Otter vetoes grocery tax repeal, allows highway bill to become law

(UPDATED, 7:20 p.m., to reflect Otter vetoing the grocery tax.)

Gov. Butch Otter Tuesday vetoed a bill that would have repealed Idaho’s sales tax on groceries — just hours after allowing a $315 million transportation infrastructure bill to become law without his signature.

Education funding was a recurring theme, as Otter acted on two of the biggest pieces of legislation from the 2017 session. Otter pointed out that the grocery tax would take $80 million out of the general fund in 2018-19, and said the infrastructure bill would pit highway projects against K-12 funding.

“How to make up for that forgone revenue has not been expressed,” Otter wrote in a letter accompanying his grocery tax veto. “I doubt it has been much considered.”

The grocery tax repeal bill passed both legislative chambers late last month as part of a compromise on tax cuts. But lawmakers, pundits and taxpayers have been watching and waiting for Otter to act on the repeal since the Legislature left town on March 29.

Otter voiced his opposition to the repeal in a March 16 letter to Senate President Pro Tem Brent Hill, and referred back to that letter in his veto message Tuesday evening.

“Every Idaho citizen should know by now that I support tax relief,” Otter wrote. “In fact, I have approved about $1 billion in tax relief since I took office in 2007. However, the costs of this particular proposal are too high and the potential for imminent financial need too great for the small amount of tax relief it would provide.”

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Otter’s veto kills all tax relief for 2017, because the Legislature has adjourned for the year and there is no chance for lawmakers to override Otter’s veto. The grocery tax repeal initially surfaced as an attempt by the House to cut the state’s income tax rates. However senators later rewrote House Bill 67a so that it would instead repeal the state’s 6 percent sales tax on groceries, as well as the state’s grocery tax credit.

In its final form as a grocery tax repeal, House Bill 67a passed the Senate 25-10 and cleared the House 51-19.

Tuesday was Otter’s deadline to act on the infrastructure proposal, Senate Bill 1206, passed on March 28. Vetoing the bill would force citizens to face “imminent and ongoing risk” on the state’s highways, Otter said Tuesday. But Otter also objected to an unprecedented piece of the last-minute compromise bill — which would shift some $15 million of sales tax money into highway projects.

“I am troubled by the determination — particularly in the House of Representatives — that general fund revenue must now be an ingredient of any transportation revenue plan,” Otter said in a two-page letter explaining his decision. “I have said repeatedly and clearly that I oppose putting transportation in direct competition with education and our other constitutional and statutory commitments.”

The sales tax diversion is a relatively small piece of the overall infrastructure funding puzzle in SB 1206. The bulk of the money will come as the state sells up to $300 million in bonds against future federal highway payments.

But the sales tax diversion permanently carves off 1 percent of Idaho sales tax collections, now and into the future, and earmarks them for highway projects. The Idaho Transportation Department has long been financed through federal dollars, registration fees and gasoline taxes.

In his letter, Otter suggested supplementing registration fees and gasoline taxes with a fee based on vehicle miles traveled. But he also sounded resigned to a diversion from the sales tax.

“While I hope lawmakers will reconsider the provision carving out 1 percent of state sales tax revenue from our general fund, House leadership has expressed to me that such reconsideration is highly unlikely,” he wrote. “But that is a discussion for the interim and beyond.”

Otter has until midday Wednesday to act on the final pieces of legislation from the 2017 session.

One bill that remains on hold is a companion to SB 1206, which would allow the state to use some infrastructure dollars on sidewalks, crosswalks and pedestrian islands near school zones. Otter has not yet acted on House Bill 334, this safe routes to school bill, spokesman Jon Hanian said Tuesday.

Otter did sign one K-12-related bill Tuesday. He approved a spending bill earmarking $400,000 for a continued study of the state’s school funding formula. A legislative committee will continue studying the formula in the next few months, and could recommend changes to the 2018 Legislature.

Idaho Education News reporter Kevin Richert contributed to this report. 

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