If you live in Ada County, your property tax bill last month was a bit higher. You probably did not know why, because the county is not required to tell you.
Ada County has collected an extra $6 million in property taxes in the last two years under an obscure provision of state law that allows a taxing district to “claw back” taxes it was eligible to collect in prior years but did not.
For seven years, from 2006 through 2012, the Ada County commissioners did not budget the maximum 3 percent annual increase in property tax revenue that state law says they can take without voter approval. They decided to forgo a combined $19.4 million in property taxes they could have collected.
Now they want some of that money. And under the provision, they can take it.
The amount on your bill is small. For 2015, it added about $13 to the $1,660 property tax bill of an owner-occupied home at the median assessed value of $189,200 in Southwest Boise.
And the practice is not new. It has been legal since approved by the Legislature in 1995.
Two county commissioners who voted to impose the tax on the December bills said they wrestled with the decision, but believed the money was needed. Still, the clawbacks are drawing criticism from some conservative leaders, who say they are unfair to taxpayers.
“There ought to be a way for local politicians to know that their great work to stop wasteful government, to stop wasteful spending, isn’t at some point in the future going to be used to hurt people,” said Wayne Hoffman, executive director of the Idaho Freedom Foundation, a conservative lobbying and government watchdog group.
HOW CLAWBACKS WORK
State law allows counties, cities, fire districts and other local taxing districts to increase their property tax collections up to 3 percent a year, plus property taxes for annexations or new buildings built within the past year. Anything more requires voter approval as long as it does not exceed the maximum levy rate.
Taxing districts can choose to be frugal and not collect the full amount, or, in some cases, if they are exceeding the maximum tax levy rate set by state law, are not eligible to collect the full amount. This uncollected amount is considered “forgone.”
Under the 1995 law, this uncollected tax can accrue with no limits or expiration date. Each year, while setting its budget, a taxing district with accrued forgone taxes can choose to collect none, some or all of that forgone amount. Each year, the State Tax Commission reports how much forgone tax revenue each district has accrued.
In 2014, Ada County decided it needed some of that money and levied an additional $1.7 million to help balance its budget. Last year, after collecting the 3 percent annual increase, the county took $4.27 million more in forgone taxes to help pay for a new 911 dispatch center.
Idaho House Majority Leader Mike Moyle, R -Star, said that when Ada County property tax bills went out in December, he received calls from constituents wanting to know why their taxes went up.
“They do not understand the concept of forgone taxes,” he said.
‘TICKING TIME BOMB’
Idaho taxing districts have accrued $108 million in forgone taxes, including $10 million last year, according to the Idaho Tax Commission. Of the 849 taxing districts eligible, about half have forgone amounts. Twenty-two have accrued more than $1 million each, led by Ada County ($13.3 million), Canyon County ($10.9 million), and the Ada County Highway District and Kootenai County ($9.1 million each).
Hoffman praises the districts that regularly ask taxpayers for less than they could, but says the goodwill effort actually creates a risky situation for taxpayers. The accruals are “a virtual savings account” that districts can choose to collect any time, he said.
“This is a ticking time bomb for taxpayers,” Hoffman said. “Taxes should be low, fair and predictable.”
Hoffman and Moyle cite Ada County as an example of how forgone taxes have become a liability. They said the clawbacks do a disservice to past elected officials who intended to leave the money on the table.
From 2006 to 2012, Ada County commissioners “made a conscious decision not to increase government spending” as much as they could have, Hoffman said. But under the forgone tax provision, “that conservative budgeting is now being used to hurt taxpayers.”
‘WE HAVE A NEED’
Ada County first started forgoing its full tax increase in 2006, when the economy was booming and providing the county with extra revenue. When the recession hit, the county chose not to collect the full amount to help taxpayers.
Former Ada County Commissioner Sharon Ullman served on the board from 2008 through 2012, a period when the board voted to forgo nearly $12 million.
“Not raising taxes was among my highest priorities, during those post-2008 recession years when the public was hurting economically,” said Ullman, who is considering running in the May Republican primary for the District 3 seat she lost in the 2012 primary to Commissioner Dave Case.
“The county was willing to do its share to alleviate any further burden on the county’s taxpayers,” she told the Statesman. She called the $6 million clawback of the past two years “unconscionable.”
The commission in July voted 2-1 for a budget with $102 million in property taxes, including the clawback. Commissioners Jim Tibbs and Rick Yzaguirre supported the forgone collection. Case did not.
“The thing that has caused me the most consternation this year is using the forgone and thinking through what the forgone is, what it was intended to be used for and the fact that we have it available as a tool,” Yzaguirre said at a July 28 public hearing on the budget. “In my mind we have a need — we are going to build a new dispatch center, and the forgone is specifically dedicated to that.”
The $4.3 million benefits the commissioners one more way: The county can include the money in its future budgets, effectively making the increase permanent, said Gary Houde, senior research analyst with the Idaho Tax Commission.
Case said the forgone taxes are “a large part” of why he voted against the budget. “I felt this was an unwarranted excessive hit to the taxpayers of Ada County,” he told the Statesman.
Yet repealing the provision that permits the clawbacks could make things worse for taxpayers, the Idaho Association of Counties says.
“The benefit of having this forgone property tax structure is that the counties don’t feel as if they have to take the full 3 percent budget increase every year,” said Dan Blocksom, government affairs analyst for the association. “If this forgone property tax structure didn’t exist, then a county is faced with a ‘use it or lose it’ proposition, and therefore might take an increase that it really didn’t need.”
Ada County still has $13.3 million in forgone property taxes it could call due at any time.
Meanwhile, said Moyle, taxpayers’ liability keeps growing.
“Future taxpayers are on the hook for this. … It never goes away,” Moyle said. “ It is going to keep growing unless somebody does something.”
SHOULD THE FORGONE TAX PROBLEM BE FIXED?
Lawmakers have been reluctant to reconsider forgone property taxes for three reasons, said Wayne Hoffman, of the Idaho Freedom Foundation.
“First, it is complicated,” he said. “Most people do not know what forgone balance is. Two, the cities and counties have very powerful lobbies and want to keep it in place. The third thing is no one has really articulated a great solution.”
If lawmakers prohibit collecting forgone taxes, taxing districts will gravitate toward collecting the full amount allowed by law each year, he said.
One idea is to limit how many years back a taxing district can reach. State Rep. Mike Moyle, R-Star, said that could backfire. “Then they are going to grab it before they expire,” he said.
Moyle said he might support allowing forgone taxes to be collected only during emergencies. He also wants districts to be required to hold a public hearing before collecting them.
A third option is to give district boards today the power to prohibit collection of forgone funds in the future.
Association of Idaho Cities Director Seth Grigg said state law already prevents unreasonable or excessive property tax increases, and allowing districts to accrue forgone money for possible future use is an incentive to leave money on the table.
Idaho districts with the most forgone taxes
1. Ada County
2. Canyon County
3. Ada County Highway District
4. Kootenai County
5. Bonneville County
6. Idaho Falls
7. Coeur d’Alene
10. Post Falls
Accumulations in Ada County
Ada County taxing districts have collectively accrued $28.5 million in forgone taxes, which is 26 percent of the statewide total.
Here’s how much some of them have accrued:
Ada County Highway District
North Ada Search and Rescue
Ada County Library
Accumulations in Canyon County
Canyon County taxing districts have collectively accrued $19.7 million in forgone taxes, which is 18 percent of the statewide total.
Here’s how much some of them have accrued:
Nampa Highway District
Canyon Highway District
Golden Gate Highway District
Notus Parma Highway District