A bill that would have required landlords to pay interest earned on security deposits paid by a tenant back to the tenant at the beginning of a lease agreement failed Tuesday in the House Business Committee.

The legislation, sponsored by Rep. Wendy Jaquet, D-Ketchum, would have required landlords to compute the interest on leases lasting more than one year and would have required that interest be paid yearly to renters.  According to the bill's text, interest rates landlords would have been required to pay out would have been comparable to rates of savings accounts at banks in Idaho.  Jaquet estimated that landlords would have been required to pay between 1-3 percent to renters.  The legislation would have applied to both residential and commercial renters.

The Democrat from Ketchum said she brought the legislation because she was contacted by a constituent who lived in other areas previous to Idaho and received interest from a security deposit paid to a landlord.  After doing some research, Jaquet said that she discovered several states, including New York, North Dakota, California, Illinois, and New Hampshire, require landlords pay interest back to renters.  Jaquet said that in her district, deposits from year-long leases can sometimes amount to $10,000, which she said can accrue a great deal of interest during a year-long period.

The proposal drew fire from the Idaho Association of Realtors (IAR), as well as a few landlords who attended the hearing.  John Eaton, speaking on behalf of IAR, said the legislative board for his organization unanimously opposed the idea.  Eaton told lawmakers that the state shouldn’t become involved in lease agreements because landlords and renters are already able to negotiate interest payments.  Eaton also noted that the amount paid to renters would be minimal because many banks around the state are paying approximately one-half percent interest on most savings accounts.

Linda Austin, a private citizen who owns five rental properties, said that the bookkeeping that would be required under Jaquet's plan would have been "extensive," and that it would be "inappropriate" for the state government to become involved in the private agreements.  She also said that landlords would be required to file 1099 tax forms, something which legislators had not previously considered.  Austin told lawmakers that managing properties would become much more complex under Jaquet's plan.

Before the vote on the measure, Jaquet told urged lawmakers to pass the legislation because it helped ensure "fairness and equity" for renters who, she feels, receive devalued money from their landlords after a year.

Lawmakers voted to kill the bill on a 7-3 party line vote, with Republicans opposing it and Democrats supporting it.