Panel endorses modest proposals for tax reform

BOISE – Some Idaho legislators took small steps Friday toward calming the threat of a voter tax revolt by recommending expanded property tax breaks for elderly low-income residents and a more expansive homeowners exemption.

They also agreed to explore laws that might allow local-option taxes to replace some property taxes. All three issues now are likely to be considered by the 2006 Legislature, which convenes in January.

Still, the all-day meeting of the four-Democrat, eight-Republican property tax interim committee failed to produce agreement on more significant proposals that would have moved as much as $256 million in school funding off property tax rolls and addressed an unpopular tax exemption dating back to 2002. The exemption has allowed developers and land speculators to cash in on breaks originally meant for farmers.

Senators including Shawn Keough, R-Sandpoint, who co-chairs the committee, fear the modest progress won’t appease Idaho homeowners. They now shoulder 64 percent of more than $1 billion collected in property taxes annually and have never paid a larger share of Idaho’s total property tax burden than now, prompting two anti-tax voter initiatives this year.

“I’m disappointed, because now I don’t think anything we do is going to be of a magnitude of what people in my area are looking for,” Keough said, after three separate recommendations to shift maintenance and operations costs for schools from property taxpayers to the state general fund failed to win support.

The two initiatives to ask voters to limit property taxes likely would not pass constitutional muster, according to advisory opinions issued by the Idaho attorney general’s office. Sponsors of one of the petitions pulled their initiative after the opinion was released, while the sponsor of the other has resubmitted a modified version that has yet to be reviewed by state attorneys.

But even with potential questions over legality, Keough believes an emotional electorate could still be persuaded to vote for an anti-tax initiative and against lawmakers who don’t push through meaningful reform.

The committee meets again Nov. 1, when it will discuss how the state could provide additional funding for proposed property tax breaks.

It will also take another look at the school funding issue, as well as possible changes to the 2002 developer exemption that one property owner along the Clearwater River near Lewiston used this year to reduce the assessment on his property to just $463 – from $90,000.

An attempt to phase that exemption out failed in 2005 when Gov. Dirk Kempthorne vetoed it, but some lawmakers have vowed to repeal the exemption. It was on Friday’s agenda but no consensus was reached, so Rep. Dennis Lake, R-Blackfoot and committee co-chairman, pledged to pick four legislators to explore alternatives.

The panel did support a proposal to pump an additional $5 million into the state’s program to reimburse low-income seniors 65 and older for a portion of their property tax bill. The proposal boosts the maximum reimbursement available by 10 percent, to $1,320, and opens the program up to seniors who earn as much as $28,000 annually, rather than the current cap of $22,000.

The committee also recommended that a homeowner exemption allowing Idaho residents to exempt up to $50,000 of their houses be expanded to include the property on which the structures sit. By itself, that could cut taxes by an additional $20 million annually, said state tax policy supervisor Alan Dornfest, though the committee is still considering a plan to further boost the amount that can be exempted.

Those proposals “will give relief to people who need it the most,” said Roger Sherman, program director for United Vision for Idaho, a Boise-based activist group. “It’s a start on a proposal. It’s not finished yet.”

Sen. David Langhorst, D-Boise, also persuaded his committee colleagues to ask Legislative Services, the arm of state government that helps lawmakers draft bills, to explore possible changes to Idaho law that would allow all communities to pass local option taxes.

Currently, only resort communities can use the taxes.

Kootenai County, for instance, is using $5 million it collects from its 0.5 percent sales tax to help fund a new jail and provide some property tax relief for residents.

“What we’re trying to do is put a few local tools in the toolbox,” said Rep. Wendy Jacquet, D-Sun Valley, who backed Langhorst’s proposal.