The Idaho State Tax Commission recently released a comprehensive series of tables that show the fiscal impact to local governments of repealing the personal property tax—which amounted to some $140.9 million in 2012. Lawmakers will grapple with these numbers in the upcoming legislative session as they consider repealing this unpopular tax. As media reports on the numbers have pointed out, repealing Idaho’s personal property tax will remove significant portions of local revenue from counties, cities, school districts and many smaller taxing districts across the state.
The Tax Commission data [pdf] represents the latest 2012 figures, but a team at Boise State University has been looking at the 2011 personal property tax figures for some time. A draft white paper prepared by David Eberle and Christopher S. Blanchard at the Environmental Finance Center at Boise State and graduate assistant April Hoy, presents analysis of four policy options to replace the lost revenues to local governments.
You can view or download the draft white paper, “Repealing the Personal Property Tax in Idaho: Analyzing the Policy Prescriptions” here. Eberle, director of the EFC, also sits on the Boise City Council.
Legislators and industry groups have already proposed a number of potential policy changes to aid local governments, should they lose personal property tax revenue. They are: 1) recommend cities take their statutorily authorized 3 percent increase; 2) raise “mil” levy rates; 3) “backfill” with state dollars; and 4) spread out the repeal over time.
According to the Boise State white paper, if cities took advantage of the full 3 percent increase in their budgets that they are allowed each year, 63 percent of them would still not make up the difference from the loss of personal property tax revenue.
Idaho cities could also raise property tax rates to the full 0.9 percent levy rate (percentage of total assessed property value within the city), which is the maximum allowed rate for Idaho cites. (Mil rates for taxing districts are governed by 190 different sections of Idaho code.) While raising taxes, which is also unpopular, could cover the loss of the personal property tax in most cities, five Idaho cities, including Caldwell, Wilder and Glenns Ferry, are so close to the cap already that they would not be able to make up the difference, according to the white paper. Nampa would also bump up against the 3 percent cap and is already perilously close to it’s .09 percent levy rate as well.
For more detail on arguments for and against repealing personal property taxes in Idaho, see:
The Boise State researchers agree with the Idaho Association of Industry and Commerce, the main business lobby pushing for repeal, that personal property tax is difficult to collect, difficult to administer and has been declining or unstable. But the white paper questions IACI’s assumption that repeal would stimulate the economy enough to make up nearly half of the lost revenue with increased spending and hiring.
That figure, that 49 perent of current personal property tax revenue would be “offset by the added growth of private sector income and spending, and the resulting increases in personal and corporate income taxes, sales taxes, and excise taxes,” comes from the Entin Report, a 2007 studied that IACI commissioned from economist Stephen J. Entin of the Institute for Research on the Economics of Taxation. The report has been presented to the Idaho Legislature several times.
The Boise State white paper questions the assumptions of the Entin report, without going into significant detail.