Forgone tax's fickle future

As lawmakers gear up for the 2021 session, Kootenai County officials are considering how changes to taxing authority might disrupt the ability to serve the community.

By statute, counties and municipalities are annually allotted a maximum increase of 3% on top of the prior year's tax levy. Every year that a portion of the 3% is not taken, the difference is added to a theoretical forgone balance.

From that balance, a percentage can be subtracted as a last resort to increase taxes on residents and subsidize county operations.

With the 2020-21 budget increase, the current forgone taxing balance for the county is $10.6 million.

However, the county is not the only taxing authority for Kootenai residents. School districts, fire departments, and cities also vote on their cut of the crop. Another large contributor to rising taxes is property values.

"Even if every single taxing authority took 0% in Idaho because we're growing, taxes would continue to grow," said county finance director Dena Darrow. "It's the property value and growth pattern that drives the taxes more than us."

Still, taxes could be much higher if the county had taken the 3% increase consistently.

"Every single year for five years, we didn't take $9 million of tax that we could have taken," Darrow said. "So we saved the taxpayers $45 to $50 million of taxes by not taking forgone."

However, the ability to siphon off forgone and the entire property tax system could dry out, Commissioner Chris Fillios said. A group of lawmakers has drafted three pieces of legislation that would restructure Idaho taxing authority.

District 4 Rep. Jim Addis co-chaired the committee, which evaluated property taxes and local government spending. One of the proposals the panel endorsed restricts local governments — like Kootenai County, among other taxing authorities like cities, schools, and hospital districts — from building up budget reserves like the general fund.

Another, developed by Sen. Jim Rice, R-Caldwell, caps property tax budget increases at 4%, including the 3% allotted currently and 1% new growth, which Addis says ties closer to the Consumer Price Index growth and cost-of-living-adjustments.

"If budgets grow faster than the Consumer Price Index, there is the possibility that someone could be priced out of their home," Addis said. "We should limit budget growth to what our citizens are limited to. Those on Social Security were one of the big reasons the legislation was considered."

Unfortunately for places like Kootenai County, which is growing, limiting the ability to tax new growth could have negative consequences.

"If we can't tax to keep up with new growth, we can't have new growth," Darrow said. "If they cap it at 3% or new growth, we're going to be pinched because we're not able to keep up with service demand."

To Darrow, the forgone legislation would essentially limit entities to taking the lump sum once, and then it will be gone forever. Darrow said for Kootenai County, that means large projects and equipment replacements could be delayed.

'It's a slippery slope," Darrow said."By taking it away from counties and organizations, we'd never be able to get caught up."

Addis doesn't want to get rid of forgone, but he believes there should be a better balance established.

"This is a concerted effort by a lot of very good people to try and improve the root of the taxing issue and provide real relief," Addis said.