Idaho’s October revenues took a hit as state made catch-up payment to Meridian developer

BOISE – Idaho state tax revenues fell below forecasts in October for the first time this fiscal year, coming in $8 million short – and a quarter of the shortfall was because of an unexpectedly big one-time payment of $2.7 million to the developer of the giant Village at Meridian retail project.

Idaho lawmakers first passed the STAR legislation, short for State Tax Anticipation Revenue, in 2007 to allow big outdoors retailer Cabela’s to front the money for a new $40 million interchange on Interstate 90 at Post Falls, and be paid back over the years through refunds of 60 percent of the sales tax revenues generated at the complex containing its new store there, up to a cap of $35 million.

The legislation, first pushed by North Idaho lawmakers including the late Rep. Frank Henderson, R-Post Falls, was amended in 2009 at the urging of House Majority Leader Mike Moyle, R-Star, and then applied to an additional project: The Village at Meridian, which at the time was called the Meridian Town Center. In that case, the Delaware-based developer agreed to front the money for $25 million in transportation improvements to busy Eagle Road, including extending a third lane in each direction from Franklin Road to north of Fairview Avenue.

The state’s still paying reimbursement payments to the developers on both projects; no others have qualified.

However, the state Tax Commission, which is in charge of making the payments, mistakenly thought it had paid off the Ada County project in June, and stopped setting aside the money in a fund for that project.

“Recently, the Tax Commission was made aware that there were more claims coming to be paid out on the Ada County project and had to catch up,” said commission spokeswoman Renee Eyman. “This resulted in the one-time large deposit in October.”

When Idaho’s monthly General Fund Revenue Report came out last week, it noted that state tax revenues were 2.8 percent below forecasts for the month, down $8 million. All major areas of tax receipts contributed to the shortfall. Corporate income taxes were off by 26 percent or $2.6 million; individual income tax collections were short by 2.4 percent or $3.4 million; and sales tax receipts came in 1.8 percent, $2.3 million, below forecasted levels.

But sales taxes actually would have hit the forecast for October, but for the single $2.7 million payment. State economists had anticipated a payout closer to the level of the previous October, at $800,000.

“Absent this large distribution, the sales tax contribution to the general fund would have been virtually on target,” wrote Chief Economist Derek Santos of Gov. Butch Otter’s Division of Financial Management.

The monthly take from state taxes fell below October of 2016 by just under 1 percent; until now, state tax revenues each month this fiscal year have been well above the previous year’s level.

“The gist of it is, this was a true-up,” said Jani Revier, Otter’s budget director. “Year to date, the state’s doing really well in sales tax, and … we would have been at the forecast had it not been for that.”

Idaho’s still ahead of forecasts for state tax revenue for the fiscal year to date. General fund receipts to date are 1.8 percent, or $21.4 million, ahead.

Because the legislation creating the STAR program specified that “all sales and use tax information remitted by retailers shall be deemed a trade secret,” and not disclosed by the state Tax Commission, the commission declined to identify who got the $2.7 million payment, saying only that it went to a project in Ada County.

But the Village entered into a partnership with the Idaho Transportation Department and the Ada County Highway District to qualify for the STAR program, as required by the legislation. ITD provides engineering oversight for STAR projects. The agency announced the second STAR project in 2011 and reported, “It allows government and business partnerships for large infrastructure projects.”

When lawmakers first debated the bill in 2007, developers of the North Idaho Cabela’s were the leading proponents. Though members of the House Revenue and Taxation Committee expressed concern that the plan could eventually eat away part of the sales tax revenue that’s a key part of Idaho’s general fund – which funds everything from schools to health and welfare programs – backers said that wasn’t a worry, as the new Cabela’s would draw out-of-state visitors who wouldn’t otherwise pay Idaho sales taxes.

Moyle, who was a co-sponsor of the original bill along with an array of North Idaho lawmakers, called it a “chicken and egg” issue, saying then, “If you don’t build the interchange, you’re not going to get anything.”