Idaho’s property tax laws can create a massive fund for cities and counties and some critics say that’s dangerous for taxpayers.

When cities, counties and other taxing districts—with the exception of schools—set their annual budgets, they are allowed to hike their spending by certain amounts including for new growth, annexation and up to 3 percent on top of the previous year’s spending. If they don’t take everything, the remaining amount—not actual tax dollars, but an accounting of the amount that could have been collected—lingers on a spreadsheet. It can accumulate for years.

This number for these taxing entities, known as the foregone amount, can increase and increase and increase. As it stands, Idaho’s taxing districts have accumulated more than $90 million in foregone taxes. Ada County, the state’s most populated county, boasts nearly $20 million in foregone taxes.

Due to how state code outlines the process, foregone amounts accrue year after year with no limits.

To be sure, higher foregone figures can bear the mark of frugal decision makers who regularly ask taxpayers for less than they could. But, opponents note, it also creates a risky situation for taxpayers.

Administrations change and so do philosophies about government spending and taxation. One election can have drastic effects on property tax bills.

Carmell Reed, a senior analyst with the Associated Taxpayers of Idaho, explains why some worry about the foregone amounts.

“If a district has a large foregone amount, then changes management, the new management might decide to levy for the max,” Reed told IdahoReporter.com. “This will result in a large increase in property tax for the taxpayer.”

Wayne Hoffman, president of the Idaho Freedom Foundation, offered his own scenario. “A frugal local government can choose to reject tax increases for, say, two years, raise property tax collections by 3 percent and then collect the other 6 percent to which it was entitled, resulting in a 9 percent increase in property tax collections in a year as a starting point,” Hoffman wrote in a recent column.

Foregone taxes can act as a reserve account for taxing districts during tough times, but critics would note that when government revenues are down, taxpayers are usually hurting for income themselves.

Officials can also use the reserve amounts to fund pet projects, like North Idaho College trustees did in 2005 when they grabbed more than $1 million in foregone taxes to purchase a vacant mill site adjacent to their campus.

That situation revealed why foregone taxes can be so dangerous. Instead of reviewing the school’s budget for waste and inefficiencies to find money to purchase the property, trustees simply grabbed more cash.

Mic Armon, the lone trustee who dissented, voiced his concern on that matter. “There are other things inside the budget that could have been reviewed,” Armon said, The Spokesman Review reported. “I’m not saying they could be cut. They could be cut or reviewed. They could be addressed before you say, ‘We got a million bucks out here—let’s go and get them.’”

Former state Rep. Jim Clark, R-Hayden Lake, introduced legislation several years in a row to remedy the problem, but cities and counties—worried about not having the extra cash available—lobbied against each measure.

Clark wanted to wipe out the foregone tax provision. “They would be limited to one year and that was it,” the former lawmaker, who now works as a lobbyist, explained.

Staunch opposition killed the measures time and time again. “The only people who liked it were taxpayers,” he said.

Eliminating the foregone taxes, though, could have come with its own hazards. Clark and a former ally, House Majority Leader Mike Moyle, R-Star, worried that if legislators eliminated the foregone reserve, taxing districts would take the maximum allowed each year.

“If you do away with it, they’ll take the whole enchilada,” Moyle said.

Hoffman and others would like to see reforms to protect Idahoans from massive tax hikes year after year, but that can be tricky.

“I don’t know what the answer is,” Moyle explained. “Maybe there’s some compromise there.”
Moyle suggested lawmakers examine how taxing districts handle new growth. He suggested districts use new growth to lower the overall tax burden instead of utilizing it as an excuse to grow budgets.

Hoffman urged lawmakers to examine the tax collection laws to add more uniformity.

“This is further proof that the state’s property tax system is woefully broken: It lacks predictability, a very basic requirement for good tax policy,” Hoffman wrote in a recent column. “Property owners never know what to expect from their tax bill.”

Note: IdahoReporter.com is published by the Idaho Freedom Foundation.