtzeclaw of Meridian was particularly pointed as to the impact in the Boise area: “This is absolute madness. There is no reason why we should have a 10% increase in (Ada County) property taxes. Absolute madness.”
To this point much of the focus has been on booming valuations driven by escalating real estate prices in Idaho’s urban areas. County assessors are required in the Idaho Code to value residences and commercial property at market value. While increased values don’t automatically translate into higher property taxes actually being paid, many local governments are also boosting budgets because of the pressure of local growth.
Majority Leader Mike Moyle poured water on the idea of simply giving Idaho homeowners exemption tax relief by raising the $100,000 maximum from value or capping residential property taxes, arguing (accurately) that doing so would shift the property tax burden to other taxpayers. He advocates either a hard cap on overall property tax rates or only re-evaluating values when a property is sold or transferred, not automatically every year.
He also believes that the Idaho Legislature needs to “prevent the locals from increasing their budgets” because property taxes fund counties, cities, local districts and are part of the finance picture for local schools.
On top of all that, state tax revenue is projected to fall short $96.1 million lower than estimated for the current fiscal year. With other changes the impact is projected to leave a balance next June 20 of only $51.1 million, rather than the previously projected $173.8 million.
With Medicaid expansion expected to require around $42 million next year the 2020 Legislature looks to have little surplus funds to apply to property tax changes, meaning that any changes could hammer local governments.
There are multiple forces in play. One is that Idaho’s counties and cities are reliant on property taxes to fund key services like police, fire and recreation. Idaho’s schools must use them to build new school buildings. They cannot (except in a few targeted recreational areas) tap the sales tax to help. And, impact fees for new homes and commercial buildings are restricted.
Another force is that many people are moving to Idaho (we have been one of the top destinations the past few years), especially into the big urban areas, meaning local governments must expand their budgets to just maintain current levels of services.
And, because Idaho’s property taxes are calculated by a particular property’s share of total property value in the area, Idaho property owners are nervous when their value jumps, fearing that higher taxes will be assessed. It may not if everyone else jumps proportionally, but that is somewhat hard to discern. The actual tax bill is dependent on the final budgets set by the county, city, school district (through its voters) and districts for cemeteries, fire suppression and such. That results in uncertainty until the final tax bill is delivered.
Moyle’s recommendations deserve scrutiny. His proposal of a hard property tax cap could hurt growing areas unless taxes were capped at a percentage of overall taxable property in the area (allowing for a rise in revenue from an expanding tax base.). Currently local governments are confined to a property tax revenue boost of 3% per year plus an adjustment for new construction completed and annexation of surrounding property.
The idea of capping property values at the time when purchased would mean newer owners would pay much higher property taxes than those who have had their property for a while. That might be perceived as fundamentally unfair. Sharply restricting local budgets would be hard on growing areas of Idaho.
A more ideal method of reducing the burden of property taxes would be to provide local governments alternative sources of revenue. Property taxes do hit harder those with limited income, including the elderly. An alternative to property taxation such as a local sales tax or less limited impact fees could prove less burdensome.
Idaho might want to look at broadening the sales tax to services and proportionally reducing property taxes. The most radical approach would be to remove the burden of school building from local taxpayers and shifting such to the state level (with the challenge of how to cover the cost).