Are Idaho property taxes at Prop 13 crisis level? Not yet
State Rep. Mike Moyle, R-Star, started his presentation to the Revenue & Taxation Committee last month by telling a story about a woman he’s known since he was a little boy.
She came to him in tears, he said, afraid that she was going to lose her house because she couldn’t afford the property taxes.
Now, Moyle said 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,” Moyle, the House majority leader, told Sharon Fisher of the Idaho Business Review. “But if we can’t, I’m all in. Let’s do Prop 13 and fix this problem.”
Amid skyrocketing property taxes, legislators are looking for solutions. Moyle has introduced a couple of bills, one that would freeze property taxes for a year and one that would limit how much cities and counties could raise through property taxes per year.
A Prop 13-type initiative would certainly be a dramatic fix.
But would it be a good idea?
I spoke with Alan Dornfest, Idaho’s property tax policy bureau chief with the Idaho State Tax Commission. We spoke before Moyle came out with his statement on Prop 13, so Dornfest wasn’t commenting on Moyle’s proposal.
But he did tell me that Prop 13 was flawed on many levels.
Prop 13, passed in 1978 through a citizen initiative, limited the tax rates on residential and commercial properties to 1% of assessed value and tied annual tax increases to an inflation factor, but could be no more than 2%. That locked-in rate gets wiped out once a property is sold.
One of the biggest problems, Dornfest said, is a “lack of horizontal equity.”
Take an example of a house that was locked in 30 years ago at a value of, say, $200,000, with a tax bill of 1 percent, or $2,000. Today, that house, if under the same owner, would have a tax bill of about $3,600. But now, that house is in a neighborhood of similar houses that are valued at $2 million.
So if someone buys a house right next door for $2 million, that neighbor’s tax bill would be $20,000, or about five times what the neighbor is paying for virtually the same house in the same neighborhood — and receiving the identical services.
That kind of inequity is problematic, Dornfest said, and a much worse way to handle property taxes than Idaho’s system.
Idaho’s property tax system, despite concerns about rising taxes, is about as fair as you can get, said Dornfest, who’s been with the Idaho State Tax Commission for 43 years.
“When you compare Idaho with national standards, we don’t check all the boxes, but we’re pretty close,” Dornfest said.
Even with rising property taxes, Idaho ranks 39th in the nation for property taxes paid per person, with a rate that’s 37.1% below the national average, according to the Tax Commission.
Factoring in Idaho’s lower income, Idaho’s property tax burden still ranks 37th in the nation, at 21.5% below the national average.
That may be cold comfort, though, to some people who have seen tax bills double.
Property tax collections in Idaho have gone from $664 million in 1995 to $2.03 billion in 2019, according to numbers provided by the Idaho State Tax Commission. That’s a 4.8% annual growth. But the rate has been growing. While property tax collections increased just 0.9% in 2011, collections started rising 3% and 4% each year after that, then rose 5.8%, 6.4% and 6.5% in 2017, 2018 and 2019.
Idahoans have historically enjoyed low property taxes, and those property taxes are rising quickly, but we’re still enjoying low property taxes relative to the rest of the country.
“Our rankings in the nation have stayed more or less the same,” Dornfest said.
Dornfest said Idaho’s system works because it’s a demand-driven and wealth-based system. Properties with a lower value have a lower tax than a property with a higher value.
“That’s the way the system is designed,” Dornfest said.
The system also has controls built into it. Idaho has decided that we want to “shelter” certain categories of property taxpayers, such as homeowners, senior citizens, widows and widowers, people who are blind, low-income residents and veterans.
The problem is that thousands of Idahoans who are eligible for these programs are not using them. Only half of the people who are eligible for the state’s circuit breaker program use it, Dornfest said.
The circuit breaker program, in which the state reimburses counties for a reduction in property taxes, can reduce property tax bills for qualified property owners by up to $1,320. Last year, the state paid out $19 million under the program.
It’s hard to know exactly why people aren’t using it, Dornfest said. Homeowners have to fill out a form each year, so it’s an “opt-in” program, making it onerous on the homeowner. Homeowners also have to report their income, which might be a deterrent to filling out the form. Perhaps the tax break isn’t viewed as large enough to be worth the effort. The average tax break was $650 per household, Dornfest said. Some people might just not know about it.
Here’s another example: The state has a property tax deferral program. It’s kind of like a reverse mortgage. If you’re on a limited income (less than $44,510 per year), you can wait to pay your taxes until a later date, such as when you sell your house.
But the number of people in all of Idaho who applied for the tax deferral two years ago: four.
The number who applied last year: one.
One person in the entire state of Idaho applied for this tax deferral.
Again, either people don’t know about it or the incentive isn’t attractive enough. There is a 6% interest rate, so as an incentive, the state Legislature could reduce that rate or eliminate it altogether.
Homeowners also have been granted relief through the homeowners exemption. But legislators in 2016 capped that exemption at $100,000. If the cap had not been placed on the exemption and it had been allowed to change with inflation, the exemption would be $135,850 today, according to Kathlynn Ireland, property tax specialist with the Idaho State Tax Commission, who also sat in on my interview with Dornfest.
Tammy de Weerd, who recently left office after 16 years as the mayor of Meridian, Idaho’s second-largest city, told me in a phone interview her own story of speaking with a taxpayer concerned about rising property taxes.
“I said, ‘I’ll tell you right now that we can reduce your property tax by 32%,’” she said, noting that 32% of the property tax bill in Meridian goes to the West Ada School District.
The total tax rate in Meridian is about $1,081 per $100,000 of taxable property value. Of that, about $351 goes to the school district, according to Ada County Assessor’s records.
De Weerd said the state is shirking its constitutional mandate to fully fund education. If those costs were borne by the state, as they should be, she argues, Meridian tax bills would drop by nearly a third.
“If we want to build a school, we pass a bond,” she said. “Well, where does that go? Property tax. If you think that schools should have more money, the only tool you have is to pass a levy, and where does that levy go? It goes on the property tax. Everything seems to go on the property tax, and they don’t give us any other tools.”
I would hope that the state Legislature would enact some real reforms within Idaho’s existing property tax system before jumping straight to a Draconian system such as California’s Proposition 13.
