The Boise and Lewiston school districts could lose out on a combined $5.3 million in revenue next year due to sweeping changes in Idaho’s property tax laws.
The losses would stem from an increased homeowner’s exemption passed by the Legislature this year in House Bill 389, a wide-ranging property tax bill. The change in the law could cut the Boise School District’s annual revenues by $4.8 million, and the Lewiston School District’s revenues by more than $496,000, assuming house prices stagnate at 2020 levels, the Idaho Tax Commission estimated.
Sliding revenues could mean cuts for either district, but it’s still unclear how either district plans to absorb a potential shortfall.
The Boise district’s impacted levy funds general maintenance and operations, which can include anything from teacher salaries to gymnasium repairs, and, like Boise, Lewiston groups affected funds into its bottom line, making it difficult to determine what could be on the chopping block during budget writing.
The Boise district did not respond to multiple voicemails requesting comment before publication.
Unique taxing authority
By and large, the new state law won’t affect school districts, tax commission property tax supervisor Alan Dornfest projected in a call with commission officials and EdNews on Monday. But little-known provisions in the Boise and Lewiston districts’ founding charter documents allow them to assess taxes in a different way than other districts.
That difference gives the two districts more latitude in assessing taxes. It also leaves them — and generally them alone, among Idaho school districts — vulnerable to a loss in revenue that will now be tax-exempt through the homeowner’s exemption.
Boise and Lewiston are allowed to charge a fixed percentage rate on some of the local property taxes they levy. Most other Idaho districts can’t do that, so they must rely solely on voter-approved supplemental and plant facilities levies and bonds, which tax until they amass a set funding goal.
And for most districts, tax rates are recalculated every year to hit a funding target on the nose. For example, if home values go down in a district one year, but the district has a $5 million supplemental levy on the books, taxpayers will pay a higher percentage of their property value in taxes the next year than they did before, ensuring the $5 million target is reached. Typical districts recalculate individual and business tax rates each year in order to hit a predetermined funding target, but for the set-rate levies Boise and Lewiston assess, that’s not the case. So when a new property tax exemption hits, Boise and Lewiston lose money, rather than shifting the tax burden onto other property taxpayers.
Consequently, the Boise and Lewiston districts will lose out on tax dollars they otherwise would have collected from some homeowners.
The increased homeowner’s exemption
The 2021 Legislature increased the homeowner’s exemption, so it now covers taxes on up to half of a home’s value, at a maximum of $125,000.
Here’s an example of how it works: A Boise district resident with a home valued at $250,000 will now get a $125,000 exemption, and pay taxes on the remaining $125,000 of home value. That cuts the amount of taxes owed to the school district. Under the old law, and the old exemption maxing out at $100,000, this homeowner would have owed the district taxes associated with the remaining $150,000 of the home’s value.
But property values in the Boise and Lewiston areas are soaring, so some homeowners could end up paying the same or even more in taxes to their local school districts than they did last year. Higher property values generally translate to higher taxes, under the districts’ levies.
Differently put, spikes in property values could effectively cancel out the tax reduction stemming from an increased homeowner’s exemption — at least to a degree.
“It’s like giving with one hand and taking away with the other,” Dornfest said.
A budget ‘conundrum’
The collision of a racing market and shifting tax policy has left the districts with murky bottom lines ahead of budget-writing this summer.
“That’s the conundrum for these two districts,” Dornfest said.
The Lewiston district is bracing for a “worst-case scenario,” Director of Business Services Leann Hubbard told EdNews by phone June 8. That scenario would involve $1.1 million in losses, according to Hubbard’s “maximum estimate.” As she budgets for next school year, she’s setting that $1.1 million aside in case the money doesn’t come through, she said.
Notably, that worst-case figure is more than twice the tax commission’s projection, which, like Hubbard’s calculation, didn’t factor in expected home value increases.
The Lewiston district won’t know “the real effects of the legislative change” until levy numbers are crunched, Hubbard said. She hopes the housing market “will mitigate a little bit of our loss,” but she’s still hedging against a revenue hit.
“I’m hopeful (that) between (rising values and the homeowner’s exemption change), it’ll be good for us and taxpayers both,” providing tax relief and keeping school funding stable, Hubbard said.
So while districts will almost certainly take in less revenue next year than they otherwise would have, the upshot is unclear.
If you’re “talking about loss relative to what the taxes for the school district would have been without this change, the answer is yes, they’re going to lose,” Dornfest said. “But if you’re saying ‘Would they lose (comparing) last year to this year?’ The answer is mostly, no.”
Why Boise and Lewiston are special cases
While most districts are expected to be untouched by the package of tax changes, the two districts will lose out on property tax dollars as a result of their “charter” status — an arcane piece of state school governance that grants those districts added options for taxing and spending.
Charters in name only, those districts don’t actually run any charter schools. Their special status is a holdover from their shared 19th century founding; they were established before Idaho gained statehood, with individual, unique charters, or governing documents.
A handful of cities and school districts operate under such charters, so they “have some home rule authority that the rest of the cities and districts don’t have,” Rep. Lance Clow, R-Twin Falls, explained earlier this month.
Boise’s charter allows it to levy some local property taxes without voter approval. Lewiston’s requires approval every five years, the district’s former director of business services Katharine McPherson said by email. The setup can create uncertainty in the districts’ budgets year over year, even when legislative changes don’t complicate the equation. With set tax rates, revenues balloon when the housing market does, and deflate when the opposite happens, assuming districts don’t adjust the tax rate in either case — which they have some latitude to do. But those levies tax properties at a fixed rate — unlike the bonds, supplemental levies and plant facilities levies that other Idaho districts rely on.
Among the few other “charter” districts in the state, most either don’t have a provision that allows them to levy taxes without voter approval, or at a set rate, or they don’t take advantage of it.