Initiative: Tax Cut Or Tax Shift? Foes Say One Percent Would Make Other Taxes Rise

Idahoans don’t care much for the property tax, but it’s not clear whether they’d trade hikes in other taxes for cuts in property taxes.

That issue may be central to the success of the One Percent Initiative.

The measure, on the Nov. 5 ballot, would cut property taxes. But it would require the state to come up with money to replace property taxes that now fund schools.

“We just can’t make the property taxes better by making the sales and income taxes worse,” said Steve Ahrens, president of the Idaho Association of Commerce and Industry and a leading opponent of the initiative. “That’s counterproductive.”

But Ron Rankin, the initiative’s author, said the Legislature doesn’t have to raise other taxes. “If the Legislature chooses to do so, I think they do so at their own risk.”

He contends Idaho can absorb the cuts.

“They spend like drunken sailors,” Rankin said. “It’s time to tighten up.”

Legislative leaders disagree.

“He’s just simply wrong,” said House Speaker Mike Simpson.

The Legislature has been struggling without success to come up with money for big-ticket needs ranging from prison construction to school construction.

Both this year and last year, Gov. Phil Batt ordered midyear budget cuts to keep the state’s budget in balance.

Randy Nelson, head of Associated Taxpayers of Idaho, said a 1992 study showed that Idaho had the nation’s 37th-highest property tax, 24th-highest sales tax and 15th-highest income tax.

Idaho officials like to describe the state’s tax system as a three-legged stool, with each type of tax being a leg. The idea is that by balancing taxes among the three major sources, Idaho keeps its tax system stable.

The One Percent Initiative would force a rethinking of the whole system by shortening one of the stool’s legs.

Laird Maxwell, head of Idahoans for Tax Reform and a lieutenant in Rankin’s fight for the initiative, says a shake-up is appropriate because of the inherent “meanness” of the property tax.

“Income tax is capped by the amount of money you earn,” Maxwell said. “Sales tax is capped by the amount of money you spend. Property tax should have a cap on it.”

But Ahrens notes that, at Batt’s urging, the Legislature in recent years has cut property taxes by $41 million.

It also has imposed a 3 percent cap on the growth of local governments’ property tax budgets and has tripled the so-called “circuit breaker” property tax exemption for low-income elderly.

Batt has said he might support some limit on annual increases in the taxable value of property. Skyrocketing market values have fueled much of the concern over property taxes in fast-growing areas like North Idaho.

But Republicans in the Legislature have quashed efforts for several years to increase Idaho’s homeowner’s exemption, which exempts part of a home’s value from taxes.

Initiative opponents say the state will have to raise other taxes and make sharp cuts in programs like Idaho’s college and university system, in order to come up with the money to replace property tax funding for schools.

“It would inevitably force the Legislature to raise some other taxes, there’s no doubt about it,” Simpson said.

Opponents point to Oregon, where property tax-limiting Measure 5 resulted in deep cuts in higher education, including shutting down university departments and reducing student populations by thousands.

Maxwell said those changes weren’t all bad. “They got rid of some of the most inefficient university departments on the books,” he said.

Maxwell and Rankin dismiss other criticisms, including that property taxes are deductible on federal income taxes while state income and sales taxes are not.

“There’s no way you can cut property taxes and not send more money to the federal government,” Maxwell said. But the trade-off is worth it, he said.

Businesses now pay 70 percent of Idaho’s property tax, while homeowners pay 30 percent. Batt has warned businesses that if the measure passes, they’ll likely be targeted for new taxes to make up the loss.

That’s part of the reason businesses have backed the drive against the initiative. Ahrens said businesses also want a tax system that’s stable and predictable.

“A properly designed tax system can allow businesses to grow and prosper,” he said. “And that’s exactly what we’ve seen in the last decade.”

Maxwell and Rankin say they want the size of government reduced, and more of its money left in taxpayers’ pockets.

“Government’s fat in a lot of places,” said Maxwell.

“It’s time to make government just a bit less relevant in our lives.”

, DataTimes MEMO: Two sidebars appeared with the story: 1. How it works Here’s how the One Percent Initiative would work: A homeowner’s property tax bill would be limited to 1 percent of assessed value, after exemptions. For a $100,000 house with a homeowner’s exemption, that would be $500. Exceeding that limit would take a two-thirds vote of legislators. Because property taxes are charged by many different districts, from fire districts to cities to cemetery districts, the Legislature would have to pass a law empowering county commissioners to decide which taxing districts to target for spending cuts when their collective budgets exceed the limit. Commissioners now have no such power. Cities, counties and other taxing districts couldn’t increase their budgets by more than the annual cost-of-living increase for Social Security. Initiative author Ron Rankin says he intended this provision to apply only to property tax budgets. The Idaho attorney general says it applies to all budgets, including those funded by grants or user fees. Cities, counties and districts also would have to maintain fire, police and emergency services at Oct. 1, 1996 levels. Funding for operation of schools would be shifted entirely to the state, eliminating millions of dollars in local property taxes that now pay for school operations. The state would be required to make up the money from other sources. The measure says the Legislature can’t repeal any property tax exemptions in existence on Jan. 1, 1995 without a vote of the people. But the attorney general says an initiative can’t do that. Initiatives have the same status as laws passed by the Legislature; they can’t prevent other laws from being passed in the future. - Betsy Z. Russell

2. Initiative text Initiative to limit property taxes to 1 percent of value subject to assessment and providing exceptions. Initiative relating to property tax rates; amending chapter 9, title 63, Idaho Code, to repeal section 63-923 and to enact a new section, 63-923, Idaho Code: providing that the maximum rate of property taxes on property subject to assessment shall not exceed 1 percent of assessed value; exempting from the one percent limitation taxes to pay existing indebtedness or school plant facility levies approved by the voters, taxes to pay subsequent indebtedness approved pursuant to article 8, section 3, Idaho constitution, or special taxes approved by a vote of two-thirds of those voting at the election; providing limitations upon increases to city, county and taxing district budgets; providing that fire, police and emergency medical services shall be maintained at levels equal to or greater than in effect as of Oct. 1, 1996, and that other less-essential services shall be reduced in order to comply with this requirement if necessary; providing that the Legislature shall not repeal or reduce any existing exemptions to property taxes unless approved by a vote of the people; providing that all public education shall be exclusively funded by state and/or federal funds; and providing an effective date of Jan. 1, 1997.