George Eskridge-(R)Idaho State Representative-District One
Most of Idaho is aware that Governor Risch called for a one-day special session of the legislature to take place August 25 to address his proposed legislation to provide property tax relief. The legislature did pass the Governor’s proposed legislation on August 25 by a vote of 47 to 23 in the House and 24 to 11 in the Senate. The Governor signed the legislation into law on August 28.
Even though most people realize the legislation was passed, there is still confusion as to what the legislation provides. The following is a summary of the legislation as provided in the “Statement of purpose” accompanying the legislation:
• Permanently eliminates the 3-mil education maintenance and operation levy on Idaho real property that will immediately reduce property taxes $260 million, and replacing that amount with state sources.
• Raise the Sales Tax 1% from 5% to 6%, effective October 1, 2006, which will generate approximately $210 million.
• Protect education funding now and into the future by placing $100 million into the Public Education Stabilization Fund.
• Appropriate sufficient funds from the General Fund to “fund the difference between the $260 million and the $210 million to be funded by the sales tax increase.
• Place an advisory question on the November 2006 general election ballot asking Idaho voters:
“Should the State of Idaho keep the property tax relief adopted in August, 2006, reducing property taxes by approximately $260 million and protecting funding for public schools by keeping the sales tax at 6%?”
Some legislators opposed the legislation and submitted an alternative proposal to the House Revenue and Taxation Committee for consideration in addition to the Governor’s proposal. This alternative differed primarily from the Governor’s proposal in that it provided property tax relief only for owner-occupied primary residences. It retained the school M&O on all other classes of Idaho property, including second homes, those residences occupied by renters, agriculture lands and other property classifications. The Governor’s proposal eliminated the school M&O on all real property classifications.
The alternative proposal would have been funded from the current surplus without an increase in the sales tax, but no funds were to be deposited into the school stabilization fund.
A major issue in the consideration of the alternative proposal related to a constitutional question. The “uniformity clause of Article VII, s 5, of the Idaho Constitution, as well as the due process clause of the United States Constitution, prohibits the singling out of one taxpayer’s property for more burdensome taxation…”, therefore it could be argued that it would be unconstitutional to remove the school M&O from owner-occupied residences only. It could be assumed that if the alternative legislation had passed it would be challenged on “constitutional grounds” and no property tax relief would be forthcoming this year.
In addition to the legal argument, it would be doubtful that the alternative legislative proposal would have passed with school M&O removed only from owner-occupied property. This action would create a tax shift to other properties and not all of the state is experiencing the extraordinary high growth in residential values that some areas are experiencing. A shift in property tax to other property classifications in these lower growth areas would have generated (in my opinion at least) considerable opposition and legislators in these areas would not have been able to support the legislation, possibly resulting in no property tax relief this year.
Both pieces of legislation were made available to the public prior to the special session. Hard copies of both of the proposed bills were made available to legislators and others through the mail and in public meetings and the two proposed bills were available on the Idaho Legislature website for anyone to read prior to the special session. Neither proposal came as a “last minute surprise” to members of the Legislature as some have indicated!
After considerable discussion in the Committee, the alternative proposal was defeated and the Governor’s proposal passed by a 13-6 vote in the committee and sent to the House floor with a “do-pass” recommendation.
The following are additional comments that many of us who supported the bill took into consideration in our decision to support the legislation:
• The school M&O portion of our property tax is the only property tax item on “auto-pilot”! The School M&O is not subject to a vote of the citizens and has no cap; it increases directly with increases in property values, approximately a $300 increase with every $100,000 increase in property value. All other property taxes are tied to local jurisdiction budgets and have a 3% cap.
• All portions of the bill passed in the special session were thoroughly debated during the last legislative session with the exception of placing $100 million into the school stabilization account to protect schools from fluctuations in the state general fund revenues.
• Property tax relief was needed this year, because if we did nothing before December, the School M&O was estimated to increase by an average of 18%, or approximately $50 million.
• Property tax is a tax on debt in many cases because many homeowners have a mortgage; they are being taxed on the full “market value” of the home even though their real equity (ownership) in the home is less then market value because of the outstanding mortgage owed on the home!
In our area, the School M&O portion of our property tax bill represents about 25% of our total property tax bill. For those who might want to estimate the benefit of this bill to them personally, take 25% off your’05 property tax and you will be close. As an example:
If your’05 property tax bill was $1600, one-fourth of that (your school M&O portion) would be about $400. Individual circumstances will be different, but given a 1% increase in sales tax, the property owner in this case would have to spend $40,000 on sales tax related purchases to receive an over-all tax savings from this legislation (not withstanding any decrease in income tax because of itemizing expenses on income tax returns).
This legislation is not the total answer to the property tax issue, BUT IT HELPS! In my opinion, the current system is broken and the legislature needs to continue pursuing legislation that provides a more equitable funding source for services provided by our local county and city jurisdictions.
As always, please feel free to contact me with issues of concern. My home phone is 208-265-0123 and my home address is P.O. Box 112, Dover, ID 83825.
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