How Your County Gets And Spends Money, And What That Means For Idaho’s Personal Property Tax Debate

Molly Messick / StateImpact Idaho

The courthouse in Power County, one of the counties that relies most heavily on personal property tax revenue

One of the chief problems with eliminating or phasing out Idaho’s business personal property tax is that it deals a blow to local government. Taxes on real and personal property are a significant revenue source for counties. That same property tax base also supports schools, hospitals, libraries and other services through designated levies.

We’ve recently taken up some of the big questions about Idaho’s business personal property tax, like what it is, and who benefits and who loses if it goes away. Still, it’s hard to fully understand the potential county-level impacts of eliminating the tax without knowing a little bit about how county budgets work.

It’s more complicated than you might think. Counties’ hands are tied in ways that make eliminating Idaho’s business personal property tax a daunting proposition. The Idaho Association of Counties fears some counties will be vulnerable to lawsuits. To understand why, read on.

Where does county revenue come from?

County government is responsible for a lot of things, from local law enforcement and public defense to road and bridge maintenance to car registration and driver licensing. The money to perform these services comes from a handful of different sources. Nez Perce County Clerk Patty Weeks, who trains other county clerks on the ins and outs of county budgets, agreed to walk us through the main revenue sources, using her county’s $32 million budget as a case study.

• Property taxes generally are the biggest revenue source. In Nez Perce County, taxes on real and personal property are expected to bring in $12.15 million this year.
• Counties also get money from what Weeks terms “revenue sharing.” The state redistributes some sales tax revenue and money from liquor sales to county governments. There’s also federal highway money that some counties receive. In Nez Perce County, revenue from all of those sources totals $4.3 million.
• Fees are another big revenue source. Counties charge for things like car registration and waste disposal. They also collect district court fees and fines. In Nez Perce County, all of those fees amount to about $3.9 million.
• Most counties get some amount of grant money. In Nez Perce County, money from federal and state grants totals about $2 million.

That covers the major revenue categories, though it’s important to note that revenue amounts and sources do vary from county to county. Many counties have more federal land than Nez Perce County does, for example, and receive payments associated with that acreage.

In addition to all of that revenue, county budgets also include what Weeks calls “carry-over” money. Essentially, it’s a reserve fund. “The only way we’re able to afford a big expense is to save or to pass some sort of a bond,” Weeks explains. “You’re not going to pass a bond in this climate, so what counties have to do is save and roll that money over.”

Jo Bolen, a CPA who audits county budgets, says these fund balances are standard for counties. The carry-over doesn’t only include money that’s socked away for big expenses. It also covers day-in and day-out operations. That’s because there’s a gap between the start of a county’s fiscal year, in October, and the first distribution of property tax revenue, which happens in January.

“In order to not have to borrow, counties have to have a carry-over that will take them through when they get the first payment of their property taxes,” Bolen explains. In Nez Perce County, that carry-over totals $6.6 million, or more than 20 percent of the total budget.

How can county revenue be spent?

The revenue counties get doesn’t go into one big pot to be doled out however counties see fit. A lot of it comes with strings attached. The money from liquor sales, for example, is directed toward community college tuition.

There are also rules that govern how counties can levy property taxes and use the dollars those taxes generate. When Nez Perce County collects $12.15 million in taxes on real and personal property, it’s not bringing in one big sum. It’s bringing in a collection of smaller sums, all dedicated to specific purposes. That $12.15 million is composed of:

• $4.7 million for the county’s justice fund (which pays for county law enforcement, jails, public defense and prosecution, among other things)
• $4.1 million for the current expense fund (which typically covers counties’ general operations)
• $1.15 million for the roads fund

The remaining $2.2 million is dedicated to more than five additional funds.

A tricky thing about county budgeting is that tax dollars from one fund cannot be used for any other purpose. “Each fund stands alone,” Bolen explains. “Think of a fund as a business. When you put the revenue into that fund, it has to be spent for whatever that fund’s purpose is.”

How does this inform Idaho’s personal property tax debate?

Each of the funds listed above has its own levy limit, set in state code. In other words, the amount of property tax dollars counties are permitted to raise for any of those purposes is dictated by state statute. That has implications, if personal property becomes exempt and current levy limits remain in place.

Let’s use county justice funds as an example. According to the Idaho Association of Counties’ Seth Grigg, the justice levy — the one that generates funds for local law enforcement, prosecution and defense, among other things — is at or near its statutory limit in counties across the state.

If personal property becomes exempt, counties that rely heavily on personal property tax revenue and are near the justice fund levy limit will have no means to make up the money they’ve lost. Nor will they be able to shift money from other funds to address the shortfall.

That, Grigg says, could set counties up to be sued.

“Let’s say that a county is only able to generate $60,000 toward public defense,” he says. “There you have a specific instance where a county is not meeting its obligation to provide adequate public defense for those who do not have the means to provide it themselves.”  And there you have a liability.

Not all counties face that dire consequence. Many don’t rely heavily on personal property tax.  Moreover, state lawmakers could choose to raise or lift levy limits in the process of phasing out or eliminating the state’s tax on business personal property. That would allow counties to raise the money they need from the remaining property tax base — real estate.

The basic point, Grigg says, is that eliminating personal property from the tax base isn’t nearly as simple as it sounds.