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Fast-moving property tax reform bill passes Idaho house

Twenty four hours after it first saw the light of day, the Idaho House of Representatives passed a sweeping property tax reform package despite bipartisan opposition.

On Tuesday, lawmakers voted 48-20 to approve a package of property tax changes spearheaded by House Majority Leader Rep. Mike Moyle, R-Star. The bill contains slimmed-down versions of ideas lawmakers on all ends of the political spectrum called for to fix skyrocketing tax bills hitting many Idaho homeowners.

But, opponents from both parties said it was introduced too quickly to study the impacts and it doesn’t go far enough to address the problem.

[Explain this to me: Inside Idaho’s complicated property tax system]

‘A lot of moving parts’

The package includes an increase to the homeowner’s exemption to $125,000 and an increase in the income level and assistance in the circuit breaker program for low-income homeowners and seniors. The homeowner’s exemption is currently capped at $100,000 of a home’s value. The exemption is the amount homeowning residents can exclude from taxable liability for property tax.

The bill also includes a more modest cap to local government budgets, cuts to tax increases for new construction and annexation and tweaks to the taxation formula Moyle says will stop new growth from increasing the costs for existing homeowners.

The bill earned enough support to clear the House and head to the Senate Local Government and Taxation Committee, but Democrats and members of the more conservative wing of the Republican delegation teamed up to debate against it.

Moyle vigorously defended the bill yesterday in committee hearings shortly after it was introduced and again today on the floor, pushing back on criticism it would not bring enough relief to Idahoans. He said there will be another interim committee to study the issue of property tax relief further this summer and there will be more property tax reforms next year.

“This bill has a lot, a lot of moving parts,” he said. “Because property taxes are so confusing sometimes we get wrapped around one area thinking it’s the solution to solve the problem when it takes quite frankly a whole lot of little changes to solve the problem.”

Idaho’s homeowner’s exemption used to be indexed to inflation until 2016 when the Idaho Legislature capped it at $100,000. This bill will increase the cap another $25,000, which several legislators argued would be “a drop in the bucket” to address the doubling home values many Idahoans have experienced.

[Explain This to Me: How 2016 legislation shifted property tax burden from commercial land to homeowners]

Rep. Bruce Skaug, R-Nampa, argued fiercely against the bill and said it wouldn’t provide enough relief to residents of his district. He drafted a bill earlier in the session to remove the cap on the homeowner’s exemption and reindex it to sales prices, but it never got a hearing.

“I know people will say ‘well this is better than what we have right now’,” he said. “But why is this bill all we have? Why was this process done in 24 hours when we had an interim committee over the summer and we had all session to talk about property taxes?”

A more restricted circuit breaker

Changes to the circuit breaker raised opposition from the Democrats. Adjustments to the program, which provides tax relief to seniors and homeowners who meet income requirements, has been on legislators’ wishlists for years.

Opponents took issue with Moyle’s bill because it would prevent anyone whose home is valued more than 125% of the median price in their county from participating in the program. Instead, they would have to sign up for a tax deferral program. If passed, this would take effect next year.

Moyle said in the House Revenue and Taxation Committee on Monday this is intended to prevent someone living in a “$2 million home” from taking advantage of the program. In debate against the bill, Rep. Colin Nash, D-Boise, pointed out that this would exclude homeowner’s in Ada County whose properties are higher than $314,000. He argued the additional benefits to participants won’t outweigh the frustration from people removed from the program if this legislation passes.

“Some people will appreciate that increase, but we’re going to get a lot of angry calls of people who get kicked off of the circuit breaker if we pass this bill,” he said. “I ran on property tax relief. I didn’t run on kicking people off of the circuit breaker.”

The bill would increase the maximum benefit from the circuit breaker to $1,500 annually, an increase from the current cap of $1,320. It has not been adjusted for inflation since 2006.

Businesses will also get a hefty break from this package on their personal property taxes. The bill would increase the tax exemption for businesses buying inventory, machinery and equipment from $100,000 to $250,000. It will also fully exempt all personal property defined as “transient personal property” starting at the beginning of 2022.

[Boise homeowners feel the pinch of rising property tax burden]

Local government budget shakeups

It’s not just homeowners who will see changes under this legislation.

If this bill passes, local government budgets will be capped at 8% growth annually. They will still be allowed to take the 3% increase to property tax collections allowed every year under the law, but new construction and annexation can only add an additional 5% to the budget. This will heavily impact rapidly growing cities in the Treasure Valley, like Nampa, Kuna and Star that frequently see double-digit growth annually.

Local governments will also be limited in how much they can clawback in foregone taxes. Currently, when local officials vote not to take any of their legally allowed 3% increase the amount they chose not to collect is noted and they have the ability to take that tax increase down the road. This reform package will limit local governments from taking more than 1% of that foregone taxes at a time.

Localities are permitted to take up to 3% of their foregone taxes amount for a capital project, but after the project is paid for, that one-time amount does not increase taxes in perpetuity.

The bill will also reduce the amount of new construction taxes down to 90% of the value, instead of the current 100%. Expiring urban renewal districts will also return only 80% of their tax value to the city and county tax rolls, instead of the current 100%.

Assistant Minority Leader Rep. Lauren Necochea, D-Boise, said this will slowly erode local governments’ ability to provide services.

“It’s going to compound overtime and our local taxing districts struggling with fast growth aren’t going to be able to keep up with those service needs,” she said. “That’s’ what we’re hearing from fire protection, that’s what we’re hearing from law enforcement. You can’t hire police officers for 90 cents on the dollar.”

Right now, when new construction occurs in a taxing district or property is annexed, this is added onto the tax rolls using the previous year’s levy rate. Moyle said this drives up the taxes for existing homeowners instead of further spreading the tax burden out to more payers. This new package will require localities to charge the current year’s levy rate to new construction, ensuring new growth does not increase the tax rate.

Margaret Carmel - BoiseDev senior reporter
Margaret Carmel is a BoiseDev reporter focused on the City of Boise, housing, homelessness and growth. Contact her at [email protected] or by phone at (757)705-8066.

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