Calculating levy rates for property taxes each year has never been an easy job for county clerk offices across Idaho. It’s a complex budgeting process that takes many different factors into account and requires weeks of collaboration with taxing districts across one county.
But this year, after the implementation of House Bill 389, some clerks say it went from a complex process to an administrative nightmare — one they hope the Idaho Legislature will alleviate during this session with a follow-up bill.
House Bill 389 was presented as a property tax relief bill in the Legislature at the end of the spring session in 2021. The law increased the homeowner’s exemption from $100,000 to $125,000 per year, created an 8% cap on property tax increases that account for growth, and changed valuation rates for new construction and annexation, which affects property tax levy rates. The bill also increased the personal property tax exemption and made changes to the circuit breaker program, which provides reduced property taxes to elderly, disabled and widowed taxpayers. The bill raised the maximum exemption for the circuit breaker program from $1,320 to $1,500, but it also added an asset test for a claimant’s home. Those whose home value is 125% of the median price would no longer qualify for the exemption, which would be about 4,000 Idahoans, according to estimates from last year.
The bill limits a local government’s ability to increase budgets in response to growth by capping the amount available for taxation on new construction and annexation of land from 100% to 90% and reducing the amount an urban renewal agency is able to tax for new growth from 100% to 80%.
Bill author says legislation had the intended effect on local Idaho governments
The legislation passed 48-20 in the House of Representatives, and narrowly passed the Senate with 19 votes for it and 16 against, one week before the House recessed its session until November. The bill was introduced in committee on May 3 and fast-tracked to the House floor for a vote the following day, with the Senate voting the day after and passing the bill on May 5.
In the months since, county clerks and city officials have had plenty to say about the new law.
Bonneville County Clerk Penny Manning said the Idaho Association of Counties worked with House Majority Leader Mike Moyle, R-Star, and Sen. Jim Rice, R-Caldwell, on the crafting of the legislation, and House Bill 389 was the compromise solution, but it was far from perfect.
Moyle told legislators in May that the bill would provide property tax relief while also curbing growth in local municipal budgets, which he says have a spending problem.
“The state of Idaho last year, lowest property tax increases in 10 years, I believe,” Moyle said at a news conference last week. “Without House Bill 389, it would’ve probably been close to double digits. So yeah, we made an improvement last year, but you saw the pushback especially from the cities … because they felt like we were trying to micromanage them. But the problem again is their budgets.”
Ada County Clerk Phil McGrane said House Bill 389 did have an effect on small towns with explosive growth, like Star, which has grown more than 90% in the past decade.
Overall, Ada County did cut property taxes by $12 million, but McGrane said that was achieved through federal dollars provided by the American Rescue Plan Act and increased revenue that allowed the county to choose not to take the tax increases that would be allowed for new construction.
New law was a lot of work for little difference, Idaho clerk says
County clerks calculate levy rates through an Excel spreadsheet provided by the Idaho State Tax Commission, based on budgets set by taxing districts such as cities, water districts, fire and cemeteries.
That spreadsheet used to be three pages, Manning said. This year, with new preliminary levy rates and various details, it was seven pages.
“It complicated the process, but it didn’t come up with a huge change in results by the end,” Manning said. No taxing district in Bonneville County came close to an 8% increase in property tax or would have prior to the new bill’s implementation.
“It seemed like a lot of work for very little difference,” Manning said.
Nez Perce County Clerk Patty Weeks said the new limitations were a source of frustration that didn’t take into account areas of the state that aren’t experiencing high levels of population growth.
“Putting together laws that fit that spectrum is very tricky to find that balance,” Weeks said. “You’re trying to fix something you see that needs fixed in the higher population area, well, what does that do to a county that simply doesn’t have the resources to manage the new law?”
Kristina Glascock, clerk of Twin Falls County, said she is starting to see burnout among county clerks and their staff members, particularly because this year was so labor intensive. Many smaller taxing districts are led by volunteers who would not be able to navigate the levy process without significant assistance from the county clerk’s office, and the clerks had to ask for help from the state tax commission, she said. Even then, it was a struggle.
“There’s got to be a better solution than what we just lived through,” Glascock said.
Meridian mayor wants to see full repeal of House Bill 389
Officials with the city of Meridian were among those who pushed back on House Bill 389 the hardest. Mayor Robert Simison said he sent a letter to Gov. Brad Little and Moyle at the end of October calling for the bill to be fully repealed because it limits growth and the ability for growth to pay for itself.
“This is not one of those pieces of legislation where coming in and doing little fixes is the right approach,” Simison said. “It should be repealed, and there are other issues that can be worked on that have better policy outcomes than this bill.”
The letter says the House bill was developed with a select group of stakeholders, not fully vetted or evaluated by the Idaho State Tax Commission. It said the bill represented a failure of due process in the Legislature. Simpson said he hadn’t received a response from Little or Moyle on the letter.
Tensions have been high between city officials and Moyle since May, when Moyle said city representatives walked away from negotiations over the legislation toward the end of the process.
“(HB)389 as enacted caused the city of Meridian to have to implement a property tax increase to cover over $900,000 in new construction revenue loss,” the letter says. “(HB)389 does nothing to reduce property tax burdens on residential property due to how property taxes are assessed against (rising) home valuations.”
Simison said the state should instead develop a split-levy system and separate residential and commercial classes of property to make the system fairer. That idea has been floated since the 1970s, Simison said, but has never gone anywhere.
“The shift that’s occurring between commercial and residential (properties) is the biggest issue, and until you address that, you can’t address the underlying issue unless you just eliminate property tax altogether,” Simison said. “I think it would take a change to the constitution in order to do that, but if we’re not willing to address the bigger issues, then trying to play around underneath is never going to solve it.”
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At the Associated Taxpayers of Idaho conference in December, Idaho Association of Counties Executive Director Seth Grigg agreed with Simison’s position that perhaps the overall system of property tax needs an overhaul in Idaho.
“We have evolved so much that if we were to put together a system of government right now and a funding source, it would probably look really different from what we have right now,” Grigg said during a panel discussion. “And we tend to nibble around the edges when we’re looking at tax policy.”
Alex LaBeau, president of the Idaho Association of Commerce and Industry, spoke at the same panel discussion and said the Legislature could provide more meaningful property tax relief by building in more options for county governments to find other revenue sources or provide more state funding for the services counties typically provide.
“Those are ways that we believe the Legislature could provide real property tax relief for all of the state of Idaho, whether you’re a business or a residential property owner,” LaBeau said. “But we need the partnership of the Legislature to do that.”
Idaho House Speaker: Local units of government need to come together to change the law
At the news conference last week, Moyle said there is legislation in the works that would address portions of House Bill 389 that he has heard complaints about, including levy formulas and the urban renewal limitation, but it will likely come later in the legislative session.
Speaker of the House Scott Bedke, R-Oakley, also spoke at the press conference and said any changes will require cooperation from local units of government and state representatives.
“Until and unless that happens, we’ll continue to talk past each other,” Bedke said. “We made some good strides with House Bill 389 last year. Was it perfect? No, and any imperfections … we’ll take those up and I believe that there will be changes, particularly in the area of urban renewal.”