House Bill 389 — a bump in the property tax road

Editor's note: The Press is publishing a series of articles on issues related to rampant growth, including its impact on taxes. This is one of those stories.

Changes in Idaho regulations have many taxing districts out of their comfort zone while developing the fiscal year 2021-22 budgets that will influence next year's levy rate, Kootenai County officials say. 

The terms "levy rate," "property taxes," and "assessed value" conjures up feelings of confusion and annoyance for many property owners this time of year — particularly after assessment notices shocked residents recently. 

The county collects property taxes to provide services and support local taxing districts like cities and schools. After the taxed amount is defined and mailed each November, property owners pay their bill through two installments — once in December, the other in June. 

A taxing entity develops a levy rate applied to an individual property's net taxable value to calculate each Kootenai County parcel bill. To paint a clearer picture that makes sense of this jargon, here is the formula from the county's website:

Property tax levy ÷ assessed valuation of all property in each individual taxing district = levy rate.

In the fiscal year 2020, Kootenai County commissioners approved a levy rate of .002488493, equating to $248.84 per $100,000 of property valuation after exemptions.

The levy rate impact was an approximate 9.3% reduction from the year prior, according to the Kootenai County website. 

"There are over 60 taxing districts in Kootenai County alone," Kootenai County Tax Accounting Specialist Jeanette Bradley said. "There are highway districts, fire districts, cities, sewer, water, and many more that are layered on top of each other."

Each year, the districts develop their annual budgets based on projected expenses and revenues allowed by Idaho statute. The final amount is used to establish individual levy rates that influence county property taxes.  

"Taxpayers live within different taxing districts. (The levy rate) will differ by the taxing districts attached to their boundaries," Bradley said. "Levy rates are independent by taxing districts." 

It's not uncommon, Bradley said, for one home to be lumped with multiple districts like a school, highway, city, and the Community Library Network. Taxpayers can see their "Taxed Assessment Values" on the Kootenai County website for individual rate influencers. 

Most taxing entities are well into the process of setting their fiscal year 2021-22 budgets, Bradley said, with a drop-dead date of Sept. 9. 

However, this year there's a bump in the road — House Bill 389. 

"(House Bill 389) is the biggest change we have seen to the system that has been in place for about 25 years," Idaho State Tax Commission Bureau Chief Alan Dornfest told The Press. "There have been small changes in the past, but nothing like this." 

HB 389 has thrown taxing entities into "almost a tornado," Bradley said, as it established limitations on new construction revenue, a higher homeowner's exemption, and a calculation of a preliminary budget levy rate. The most notable provision, Bradley and Dornfest agreed, is the use of "preliminary" levy rates defined before many districts have finalized individual budget amounts.

"Taxing districts were able to use levy rates multiplied by new construction and add that amount to their budget if they so choose," Dornfest said. "The rate they used to use was from the prior year, so they knew the quantity. Now, the rate to calculate that amount is still not known as we sit here today."

Provisions in House Bill 389 aim to lower the amount taxpayers pay to entities by creating new qualifications and caps on how much revenue can be captured from new growth, Bradley said. 

"It has everyone pretty stressed as these agencies are trying to figure out how to bring money for equipment needed as they grow," she said. "Look at the highway districts. They need to build roads, but they are told they have less money to build, plow and maintain those roadways."

Since the Legislature approved the bill in May, Bradley and Dornfest said the commission and state officials are working on new forms to help the taxing entities. Typically, the state department has documents prepared in advance, Dornfest said, but the rule's sweeping changes — which were made retroactive to January 1 — have forced a change in direction.

Dornfest understands the concerns from taxing entities but is optimistic that the overall impact will be manageable. 

"If you had a big budgetary process due in September for your household, you would want to do some planning of what you can and can't do. I understand that," Dornfest said.

"As far as calculations, this doesn't change the end number that much, in my opinion," he continued. "The system they put into place with House Bill 389 is a system to determine the maximum anyone can take. It doesn't force them to take that number. It's like having a 20-gallon gas tank but filling it with only 10."