As the 2021 Idaho Legislature slides into the final weeks of the session, one of the state’s biggest issues — property taxes — is still on the table. We talked to Mat Erpelding, former legislator and current vice president for government and community relations for the Boise Metro Chamber of Commerce, about the bills to watch for as the Legislature draws to a close.
Issue #1: Rapidly rising property taxes
Why it’s a hot topic
If you live in the Treasure Valley, you’ve most likely seen an increase in your property tax bill over the past several years — for some homeowners in popular neighborhoods, that increase climbs into the double digits.
Idaho taxes both commercial and residential properties, but when commercial valuations are down and home values are up, as we’ve seen recently, residential taxes make up the difference. A 2016 law that capped the homeowner’s exemption at $100,000, or 50 percent of the property value, whichever is less, has also played into rising property taxes in places like the Treasure Valley.
Last year, the Legislature didn’t come up with a lasting solution and instead formed an interim committee to study the issue. This year, property tax relief is definitely on the table, but legislative factions have wildly different ideas about what should be done and why.
The current law
The current law allows taxing districts to increase property taxes by 3 percent per fiscal year, plus growth. Right now, a taxing district can tax all new construction and annexation.
In other words, if a city adds $5 million in growth, the city can increase its budget to reflect the 3 percent allowed plus the costs to service that $5 million in growth with additional police, fire services, etc.
Taxing districts don’t have to take that 3 percent every fiscal year. But if a taxing district increases property taxes by 2 percent one fiscal year, it could “bank” the additional 1 percent and use it the following year for a 4 percent increase. This is called foregone revenue.
The proposed law
Sen. Jim Rice, R-Caldwell, is the author of SB 1108. SB 1108 would limit property taxes to 3 percent plus 75 percent of new construction and annexation taxes. Only 50 percent of new construction taxes from terminating urban renewal districts (in other words, urban renewal districts that are coming to the end of their designation) would go back to local budgets. In addition, if municipalities wish to tap into their foregone revenue, they could do so only up to 4 percent.
What proponents say
Rice says the levy rate for new construction is what drives skyrocketing property taxes, not rising property values. Rice says the bill is a necessary curb on growth and spending and called it “a small haircut on budgets, not the scalping that the citizens are getting right now.”
What opponents say
SB 1108 is receiving vociferous opposition from city and county officials around the state, but especially from mayors and fire chiefs here in the Treasure Valley. The mayors of Boise, Nampa, Caldwell, Eagle, Meridian, Star, and Kuna have come out against the bill. The consistent concern is that SB 1108 would leave municipalities saddled with the cost of rapid growth but unable to pay for it. Mayors from around the state participated in an hour-long press conference recently to rally opposition.
What real estate agents should know
“Cities experiencing less extreme growth will be able to weather this bill better than cities that are experiencing rapid growth,” Erpelding says. “From a Realtor’s perspective, what that means is that areas where Realtors are selling new homes are likely to be impacted the most. Areas where Realtors are likely to be selling lots and lots of new homes will be impacted. In areas where they’re selling pre-existing homes, I think the impact of this could be quite dramatic. think there’s a high likelihood that cities and counties will pause before they grant another development of new home growth.”
Indeed, cities are already taking action in anticipation of SB 1108. The Meridian City Council recently decided to freeze annexations for six weeks.
Erpelding points to areas like Kuna and Star that have an imbalance between commercial property and residential property as examples of where the bill could lead to higher costs for homeowners.
“There’s very little commercial property in those cities,” he says. “They’re predominantly residential, in some cases up to 85 percent residential or more. If you chill out new home building by doing this, the secondary impact of that is you will see an acceleration of existing home prices. The growth movement here is not going to stop. So if you curtail new home construction and you accelerate valuation, the end result is you will see an even more large increase in property tax over time than you would with the old system.”
Will it pass?
We can’t predict with 100 percent accuracy, but House Majority Leader Mike Moyle (R-Star) has come out in favor of SB 1108. “(Cities and counties are) the problem, not us. They're the ones writing the budget, not us. They've had the mechanism to solve the problem, but they don’t,” Moyle told the Idaho Press. “The cities and counties never bring any proposals over. They just complain and blame the Legislature.”
If you would like to make your voice heard about this bill, reach out to your local representative and the lobbyists that support the real estate industry.
Issue #2: The homeowner’s exemption
Why it’s a hot topic
Last year, the Legislature made a change to the homeowner’s exemption deadline. Previously, homeowners had to file for the exemption by April 15. The 2020 change allows homeowners to file for the exemption at any point during the year.
The current law
The 2020 law was a bit ambiguous. Some counties, like Ada, decided that exemptions filed after April 15 would not apply until the following year. The county-by-county interpretations meant that homebuyers who filed the exemption after April 15 wound up having higher tax liability.
The proposed changes
Clarifications to the homeowner’s exemption were just coming out as this newsletter was about to go live and had not been formally introduced in the Legislature (hence the lack of a bill number). However, the changes codify how proration will work:
- If the effective date of the exemption is before the fourth Monday in June, the exemption will be 100 percent.
- If the effective date is on or after the fourth Monday in June, the exemption will be 50 percent.
What proponents and opponents say
This is brand-new proposed legislation, so we don’t know for sure how various groups will react. However, Realtor associations and counties have been asking for clarification since the new deadline passed last year.
What real estate agents should know:
If it passes, you’ll definitely want to share this information with clients and explain the implications.
Will it pass?:
Still too early to say, but you can keep an eye on the progress of all new legislation here.