Idaho legislature hopes to look into several ways to ease property tax this year, including creating a new exemption, abolishing the old, and abolishing additional taxes.
Nearly a dozen ideas were thrown on the table on Friday during a meeting of the provisional property taxes and revenue expenditure committee.
Much of the focus during the three-hour session was on a new proposal for a “dynamic exception” from Senator Jim Rice, R-Caldwell, who co-chairs the committee.
The goal is to eliminate the real estate tax shift that occurs when one class of property – such as residential property – appreciates faster than other classes.
Rice said Idaho’s current property tax structure works well as long as the estimated values remain unchanged. In this situation, local tax jurisdictions cannot increase their wealth tax budgets by more than 3 percent per year, so that the annual taxes would increase at most.
The problem arises when one class of property is increasing in value faster than others.
This has been the case for the past few years in Ada and Canyon counties, as well as other jurisdictions in the state, with estimates for residential real estate skyrocketing, while commercial, agricultural, and industrial real estate has grown significantly less.
As a result, even if the actual tax rate drops, homeowners pay hundreds of dollars more each year simply because their property has grown so much in value.
For example, Rep. John Gannon, D-Boise noted that home taxes have doubled in some parts of Ada County in the past five years.
Rice said the concept of “dynamic exception” would eliminate these disparate increases in scores.
For example, if residential real estate grew 20 percent in one year while commercial real estate only increased 5 percent, the residential properties would receive an exemption that reduced the increase to 5 percent. If commercial real estate grew faster than residential real estate, they would get the exception.
This dynamic exception would accumulate from one year to the next, Rice said. It would also be in addition to the normal homeowner exemption. When someone sells the property, the dynamic exception is reset to zero.
“It’s a stabilizing way of eliminating tax shifts from the property tax system,” said Rice. “It’s not a tax cut method, but it is supposed to eliminate postponements in all economic times.”
The ultimate goal, he said, “is that our citizens’ taxes do not rise faster than this 3 percent ceiling (on local property tax budgets). And if the local government agencies decide to take zero, it really means no increase for the landowners. “
Rice said he was working with district appraisers in the Ada and Canyon counties to assess how the exception would work under various economic conditions. He doesn’t have a formal proposal for the committee yet, but hopes to come back with more details later this year.
Other land tax relief concepts discussed on Friday are:
Impact Charges for Local Highway Districts – State law currently allows district-wide highway districts to impose crash charges for new developments.
However, the Ada County Highway District is the only district in the entire state.
Rep. Jim Addis, R-Coeur d’Alene, has raised the possibility of giving other local motorway districts the same legal authority. The intent is that new developments will offset the impact on existing infrastructure and thereby potentially reduce the burden on existing property taxpayers.
Senator Jim Woodward, R-Sagle, suggested the county’s road authorities could also benefit from the impact charges. Rep. Lauren Necochea, D-Boise, said the same for school districts.
Expansion of the circuit breaker program – The circuit breaker offers targeted tax breaks for certain individuals such as the elderly, the disabled and military veterans.
As the revenues from the general sovereign wealth fund are well above budget, Necochea suggested that the legislature consider expanding the program.
“We have the funds to increase property tax assistance, so let’s do that,” she said.
Use the state’s general fund surplus to enforce long-term tax breaks – Rep. Jason Monks, R-Meridian, said the state expects a potential running surplus of $ 500 million in tax revenue this year.
“We have to give some of this money back (to the taxpayers),” he said. “We can do that in a variety of ways. One method that I think we should consider is the world of property tax. “
For example, distributing the money to local governments to reduce their property tax budgets would provide real estate owners with immediate and permanent tax relief.
However, House Majority Leader Mike Moyle, R-Star, warned caution. He pointed out that lawmakers have tried several times in the past to obtain relief from property tax by allocating more state revenue to local corporations.
“What happened in all of these cases?” said Moyle. “It was replenished. We have not done a good job of making sure that when we provided this aid, we did not allow the local district to be replenished. Many of them returned to where they were. So if we go down this path, we have to make sure that we are not creating an advantage by crowding out local revenues and not preventing (property taxes) from rising in the future. “
Use General Fund Surplus to Buy Debt – Rep. John Vander Woude, R-Nampa, said the voter-approved bond debt adds a significant amount to property tax bills across the state.
Instead of using the general fund surplus for ongoing expenses such as local government operating budgets, he would rather use it to pay off long-term debt. That would lead to immediate and permanent tax relief.
Shifting Certain Spending from Counties to State – Rep. Rod Furniss, R-Rigby noted that public defense is a huge expense for many counties.
Shifting these costs to the state could reduce local budgets and ease land taxation, he said. A nationwide public defense system would also be more efficient than a district-by-district approach.
Senator Kelly Anthon, R-Burley noted that inadequate government funding accounts for at least part of the property tax burden across the state.
For example, if the state does not provide enough money for schools or roads, “we turn to the property taxpayer,” he said. “These are some of the other issues that I believe we need to investigate further.”
Use the Excess to Eliminate Surcharges – Given the size of the Fund’s overall surplus, Rice said, “we may have the opportunity to … eliminate surcharges over time without increasing taxes. That would be an enormous advantage for our citizens. “
He didn’t provide any further details but said he and others are already working on it.
“I think it would be worth taking a solid look at doing something where we actually cross one of the items on almost everyone’s property tax bill,” said Rice. “We’re doing this in a permanent way because we’re eliminating that type of tax.”
Review of Existing Property Tax Incentives – Senator Jim Guthrie, R-McCammon noted that local governments currently have the option to take advantage of tax exemptions to attract businesses and other developments.
In times of rapid growth experienced in many parts of Idaho, Guthrie wondered if these tax incentives were causing more problems than they were worth.
“Perhaps (the interim committee) could get a report to see what is going on and decide whether it is appropriate to proceed,” he said.
Change in valuation methods – Currently, Rice says, the valued value for most homes is determined by comparing sales prices for similar structures.
In contrast, most commercial properties are valued on the basis of replacement cost – what it would cost to build a similar structure today.
Replacement cost is usually a more conservative valuation method, he said. In addition, the value increases more slowly than the sales cost comparison. So if you use one for commercial property and the other for residential property, it exacerbates the tax shift to residential property.
Idaho could use the replacement cost for all home evaluations, Rice said. That is what Nevada does, and it results in far fewer callings.
It wouldn’t be an easy transition, however, he said. Implementation would take at least a year. In addition, every district would have to switch to a new software system.
Perhaps most troublesome, when the county lacks information about construction methods and other data needed to determine replacement costs – especially for older homes – then appraisers must inspect the structure.
“There are some complexities,” said Rice.
The dynamic exemption concept proposed by him, on the other hand, could be implemented much faster and would work with current assessment methods.