Light finally shines on foregone taxes, but more work left to do

Light finally shines on foregone taxes, but more work left to do

by
Wayne Hoffman
August 5, 2016
Wayne Hoffman
Author Image
August 5, 2016

This year, as local governments set their budgets, one law is doing taxpayers some good. This law requires a local taxing district to notify taxpayers and give them a chance to comment if the taxing district intends to collect property taxes it let stay “on the table” in the past.

These are called “foregone taxes,” and for more than 20 years they’ve been a problem. How local governments can collect taxes today, that they in the past decided not collect, is complicated.

Under Idaho law, local taxing districts — cities, counties, recreation districts and so on — can increase property tax collections up to 3 percent a year. This doesn’t mean your taxes can only go up by 3 percent; it means the aggregate total dollars collected from all property taxes can only rise by 3 percent each year.

The law that caps property tax collections also allows exceptions. One alarming exception is that local officials can collect on foregone taxes at some point in the future. In other words, if a city were to increase property tax collections by 2 percent each year for 3 years, that city could, in the fourth year, not only increase property taxes by its full 3 percent but also increase property tax collections to account for the revenue it decided to forgo in each of the previous years.

The Idaho Tax Commission tracks this foregone balance for taxing districts. And, some taxing districts have begun to look at it as a revenue source when the annual 3 percent limit is too restrictive.

The fact that some taxing districts were collecting on years of forgone property taxes, without real notice to taxpayers, prompted Rep. Mike Moyle, R-Star, to propose the legislation that now requires notice and a hearing whenever foregone balances were to be used.

The issue came to Moyle’s attention after Ada County budgeted frugally for seven years, forgoing $19.4 million in property taxes. But then last year, the county decided to undo its frugality and, in effect, retroactively increase taxes. To add insult, the county did so without much public awareness, and taxes went up.  

Moyle’s bill passed both chambers and was signed into law without objection. This public notification requirement is having a positive impact. For example, the Post Falls city government informed residents of a plan to use foregone balances to fund streetlights. In Twin Falls, whether or not foregone taxes were included in the city’s budget (they weren’t) was a point specifically noted by the city finance director.

So now, for the first time, there’s public attention to a somewhat obscure law that let’s taxing districts increase taxes by more than 3 percent annually. But more teeth are needed to protect taxpayers.

To begin, elected officials who work hard to restrain government spending shouldn’t see their efforts go to waste because someone new has been elected, or because current government priorities have changed.

Elected leaders should be allowed to vote to forever forgo collecting the foregone property taxes. The state should allow local city councils, county commissions and other taxing entities to make a determination that they’ll never look backward at property taxes they could have collected but didn’t. Such a policy would provide taxpayers with another level of protection against big tax increases and actually allow taxpayers to reap the ongoing benefit of conservative budgeting. Here’s hoping the 2017 Legislature will take that important step.

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