BOISE – The Senate on Thursday rejected legislation to eliminate property taxes for school operations and shift funding to an increase in the state sales tax. Instead, senators decided to schedule an advisory vote for November to ask voters if such a change should be made.
Senators voted 15-20 to reject House Bill 876, which would have shifted more than $250 million in school funding from property taxes to an sales tax increase of 1.25 percent. The bill also would have raised the homeowner’s exemption to $75,000 from the current $50,000.
“The reality that we have faced is that the entire state is not facing the same issues that we’re facing,” said Sen. Shawn Keough, R-Sandpoint, co-chairwoman of the interim property tax committee last summer.
It’s not clear what the sudden retreat on property tax relief means for a legislative session now tied for the third longest in Idaho history. Senate Majority Leader Bart Davis, of Idaho Falls, said he’s not even sure if the Legislature will adjourn today, its 89th day. What Thursday’s Senate vote means for the state of tax relief this year also is uncertain.
Keough said she expects the last options for any sort of property tax relief will be HB 421, which also would raise the homeowner’s exemption to $75,000, and HB 422, which makes adjustments to the “circuit breaker” for low-income elderly and disabled people. The latter passed unanimously Wednesday, but HB 421 is still waiting for a vote.
“There will be a number of constituents that will be disappointed that there wasn’t more,” Keough said. “There will also be a number of constituents, if we’re successful at passing the homeowner’s exemption and circuit breaker, that will be appreciative of those steps.”
Sen. Dick Compton, R-Coeur d’Alene, told the Senate that while the two measures may seem helpful, “it’s like kissing your sister in terms of tax relief.”
Keough said interest might grow in a ballot initiative now circulating in North Idaho if the Legislature does nothing. The initiative seeks to cap property taxes at 1 percent of value and redefine value to freeze it, then allow increases of 0.8 percent per year. It would also, among other things, set the value to the sale price when a property sells.
“I think what we will see perhaps is momentum built behind the initiative as an expression of frustration,” Keough said.
Compton echoed that concern.
“If you want to see a cleaver, wait until next year. They’re going to come out with petitions at every fair and every grange hall and every Albertson’s store in this state,” Compton told the Senate.
The bill’s defeat highlights the differences between North Idaho and the rest of the state, said Sen. Mike Jorgenson, R-Hayden Lake. “The fact of the matter is North Idaho has been saying for a long time in a lot of ways we’ve got a problem, and southern Idaho gives it no standing.”
He was one of two senators to vote against the advisory vote, SB 1501. He said his vote was in protest of HB 876 failing.
All North Idaho lawmakers supported HB 876 except Sen. Gary Schroeder, R-Moscow, who said he can’t support something when no one is sure what the effect will be.
Reps. George Eskridge, R-Dover, and George Sayler, D-Coeur d’Alene, said they were disappointed in the vote.
“We wound up with no real major tax relief for our constituents. … The North Idaho senators have tried to get this through, too, and they’re as disappointed as we are,” Eskridge said.
Some proponents of HB 876 said the homeowner’s exemption and circuit breaker adjustments don’t go far enough to giving resident tax relief. The real problem, some say, hinges on schools’ reliance on property taxes for funding.
But opponents of the shift to an increased sales tax say it removes the most stable source of funding for education and raises taxes for people who aren’t even complaining about property taxes.
“Some people think our constituents, our taxpayers, won’t notice the sales tax and they’ll get off our backs,” said Sen. David Langhorst, D-Boise.
Keough told the Senate that her constituents are asking for the change because they feel the sales tax is fairer than property taxes.
“I’m repeatedly told, ‘I want to pay sales tax,’” Keough said. “It’s about choice…. It’s about paying for those services that you want and making those choices.”
Sen. John Goedde, R-Coeur d’Alene, chair of the Senate Education Committee, supported the advisory vote, telling the Senate, “It’s like being asked out for breakfast and being offered a dry piece of toast. If you’re hungry, it’s still good.”
Lawmakers earlier passed two other property tax reforms recommended by Keough’s interim committee. HB 676 would eliminate a tax loophole for some rural developers and land speculators, and HB 680 would allow some low-income seniors or disabled people to defer their property taxes until they die or sell their homes.