Otter floats personal property tax cut plan

BOISE - The measure everybody in the Idaho Capitol has been waiting for - personal property tax relief - is finally in play, after Gov. Butch Otter released a draft proposal Thursday for review by counties, cities, schools, business groups and lawmakers.

Otter's plan would eliminate the estimated $140 million tax on business equipment by 2019 or 2020, according to the Idaho State Tax Commission.

Under the proposal, Idaho's taxpayer-supported general fund would replace about $90 million that cities, counties, schools and other local governments stand to lose under the repeal. Local governments would have options to replace the remaining amount if they decide they need to, by shifting the burden to homeowners and other classes of real property.

Otter's chief of staff, David Hensley, still expects potential modifications to the proposal but said the governor wanted to begin discussions of what promises to be one of the two biggest issues of the 2013 Legislature, along with the proposed state-based health insurance exchange.

"We've distributed the proposal to the stakeholder groups and are asking them to give us their feedback by the close of business on Friday," Hensley said.

In its present form, the bill calls for a total repeal of the tax on everything from office desks to power lines to semiconductor equipment starting in 2013.

That's something that the pro-business Idaho Association of Commerce and Industry has been working feverishly on for years, to help its members including Idaho Power Co. and Micron Technology Inc., two of the state's biggest personal property taxpayers, which contend the tax is unfair and stunts economic growth.

With the state planning to replace only about $90 million of the lost tax revenue from the general fund, local governments stand to lose more than $40 million a year by the time the repeal is complete in 2020.

But Alex LaBeau, IACI's top lobbyist, contends that figure isn't nearly as dramatic as it sounds, because the proposal limits taxing districts' annual losses to a maximum of just 3 percent of their personal property tax revenue in each year of the repeal.

Even counties like Caribou and Power in southeastern Idaho that depend on the personal property tax for about 40 percent of their income likely have the ability to absorb such a hit, LaBeau contends, without having to resort to shifting taxes to other classes of properties.

"Three percent - we're not talking a big number," he said. "It works very well. It's very artfully crafted."

Under Otter's proposal, urban renewal districts won't get any replacement money from the state.

The measure does allow those Idaho school districts that decide they need to make up lost cash the discretion to increase tax levies on residential and commercial property without requiring a vote of residents.

Other, non-school taxing districts can't automatically boost their tax levies to replace lost revenue.

They can, however, go to their local county commission to ask for approval to raise taxes via a special levy - a provision that would not only shift the tax burden, but which could put local county commissioners in the hot seat when such decisions are made.

Seth Grigg, an Idaho Association of Counties policy analyst in Boise, said he was reserving comment until today while the association reviews the details of Otter's plan.

Grigg's group has previously said its 44 member counties will have trouble stomaching any proposal that doesn't provide adequate replacement dollars, so as not to endanger important public services they often must provide by state law.

Otter's proposal does provide a safety valve, in the event of an economic downturn like the deep recession that began in December 2007 that might leave Idaho with too little state revenue to make the replacement payments. The Idaho House and Senate can pass resolutions to put a stop to the repeal, one year at a time, according to the proposal.