Think back to the Idaho of 1967.
Meridian looked nothing like it does today. It was a tiny farm community of 2,500 people. But today it is Idaho’s second-largest city, a thriving community with a population of over 90,000.
Remarkably, one thing has not changed much for Meridian since 1967: how Idaho allocates its share of sales tax revenues. That’s because, for half a century, the state has distributed a portion of sales tax according to a frozen formula that doesn’t adjust to changes in population, market value, or other pertinent factors.
Here’s how this came to be: In 1967, replacing an onerous business inventory tax, the state appropriated sales tax revenue to be distributed to cities and counties. House Bill 243 fixed an appropriation — referred to as the “hypothetical base,” at a level commensurate with population and business inventory at that time.
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Nampa’s Idaho Press-Tribune reported a Senate tax liaison committee expressed concern that “distribution of future funds under the measure would be reliant upon the base period and could possibly bear no relationship to the local business inventory in a particular location at a future time.”
That’s precisely how it’s playing out today. Compare Meridian and Lewiston.
Fifty years ago, Lewiston was an industrial center with a population nearly 12 times that of Meridian at the time. With that frozen assumption, Lewiston’s “hypothetical base” annual sales tax distribution is set at $1,490,000. While Meridian’s “hypothetical base” is a paltry $153,000.
If that seems shocking, it’s because it is. Meridian, with almost three times the population today, receives only one-tenth of what Lewiston collects. While this is the most egregious example, shades of this same problem exist in other cities and counties around the state. The people have moved, but the money hasn’t.
So, what do we do?
Another portion of the sales tax distribution is apportioned according to a dynamic formula, taking into account current population and assessed market value metrics. Rep. Jason Monks is trying to bring forward legislation to phase out the frozen formula and redirect that amount to be distributed under the dynamic formula.
Recognizing that some cities and counties have grown accustomed to the disproportionately large allocation, the proposal phases in the change over 10 years to gradually adjust their expectations.
No city or county will have to radically alter their level of service by losing these dollars, yet for those growing cities in dire need of money to keep up with the demands of growth on infrastructure, correcting the formula helps them begin to address their citizens’ needs.
While there are “winner” and “loser” cities and counties today, the real winner is sound policy.
Fifty years from now, those who benefit most from rectifying the inequity may lose today. Remember Meridian and Lewiston.
This is not a partisan, nor a philosophic issue. It’s about sales tax dollars that are collected under today’s numbers but distributed under 1967 numbers. It’s always the right time to do the right thing. Let’s phase out the frozen formula.
Brad Christensen is a father of four, an investment adviser and a city councilman in Ammon.