At the beginning of each year, 105 elected representatives gather in Idaho’s Capitol building to pass new laws governing Idahoans’ daily lives. This gathering is called Idaho’s legislative session. The 2020 legislative session was cut short by the COVID-19 pandemic, but lawmakers still managed to pass 232 laws (not including appropriations) — ranging from tiny technical corrections to brand new sections of Idaho Code.
Many of these laws have a built-in effective date of July 1, meaning they become enforceable starting just a few months after the governor approves them as the new law of the land. This year, one law that will go into effect July 1 will greatly benefit taxpayers.
Effective July 1, local governments will have to rework their approach to forgone balances. A forgone balance is something not many taxpayers are familiar with, but it can greatly affect them depending on where they live. A forgone balance is basically a reserve of uncollected taxes; a claim that a local government can act on to take money it had the power to take (but did not) in an earlier time.
In Idaho, local governments can increase property tax collections by up to 3% (plus new construction and annexation) each year without having to ask for voter approval. Not every local government takes that full 3%, each year, though. Some don’t increase their taxes; others increase it 1% or 2%. But when a local government chooses not to collect the full 3% that it is legally allowed, the money it chooses not to collect is recorded, for potential future use.
For example, if City A decides to increase its tax collection by 1% instead of the full 3% allowed by law, it forgoes a 2% increase it could have collected. Let’s say this extra 2% increase would have translated to $500,000 in tax collection. Well, officials in this city will keep a record of the $500,000 they chose not to collect, calling it a forgone balance. Five years later, when officials in City A want to build a new library, just increasing tax collections by 3% won’t give them enough money to do that. So they decide to dip into their forgone balance and, on top of imposing a 3% increase, collect that $500,000 in taxes that they did not collect five years ago.
Essentially, keeping a forgone balance is a way to retroactively tax residents. And many residents do not know this is happening. That’s because local governments do not have to be transparent about the fact that they are keeping a record of the taxes they did not collect. This will change July 1, however.
Effective this year, local governments will have to be transparent with taxpayers about their intention to retain taxes they do not collect now for future use. Local governments will have to publicly pass a resolution stating their intent to collect a forgone balance in some future year. This law comes just in time for the July and August budget-setting season used by most local governments across the state.