Idaho homeowners could get a larger tax exemption. But will it slow down ‘the pain’?
After Republican lawmakers’ first attempt at a bill to cut property taxes failed, they promised to return with a new bill. The bill finally came last week and, within three days’ time, was fast-tracked through the Legislature to send to Gov. Brad Little. He has until Wednesday to sign or veto it.
House Majority Leader Mike Moyle, R-Star, told the committee he believes there are two main ways to cut property taxes for homeowners: shift the tax burden away from residential properties and constrain local budgets. The new bill proposes to accomplish a little of both.
“It’s a start,” Moyle said. “We’ve got a long ways to go with property taxes, but it gets us down the road of slowing down the pain.”
But local officials came out strongly against the bill, which again included a cap on taxes tied to new construction and annexation. Critics believed the expanded homeowner’s exemption wasn’t enough and decried the new limitations on qualifying for a program known as the “circuit breaker.” And even business leaders opposed it, despite a business personal property tax break.
“If the goal of the legislation is property tax relief for homeowners and renters, it does not accomplish that,” said Alejandra Cerna Rios, director of the Idaho Center for Fiscal Policy.
So what does the bill actually do, and who benefits from it?
How homeowner’s exemption would change
House Bill 389 was one of two major pieces of legislation, the other being $382.9 million in income tax cuts, that the Idaho Legislature passed to fulfill its promise to the public that it would cut taxes this year.
The property tax reduction would cost the state an estimated $2 million in the next fiscal year and $8.1 million a year after that, according to the fiscal note. But impacts to local governments remain unclear.
Three main elements of the bill are raising the homeowner’s exemption, adjusting a property tax reduction program and capping local governments’ ability to include new construction in their budgets. It also provided that new site improvements by land developers would only be taxed after they’re completed.
The bill raises the homeowner’s exemption, a program that cuts homeowners’ property taxes for their primary residences, from $100,000 to $125,000. Either the first $125,000 or 50% of the assessed value of a primary residence would be exempt from property taxes, whichever is less. The change would benefit homeowners whose primary residences are worth more than $200,000.
For homeowners on the Boise Bench paying a property tax rate of roughly 1.303%, that’s a potential savings of about $325 per year.
The homeowner’s exemption borrows from a bill sponsored by Rep. Bruce Skaug, R-Nampa, who worked with Canyon County officials. Skaug had 48 co-sponsors, including Democrats and far-right Republicans, on his bill. But it wasn’t supported by House Republican leaders and couldn’t get a hearing.
Senate Minority Caucus Chair Janie Ward-Engelking, D-Boise, said she fears Idaho residents will believe property tax relief is coming with this bill and discover that it didn’t help them.
“I’ve waited all session to see a property tax relief bill, and I can’t tell you how disappointed I am to see this bill before us,” Ward-Engelking said.
Bill ‘dismantles’ property tax reduction program
The bill would also adjust the property tax reduction program known as the “circuit breaker.” It would raise the maximum tax credit allowed from $1,320 to $1,500 for the program aimed to help seniors, people with disabilities and widowers.
But under the new law, the program would undergo a significant change in how residents qualify for the program: It adds the requirement that a property’s assessed value must be no more than 125% the median value of homes in the county. That’s regardless of household income.
Previously, qualifying for the program was based on income and whether the property owner fell under 185% of the federal poverty guidelines. Moyle said an estimated 15% of those currently using the tax break would be kicked off the program with this addition — that’s about 4,000 people, according to the Idaho Center for Fiscal Policy.
“A new property tax break for business and rising home prices keep the pressure on homeowners to carry the property tax load even with a modest increase in the homeowner’s exemption,” Cerna Rios said in a statement. “The legislation also dismantles a cost-effective property tax relief program for seniors. Idahoans choose to live in places with good local services and this path will make it harder for them to thrive.”
In fast-growing areas with a housing shortage, such as Boise, it would likely impact seniors whose home values have skyrocketed while their income remained unchanged, said House Assistant Minority Leader Lauren Necochea, D-Boise.
More than 10,000 residents who benefit from the program — more than one-third — come from Ada, Canyon and Kootenai counties, according to the Idaho Center for Fiscal Policy.
“As we address property taxes, we should attempt to do no harm,” Necochea said. “This bill does harm by actually taking people out of the property tax assistance program for seniors. This bill does harm by mandating service cuts in rapidly growing areas.”
The bill would also increase the household income to qualify for the program. The income qualification hasn’t changed since 2006 and the increase, from $28,000 to $31,900, doesn’t adjust for inflation. In 2006, $28,000 was equivalent to about $37,000 today, according to the CPI inflation calculator used by the Bureau of Labor Statistics.
And finally, local taxing districts would be limited to 80% of tax revenue from new annexation and 90% of tax revenue from new construction from the previous year. Under the bill, a local jurisdiction’s total budget increase must not exceed 8%. Local government officials said the new limitations would prevent cities and counties from allowing growth to pay for itself.
Skaug, who worked with Canyon County officials to craft his bill, told the Idaho Statesman he believed his bill would have benefited more people and provided more substantial tax relief.
His bill would have solely focused on raising the homeowner’s exemption — 55% of assessed value of a primary residence, up to half the median home sales price of the previous year, would have been exempt under his bill.
House Speaker Scott Bedke, R-Oakley, in an interview said a larger homeowner’s exemption would have further shifted the tax burden onto commercial properties, which include apartment complexes and thus renters.
“We’re trying to find a delicate balance here,” Bedke said. “If you’re a straight-up homeowner, that’s all you have to worry about. You love that bill. But the amount that was shifted to the other classes of property, including rental, went up as well.”
Business personal property tax break not a ‘compromise,’ IACI says
The bill would exempt a certain amount of personal property taxes that businesses pay after January 2022. Exemptions for personal property taxes, which are collected by local governments, would not be able to exceed $250,000.
In a letter to House members Monday, the Idaho Association of Commerce and Industry said the bill was deceptively presented as a compromise.
IACI President Alex LaBeau said the association’s officials wanted the personal property tax on businesses to be phased out over the next 10 years with a reimbursement for local governments. He said the bill as it is leaves out large businesses, which he believes also shouldn’t be paying the personal property tax. Agriculture businesses are already exempt from the tax.
“In the name of politics, rather than good policy, this new property tax bill has been crafted to cull the herd of businesses to try and isolate only the largest employers to continue to pay the tax,” said IACI’s statement, signed by LaBeau and Vice President John Eaton. “This runs afoul of a long-standing promise by the Idaho Legislature to finish off this tax once and for all.”
Supporters say imperfect bill is a start
Moyle promised the bill was only a first step, and that legislators would return next session to improve on it.
“Guys, we work in the Legislature,” Moyle said. “There’s never been a perfect bill. There’s never been a perfect process. … I assure you that this bill is way better than what you have today.”
Rep. Terry Gestrin, R-Donnelly, said he supports the bill and believes House members shouldn’t let “our quest for perfect get in the way of good.”
Skaug said his city and county officials oppose the bill and criticized lawmakers for fast-tracking the legislation without giving lawmakers time to review it. He said the bill also would not provide meaningful tax relief for homeowners, “not at all. They won’t feel it.”
“I hope you took the time to check with your county clerk and county assessor … but you probably didn’t because you didn’t have time,” Skaug said. “Why is it this is all we have? Why is this process done in 24 hours when we have an interim committee over the summer, we have all this session to talk about taxes, and here it’s: ‘Take it or leave it. This is all there is.’ ”
Necochea said that while the homeowners’ exemption is still “woefully inadequate,” she could have supported the increase on its own. But the bill as it is would hurt local governments and some people who currently receive the circuit breaker, she said.
“The tax shift is at the heart of this property tax conundrum,” Necochea said. “House Bill 389 is a small band-aid for a gaping wound.”
This story was originally published May 10, 2021 at 5:00 AM.
