Local government officials throughout Idaho are beginning the process of hearing from residents about how they’d like their tax dollars spent starting this fall. Cities, counties and other taxing district officials are writing budget blueprints that will be used to pay for police and fire protection, street repairs, water and sewer infrastructure, libraries and more. And some of those elected officials will promise they’re doing everything they can to be mindful of the taxpayers’ dollars.
But, until now, budgeting frugally was rather pointless, because efforts to save money could actually be used against taxpayers in the future. That’s all about to change, thanks to a law that takes effect July 1.
Under current law, local governments are somewhat limited on how much they can increase their aggregate property tax collections from one year to the next. But there’s a loophole, and it’s a big one.
Any thrifty budgeting today can be turned against taxpayers later on. Idaho law allows a local government unit to increase property tax collections by a limited amount each year. If the local government keeps spending contained and chooses not to collect all the money to which it is entitled, the uncollected amount is counted by state tax collectors as having been “forgone.”
The uncollected taxes are forgone -- but not forgotten. State tax officials keep a running tally of all the property taxes that could have been collected but weren’t. And, each year when budgets are being written, local government officials have the option of capturing any or all of the running-total forgone taxes. That's right, after many years of frugality, forgone taxes continue to accrue, sometimes totaling in the millions of dollars, and if the local government elects to collect that money, it could mean a big increase -- an ambush -- in property taxes for local residents.
Some local government boards have used annual budget “savings” as a means of hoarding cash that can be used for major projects down the road, eventually hitting property taxpayers with significant increases in their property tax payments. The effects can be devastating. Struggling-to-get-by property owners may be shocked to see their tax statement call for as much as a 20 to 30 percent increase in taxes, even if there’s no increase in the property assessment.
However, the new law that takes effect July 1 will allow budget hawks to pass fiscally prudent budgets and to lock in savings for taxpayers, making a promise not to turn savings into a retroactive tax. Under the law, signed by Gov. Butch Otter last winter, city councils, county commissions and other taxing districts need only pass a resolution that pledges they won’t collect tomorrow on the money they’re not taking from taxpayers today. Such a statement, which disclaims any future right to collect the forgone taxes, allows local governments to assure their constituents that they won’t be smacked with a big property tax bill in the future.
How effective the new law will be depends entirely on the willingness of local governments to keep spending in check, both now and at some date down the road. And the law’s effectiveness depends on local governments passing a resolution that tells state officials that local officials won’t retroactively collect on property taxes they’re not taking today.
Your local government officials may tell you they’re keeping spending down. But, if they haven’t passed the resolution that stops them from collecting taxes retroactively, put them to the test: Ask if they’re serious about protecting property owners from massive tax increases, or if they’re just pretending.