It’s time for a property tax freeze

By Mike Gearlds
Reader Contributor

For reasons best explained by them, Idaho legislators again failed to pass property tax relief or reform measures in the past session. They roused from their torpor just long enough to approve a 2% pay increase for state workers, even while 16% of the state’s 900,000-person workforce faced a COVID-19 pay decrease of 100%.

Yeah, lots of ideas were bandied about — stuff like replacing school district levies with a state sales tax increase or boosting the homeowner’s exemption. Some even made it to House and Senate votes, only to meet rejection. Those bills were doomed by lobbying and whining from cities, counties, school districts and other such taxing entities unwilling to give up some — or even any — revenue in a time of financial crisis for all of us.

Of these bills, arguably the most controversial and important was HB409, which proposed a statewide one-year freeze on local governments’ property tax budgets to give officials time to fix the current system, which most lawmakers say is broken, by an increasing overreliance on residential properties for dollars. Education levies would be exempt. The bill was sponsored by House Majority Leader Mike Moyle (R-Star).

A real property tax freeze would work like this: This year’s property tax statement would look exactly like the one you got in 2019. Same rates; same total bill. The freeze wouldn’t include new construction or sales of existing properties, so overall government revenue still would increase.

Homeowners and businesses alike would benefit from this relief, not to mention the certainty and continuity it provides. It would give the state government time to finally take property tax issues seriously and get something done after kicking the can down the road for more than 30 years. 

Why should a freeze be considered now? Because property values are about to take a flaming nosedive from the giddy heights of 2019. Remember what happened to home prices back in 2009 during the Great Recession? Properties that easily sold for $400,000-plus in 2008 were begging for offers in the $250K range. Some luxury condos in Coeur d’Alene were on the market for less than half their original asking price, and that was with a free car thrown into the bargain.

The recession of 2008-’10 was bad, but it will seem like a birthday party in the park compared to what we’re facing now. Idaho unemployment reached 9% in 2010: Compare that sad statistic to the 20% we have now, then layer on a fearsome pandemic, shuttered businesses, unprecedented government debt and a divisive election year, and you have a recipe for all kinds of financial mayhem

Property assessments are figured in arrears, so 2020 tax bills are based on estimated 2019 values. In Bonner County, median home prices rose by 9.5% from 2018-’19. That increase has likely evaporated already, gone the way of the dodo and the Edsel. Unless bold action is taken right now by officials, county Boards of Equalization will be overwhelmed by a veritable tsunami of property tax appeals from owners who see their homes valued at artificially high levels, based on 2019 economic good times that will not return for years.

And how will counties handle assessment appeal hearings this year? You can’t eat in a restaurant, and even outdoor festivals are canceled, so how can numerous hearings be safely conducted, with a lengthy parade of property owners ushered into a meeting room along with county officials and staff? 

Yes, assessors are mandated by state law to value properties at fair market value. For this, they employ “trending” factors based on broad market and local conditions. These trending factors often deviate from reality by a wide margin, and always in favor of higher numbers. In other words, assessors have wide leeway to determine what is “fair.” They typically pick the biggest trending numbers they think the public will tolerate.

As Yogi Berra once said, “In theory, theory and practice are the same, but in practice, they’re not.”

Think it can’t happen here? It already did. Back in the distant past of 2006, the Bonner County assessor jacked up property values by an average of 62% from the previous year — a number unsupported by the real world. The resulting taxpayer revolt made headlines and rocked county commissioners with more than 2,700 assessment appeals — a number of hearings they never could hope to conduct.

Frustrated commissioners finally threw up their hands and voided the 2006 assessments, rolling back valuations to 2005 and doing away with the need for appeals. The state got involved and eventually a compromise emerged, with most of the hated 2006 property valuations dialed down to more reasonable numbers. 

In 2020, we don’t have the time or assets for fun and games like this.

Property tax is an odd duck: If you stay in your home all year and don’t sell it, you’ll still end up paying increasing taxes on money you haven’t made, for something you haven’t sold. If you do sell your house and make money, those bucks are tax free, unlike capital gains. The poor bozo who bought your house for appreciably more than you paid for it is the one who ends up paying the higher taxes.

Yes, Idaho property taxes are low compared to most states, but we have all the other taxes that lots of states do without — income tax, state and local sales taxes — even a lucrative state monopoly on liquor sales. Our property taxes should be low, considering we pay taxes on pretty much everything else

A freeze would hardly cripple the ability of cities and counties to finance their operations. Contrary to what you might think, property taxes only amount to about 25% of a city’s or county’s revenue. A freeze to last year’s levels would impose a 1% or less loss of revenue, with new construction and sales factored in.

The belt-tightening and sacrifice expected of the general citizenry in pandemic times should be shared by state, county and city governments. It can’t all be on us property-owning schlubs. Bonner County commissioners have done a good job at controlling budget increases, but the essential problems of residential property taxation remain here and statewide.

Advocating for a property tax freeze might seem naïve, ignorant, simplistic, unrealistic — pick your adjective, but I have lots of company: In February, two-third of the Idaho House of Representatives approved the HB409 freeze by a 46-23 vote. The Senate, caving to special interest pressure, then voted it down 24-11.

The state could step in with a special legislative session and reconsider the property tax freeze they killed in March, even as the true scope of the present economic calamity unfolded — but don’t count on it. It’s probably up to Idaho counties to declare an emergency and get on with the dirty job of actually helping Idahoans.

Self-professed “conservative libertarian” Mike Gearlds is a retired engineer, reporter, columnist and journalism instructor. He has lived in Bonner County for 20 years.