Idaho Legislature’s property tax law has cities weighing growth, seeking budget answers

Nampa Mayor Debbie Kling slammed the Idaho House of Representatives and criticized the governor in a morning emergency meeting Friday over their roles in the passage of a rushed property tax bill that has received much criticism.

“I understand the difficult place the governor was in, but I am extremely disappointed that he signed this bill,” Kling said. “It was a bill that was fraught with things that were not the best. House Bill 389, it’s been clearly said, will not bring the property tax relief to our citizens that we need.”

The law, pushed through by Rep. Mike Moyle and Republicans in the final few days of the Idaho Legislature’s historically long session, also places new caps on local government budgets — an 8% limit on annual local government budget increases, an 80% cap on the tax revenue governments can take from annexation and a 90% cap on tax revenue from new construction.

Kling called a City Council meeting to discuss the new law’s ramifications on the city’s fiscal year 2022 budget, currently in the works. The council also discussed potential moves to address the limits.

“For high-growth cities these will be limiting factors,” said Doug Racine, director of finance for the city of Nampa. “If you have high growth, it is going to hurt.”

The new caps apply to every local government budget, but for Nampa, the law may add a burden.

“The timing is very, very bad for us,” Kling said.

Earlier this year, the city consolidated its fire department into the Nampa Rural Fire Protection District. The law has specific language around how a fire district annexation will affect a city’s budget. After the first year that a fire protection district has annexed a city, the city will subtract the amount of “moneys spent” on fire protection services during the last full year it provided them from its budget limitations.

It is unclear what “moneys spent” defines, but depending on the answers the city receives from the Idaho Tax Commission, it might need to make up millions spent on fire protection.

The law also leaves municipalities with another serious question: which levy rate to apply to new construction.

Steve Onofrei, senior system analyst for Canyon County, told the council that the county assessor does not finalize levy rates until August, while municipal budgets are finalized in July.

In the past, cities and counties used the previous year’s levy rates to apply to their budgets. However, Onofrei said the new law asks that cities apply the current year’s levy rate to current-year new construction. That is not possible with the timeline.

In preparation of the new caps, the Caldwell City Council was planning to vote Monday night on a moratorium on residential development within the city. According to the city’s agenda, the moratorium would be to “respond to the imminent peril to the safety and welfare of the citizens of the City of Caldwell ...”

The Nampa City Council did not make any major moves around limiting developments, though member Darl Bruner said the city should take a break on approving residential development.

“Where I stand, we need a pause,” he said. “That is on residential. It is not going to be perfect, but until I can get a better idea of what the cost of service and fiscal impact on the city is, on any new applications I will personally be paused.”

City staff will be working on fiscal impact studies on a case-by-case basis on annexations and new developments, Kling said. There were a number of annexation and multifamily development requests on the council’s Monday night agenda.

The Meridian City Council plans to discuss the impact of the new law in a work session Tuesday afternoon.

Gov. Brad Little signed the bill into law last week, but not before issuing a letter of approval that sounded more like a veto letter.

“I have always subscribed to the adage that our taxes need to be fair, simple, competitive, and predictable. When considered against these pillars of tax policy, House Bill 389 falls short,” Little wrote.