Legislators getting the message
BOISE – After more than a thousand people across the state flocked to a dozen often-heated hearings on property tax relief, lawmakers on a special committee say it’s now clear that they have to change the system.
“I think committee members are beginning to understand that do-nothing is not an option – status quo is not an option if we want a reasoned approach to reforming the tax system, as opposed to the angst and chaos that could come from an initiative,” said Sen. Shawn Keough, R-Sandpoint, co-chairwoman of the joint legislative committee.
Underscoring her words, a new version of a tax-limiting initiative was filed with the Secretary of State’s Office last week. It would limit taxes to 1 percent of value, freeze values and then allow increases of only 0.8 percent per year and eliminate popular and widely used exemptions including the homeowner’s exemption and the agriculture exemption. State tax experts say the initiative’s wide-ranging effects would include a significant tax shift to farmers.
“We just want to stabilize the property tax – that’s our main push,” said Chuck Cline, chairman of Idaho Property Tax Reform.
The special legislative committee wrapped up the last of its dozen public hearings last week in Boise and Nampa, where local public officials implored lawmakers not to cut badly needed services, while angry residents said skyrocketing real estate values are threatening to push taxes up so high they’ll be forced out of their homes.
“I’m mad – I don’t want to be run out of Idaho, I don’t want to be run out of my home,” David Reed of Ada County told the panel.
Ruth Ann Swartz of Boise told the lawmakers the tie between market values and taxes must be re-examined, even if it means changing the state constitution. “If the Legislature can’t do it or won’t do it, we’ll find somebody who will,” she said to applause.
North Idaho legislators on the panel who have traveled to every corner of the state for the hearings said they’ve gotten an earful.
“One gentleman said, ‘If you don’t hear us, you’ll hear from us.’ I don’t think we can dismiss that,” said Rep. George Sayler, D-Coeur d’Alene. “I think that’s a reality.”
Keough said some citizens have told the panel they’re ready to vote for radical measures they might never have supported before.
Sen. John Goedde, R-Coeur d’Alene, said, “If they support something that’s not constitutional, it’s going to be an exercise in frustration.”
Idaho voters passed an initiative in 1978 that sought to limit property taxes to 1 percent of value, patterned after California’s Proposition 13, but it conflicted with both state constitutional requirements for uniform taxation and the realities of Idaho’s tax system. Property tax in Idaho is imposed by local governments, schools and districts such as highway districts and cemetery districts, but not the state.
Lawmakers amended the 1978 initiative first to freeze local government budgets, then to cap increases in those budgets. A 3 percent cap on annual increases, not counting annexation and new construction, remains in effect.
Voters followed up in 1982 by enacting the “50-50” homeowner’s exemption, which exempts from tax 50 percent of the value of an owner-occupied home, not counting the land, up to a maximum of $50,000. That amount has never been increased for inflation, and an increase in the homeowner’s exemption has been the most common request at the hearings around the state.
Other themes that have emerged at the hearings, committee members said, include the idea that growth needs to pay for itself, possibly through more impact fees; that seniors or those on fixed incomes need a break; that local governments in Idaho should have more non-property-tax funding options like local-option sales taxes; and that the system of setting taxable values based on a ballooning real estate market needs re-thinking.
“We’re going to have to look at the fair market value situation,” said Rep. Eric Anderson, R-Priest Lake.
Added Sayler, “Given our current real estate situation, it is problematic.”
Several of those who spoke at the Boise hearing suggested a real estate transfer tax to help ease the pressure on property taxes from real estate speculation. That’s used in many states, but not in Idaho.
Fritz Dixon of Meridian told the lawmakers he’s circulating his own initiative, this one to limit taxes for homeowners to 1 percent of value, freeze values at 2002 levels and limit value increases to 2 percent a year. His measure also would ban any future real estate transfer taxes and would require bond elections to be held only during general elections.
Dixon’s proposed measure is just one page, but Cline’s group’s new measure stretches to nearly 100 pages. Cline said that’s because his group went through and rewrote the entire tax code to incorporate changes, from doing away with assessments and replacing them with actual sales prices or frozen, adjusted values, to adding in a change regarding tax-deed sales. That change would mandate that when a property is sold for past-due taxes, excess proceeds, beyond the delinquent taxes and the costs of the sale, would be returned to the property owner.
In its latest version, the group also eliminates a property tax exemption for low-income housing owned by a nonprofit charity that Cline said amounted to “stifling private enterprise.”
Many who have spoken at the tax hearings have been angry about a tax loophole lawmakers enacted in 2002 that extends a farm exemption to land speculators by allowing their property to be taxed as farmland until they actually build houses or other improvements on it – even if it’s not being farmed. That measure reduced taxable values for half-million-dollar lots at the fancy new Tamarack Resort in Valley County to as little as $30 – shifting the tax load onto other taxpayers in the county.
Cline’s measure not only does away with that loophole – it eliminates the entire farm exemption.
Last year, according to the state Tax Commission, farmers paid about $47 million in property tax, but without the farm exemption, they’d have paid $147 million. “It would be a very major shift to farmers,” said Alan Dornfest, property tax policy supervisor.
Eliminating the homeowner’s exemption would shift taxes to homeowners, but Cline said he thought capping overall taxes at 1 percent and freezing values would offset that. “We’re reducing things anyway,” he said.
However, state Tax Commission figures show that in the past decade and a half, property taxes paid on residential property have grown to 61.6 percent of the total in Idaho, up from 47.1 percent in 1990, while the share for most other types of property has fallen.
Boise State University political scientist Jim Weatherby said many Idaho taxpayers seem most concerned that they’re paying for the costs of growth, but not seeing the benefits of it. “The history of initiatives has been filled with unintended consequences, and this might be another chapter,” he said. “It does point out the difficulty of making tax policy through the initiative process.”
The legislative committee will meet again on Sept. 13 to review what it has heard and discuss what it will recommend to the full Legislature. It will take a two-thirds vote for any formal recommendation.
Sayler said, “There’s not going to be any one solution that’s going to take care of all this.”