Another break in taxes ahead

BOISE – Idaho homeowners will get another break on their property taxes in 2007, beyond the reductions they discovered this past week when they received their 2006 property tax bills.

“That’s just fine with me,” said Charlie Burnham, a 74-year-old military retiree who will benefit from an additional increase in the homeowner’s exemption on his older Coeur d’Alene home.

Idaho lawmakers raised the homeowner’s exemption from property taxes this year for the first time since 1982, bumping the top amount to $75,000, up from $50,000. At the same time, they tied the exemption to the rate of inflation in Idaho home prices.

And now the figures are in from the Idaho House Price Index. Idaho had the third-fastest-growing home prices in the nation, and next year’s homeowner’s exemption will rise to $89,325.

The 2007 exemption figure means a homeowner whose house is valued at $200,000 would pay taxes on just $110,675 of the value.

“I think it’s fair,” Burnham said.

So does Sen. Hal Bunderson, R-Meridian, the outgoing chairman of the Senate Tax Committee. “You know, that feature in and of itself will have a more profound impact on property tax paid by homeowners than anything we have done,” he said.

When Idaho voters enacted the homeowner’s exemption by initiative in 1982, “The average sale price for a home at that time was about $55,000,” said Kootenai County Assessor Mike McDowell. The exemption was set at 50 percent of the value of the improvements on a piece of property, up to a maximum of $50,000. It’s known as the “50-50” provision.

In recent years, as the average sale price of homes approached $200,000, the $50,000 cap on the exemption didn’t provide residents nearly as much relief, McDowell said.

In heated debates, some lawmakers pressed for raising the exemption this year to $100,000, to reflect an inflation-adjusted version of the exemption’s value in 1982. But the compromise plan that passed raised it to $75,000 while adding the inflation index and allowing the exemption to apply to the full value, including land, rather than just to the value of improvements.

“It ties that exemption to something that will float with the market change, instead of remaining static,” said Sen. Shawn Keough, R-Sandpoint. “I think having it static got us where we were in terms of it not changing for 20 years, regardless of what the market was doing.”

Keough applauded the new $89,325 exemption figure. “This is exciting news – this is what we had hoped.,” she said.

Keith Allred, a Harvard professor and head of The Common Interest, a citizen group that pushed for tying the exemption to the house price index, said it’s working.

“That’s the number you would need for homeowners to be paying their fair share of the overall property tax burden,” he said.

He noted that much of the concern over rising property taxes in Idaho in recent years focused on fears that homeowners could be forced out of their longtime homes over inability to pay fast-rising taxes.

“The lion’s share of the reason why homeowners’ taxes were going up was because home values were appreciating much more rapidly than other types of property,” Allred said.

Owners of other types of property weren’t facing the same problem, in part because Idaho sets their values differently.

“For commercial and agricultural, the two biggest other categories (of property), there is an income factor,” Allred said. “So the amount of property tax you pay on that property has a relationship to how much income that property brought in.”

That way, he said, “Your tax bill never gets totally out of whack with the income you have to pay those taxes. But that’s not true of homes.”

Homeowners are the only ones whose property taxes can go up sharply without seeing any increase in income or realizing additional wealth, Allred said. “That just struck us as unfair. Homeowners are the only ones who can be priced out.”

With fast-rising home prices the main source of the rising tax bills, Allred said, it made sense to have the homeowner’s exemption increase at the same rate housing prices increase.

“We weren’t necessarily promoting it simply as a way to give homeowners a bigger break,” he said. “We were promoting it as a fairness issue. It allocated the tax burden between homeowners and commercial and agricultural property more fairly.”

If housing prices slow in the future, the exemption’s growth also will slow, Allred noted. McDowell said, “It basically stops the erosion of the exemption. … So it should at least keep pace from this point forward with what the homeowner’s exemption was intended by the Legislature to reflect, as it related to the total value of a residential property.”

The house price index, a figure published by the Office of Federal Housing Enterprise Oversight, showed Idaho home prices in the latest report up 20.14 percent over a year earlier, the third-highest increase in the country.

The increase in Idaho’s homeowner’s exemption is actually slightly less than that, at 19.1 percent. That’s because Idaho looks at an average from a full year’s worth of the quarterly federal reports to set its increase, rather than just the most recent report.

Nationwide, home prices went up 10.06 percent in the latest report, though the report also found the growth slowing dramatically in the final quarter of the past year as the housing market cooled. Washington had the sixth-fastest growth at 17.39 percent.

McDowell sees lots of happy people visiting the assessor’s office these days.

“There was one gal (who) came in last week … she was dancing a jig. She said, ‘I will be able to have Christmas this year.’ She was very surprised her taxes had gone down – she was very pleased,” he said. “I would expect we’ll see a few of those.”

Tax bills that went out last week cover property taxes for the 2006 calendar year, for which the first-half payment is due this month. Most homeowners are finding that their bills have dropped significantly from a year earlier, even though home values have continued to rise.

“My assessed value is up 25 percent this year, but my taxes are down 9 percent,” Allred said. “A 9 percent cut in taxes seems significant, but it’s even more significant when the thing that’s being taxed is a quarter more value than it was.”

Other factors are helping lower property tax bills this year. In addition to the homeowner’s exemption increase to $75,000, there was the tax shift approved in a special session of the Legislature in August that raised the sales tax to 6 percent while trimming $260 million in property taxes for all types of property owners, including homeowners, businesses, farms and utilities.

McDowell said in Kootenai County, where concern about property taxes has been among the strongest in the state, there were additional factors. An override levy for the Coeur d’Alene School District that voters had approved in past years failed at the polls, “so there’s a big net reduction there.” Plus, several local governments set their budgets at less than the allowable 3 percent increase from the previous year, which means they don’t have to charge as much in property tax.