Taking a bite out of local budgets

Local agencies are anticipating a chomp into their budgets, now that Gov. Butch Otter is urging the legislature to scrap Idaho's personal property tax this year.

Losing that revenue source means taxing districts would have to cut services, officials predict, or compensate with other taxes.

"Obviously, whatever we lose in taxes, we have to cut somewhere on the other end," said Skip Hissong, Post Falls city councilman.

Many companies are touting for Idaho to eliminate the personal property tax, levied against business' equipment and machinery.

Otter spotlighted tossing the tax in his state-of-the-state speech.

But local governments point to how the tax provides non-earmarked revenue to cities, counties, school districts and other taxing agencies.

Statewide, taxing districts receive $141 million in revenue from the tax.

Taxing districts across Kootenai County received roughly $10.2 million total from the tax in 2012, according to the Idaho State Tax Commission 2012 personal property tax analysis.

That includes revenue given to joint taxing districts that serve Kootenai and other counties.

The city of Post Falls would likely have to raise real property taxes if it lost the $500,000 it collected from the tax in 2012, Hissong said. That's up from $400,000 the year before.

"We are budgeted tight," Hissong said. "If we lose $400,000 that comes from the state with the personal property tax, then we have to make it up somewhere else, or cut services, neither of which I'm in favor of."

A repeal of the tax would cost the Coeur d'Alene School District over $750,000 a year, said district Finance Director Wendell Wardell.

He expected that would simply boost the district's budget shortfall to $3.5 million, he said.

"We have so few areas that we have revenue authority," he said of the district's inability to make up the loss.

Reducing any revenue for Lakes Highway District, which received $219,000 from the tax last year, would have "significant, long-term impact on our roads," stated Eric Shanley, director of highways.

Roads are more expensive to maintain, he explained, and the state hasn't adjusted user-based transportation fees in over 15 years, he said.

"This has ultimately forced local elected officials to continually increase property tax to offset increasing costs," Shanley stated.

The Business Side

According to the Idaho State Tax Commission website, any furniture, fixtures, equipment or machinery used in a business or to generate income is subject to assessment and property taxation.

Businesses have been fighting the personal property tax for years, said Steve Wilson, Coeur d'Alene Chamber president and CEO.

The chamber supports its elimination, he added.

"The concern is multi-fold," Wilson said.

The amount of man-hours businesses need to calculate what is owed for the tax often "amounts to more than the tax they end up paying," he pointed out.

The tax is also inequitable, he said, varying per county based on assessor and business owner interpretations of what personal property qualifies to be levied.

The chamber encourages phasing out the tax in stages, Wilson said. Like initially suspending the tax just for smaller businesses with personal property under $100,000.

"It wouldn't create a huge burden on most communities," he said.

Several local companies declined to comment on their perspectives on the tax.

When interviewed about the tax for a previous story, Ron Nilson, president and CEO of Ground Force Manufacturing, said most companies are hoping the tax disappears.

As many as 12 to 15 man-hours are spent collecting information for the tax at his company, he said.

Ground Force pays between $10,000 to $15,000 a year in personal property tax.

Coeur d'Alene City Council member Mike Kennedy agreed the city would take quite a hit, losing the $960,000 in revenue it received from the personal property tax last year.

But as a small business owner, Kennedy also recognizes the other side, he added.

He agreed it's a painstaking task for businesses to figure their personal property taxes.

"It's time. It's a question of, 'Do I have to count every pencil or do an estimated number?'" he said. "It's not efficient, and it's pretty burdensome."

How to Replace

Replacing the funds won't be simple, officials argue.

The Kootenai County commissioners haven't determined how they would make up the $2.2 million the county received in personal property tax revenue last year, said Commissioner Dan Green.

"The easiest option for counties is to shift from personal property tax to real property tax," Green said. "I'm not saying that's what Kootenai County would do, but many counties will be forced to do that."

He questioned the governor's suggestion of giving agencies more flexibility to raise sales or income taxes - particularly to use a local-option authority - to replace the funds.

Voters wouldn't approve a local-option tax, Green predicted.

"It's a tough sale," he said.

Hissong doesn't trust Gov. Otter's idea for the state to set aside $20 million, to make up funds for cities, counties and school districts.

"Where does that $20 million come from?" Hissong said. "Somewhere down that line, taxes either get raised to cover that, or we lose services."

The financial blow on taxing districts might be eased with a compromise, said Brett Boyer, city administrator for the city of Rathdrum.

Rathdrum has been coordinating with the Idaho Association of Cities, he said, about supporting the tax elimination for businesses under the $100,000 personal property benchmark.

"We look at that and say, that could be a reasonable approach," said Boyer, whose city received over $400,000 from the tax last year.

Legislature Plans to Address It

There could be ways to make the tax elimination work, said Rep. Vito Barbieri.

The state could provide the discussed $20 million as a temporary solution, Barbieri said, while sniffing out other ways to soften the impact on taxing districts.

"I certainly don't want to see a tax shift," the Dalton Gardens Republican said.

Maybe the state could reduce the number of services it mandates counties to provide, Barbieri said, so counties need less revenue.

"Kootenai County spends $300,000 paying for non-medical indigent bills," Barbieri said. "Maybe we don't need to require the county to pay for those kinds of things."

Rep. Kathleen Sims, R-Coeur d'Alene, is resolute on eliminating personal property tax.

Besides the bookkeeping headache the tax creates, she said, it's impossible for the state to monitor if every business is properly tracking its personal property.

"Something simpler has to be thought of," Sims said.

She advocates the removal of urban renewal districts, which she said would free up millions of dollars a year to replace personal property tax revenue.

"Let's take a look at how much everything we're doing is costing, and see where the savings could possibly be," Sims added.

Rep. Luke Malek said he wants to see the personal property tax chucked, but only if there is a sure-fire way to replace the revenue it provided.

"It's unfair to take it away without replacement revenue for municipalities," the Coeur d'Alene Republican said.

Maybe the local-option sales tax is the best option to replace the personal property tax funds, he added.

"I have not made a decision as to whether or not that would be the best way," he said.

Sen. John Goedde is unsure about dumping the tax.

While he appreciates the burden businesses face, losing $141 million in revenue "is a huge hit to cities and counties and highway districts and so on," Goedde said.

The local sales option is simply a tax shift, he added.

"Plus it will be incumbent on voters to accept whatever that might be," Goedde said. "I'm not going to support the abolition of personal property tax until I see a viable way to maintain funding essential services at a local level."

Sims assured the legislature is taking the issue seriously.

"I'm not just one person looking at it. There are 70 in the House I know of," Sims said. "We know it will be addressed this year."