Idaho House leader threatens Prop 13-style ‘nuclear option’ to limit property taxes

One of Idaho’s legislative leaders says he has written a California Proposition 13-style citizen initiative to use as a “nuclear option” should the Legislature not reduce property taxes.

“It needs to be avoided,” said Rep. Mike Moyle, R-Star, the House majority leader. “But if we can’t, I’m all in. Let’s do Prop 13 and fix this problem.”

Proposition 13 passed in California in 1978 through a citizen initiative. It limited the tax rates on residential and commercial properties to 1% of assessed value at the time of purchase and restricted annual tax increases to no more than 2% until the property is sold.

Without the ability to increase property taxes, local California governments turned to other taxes, including local sales taxes, hotel taxes and utility taxes, according to a retrospective created by a number of California public radio stations. New homeowners also pay higher property taxes.

“Local governments thought it was really bad, but property owners love it,” Moyle said.

Property taxes have turned out to be a major legislative issue this year. The Legislature formed a working group last fall with the intention of looking at city and county property taxes, which could include limiting city and county budgets as well as reducing the amount that individuals pay.

How Idaho ranks in property taxes

Some legislators have said Idaho’s property taxes are “some of the highest in the nation.” According to the 2018 Idaho State Tax Commission State and Local Tax Burden Analysis for fiscal year 2017, the most recent year for which the analysis was made, Idaho ranks 39th in the country, and its property taxes are 37.1% below the national average.

In the Western region, Idaho ranks No. 9, with property taxes 31.6% below the median.

Relative to income, Idaho property taxes rank No. 37 in the country, 21.5% below the national average, and No. 8 in the region, 6.6% below the Western median.

Anecdotally, some legislators, including Moyle, say they know of longtime homeowners who are being forced out of their homes because of increases in property taxes.

At a number of legislative events this year, Moyle and House Speaker Scott Bedke, R-Oakley, have warned that a Proposition 13-style citizen initiative could be forthcoming if the Legislature didn’t act to cut property taxes. They did not say at those events that Moyle was planning to initiate the initiative himself.

Factors contributing to rising taxes

Aside from increases in property values, a number of other factors have also increased property taxes. One is the rising number of school districts that depend on supplemental levies – all but 22 districts are in this category. Others include a $100,000 cap on the homeowners exemption enacted in 2016 and a business property tax exemption enacted in 2013.

Cities and counties are already limited to raising their existing budgets by no more than 3% annually, plus tax revenue generated by new construction and annexation.

Discussion in the interim working group included capping the ability of cities and counties to increase their budgets, allowing school districts to impose impact fees on new growth, increasing the circuit breaker provisions for senior citizens, and reimplementing the index on the homeowner’s exemption from property taxes.

Unintended consequences, local service needs

Changing guidelines on any property taxes could have unintended consequences, legislators and the governor said earlier this session. For example, setting up a new system based on Boise or Ada County might not work in more rural counties that aren’t growing so fast, they said.

“Idaho local governments are very reliant on the property tax,” said Stephanie Witt, a professor in the School of Public Service at Boise State University, in an email message. “Limiting the property tax with a Prop 13-like set of limitations would hamper the ability of cities, counties, school districts and every other property taxing entity to meet local service needs. There are constructive things that can be looked at regarding the property tax to help taxpayers without completely hamstringing local governments.”