Cities, counties could get ability to save for a rainy day

The state can save funds for a rainy day, but until now, other taxing entities such as cities and counties couldn’t. But that could change in the upcoming legislative session.

Sen. Jim Rice, R-Caldwell, chair of the Senate Local Government and Taxation Committee, is considering an idea that would let entities that are dependent on property tax put a certain percentage of their budget aside during good times to draw on during bad times. He has not specified the amount.

Rice specifically mentioned cities and counties, but it could hypothetically include other entities dependent on property tax, which range from cemetery districts and highway districts to libraries and mosquito abatement districts.

“It’s more of a prudent type of measure to try to address what happens from time to time, and do it at a time when we’re not in the middle of a problem with a down economy,” Rice said. “It’s not that I expect one any time soon, but they periodically happen and we can’t predict the future.”

How would it work?

Rice said he has discussed the notion with a couple of mayors and some lobbyists, whom he didn’t name, and is working on the concept with Rep. Joe Palmer, R-Meridian, who is running for mayor of Meridian.

“We aren’t at the point of a bill yet,” he said. “I consider it my job, as the chairman, to see what issues are out there.”

Currently, such entities – particularly cities – don’t have any way of running a rainy-day fund, Rice said. Taxing entities can put money aside for specific projects, but not for general operational expenses. Entities are also allowed to raise property tax collections by up to 3% a year, and if they choose not to do so, they can “bank” that increase and come back to it later, which is called a “forgone tax.”

But aside from the fact that imposing a forgone tax means raising property taxes on people during a recession, forgone balances weren’t sufficient during the last recession, Rice said.

“They still were cutting police and fire positions, or not filling them, in many cities,” he said. “The worst time to raise property taxes is during an economic downturn.”

In addition, with the economy in good shape recently, some entities have drawn upon their forgone tax balance to pay for projects.

How the state does it

In contrast, the state is allowed to create rainy-day funds, or stabilization funds, to have for emergencies or economic downturns. According to Fiscal Facts, a budget document put out by the Idaho Legislative Services Office, the state Budget Stabilization Fund was created in 1984. In 2008, it reached its highest pre-recession level of $140.6 million, but the state drew upon it in 2009, 2010 and 2011, which essentially exhausted it.

Since then, it was not only replenished but its ceiling was raised from the previous 5% of the total general fund collections from the previous year. According to David Fulkerson, deputy administrator/state financial officer of the governor’s Division of Financial Management, the balance of the Budget Stabilization Fund as of Aug. 31 was $373.2 million.

The Public Education Stabilization Fund was created in 2004 and reached a pre-recession high of $112 million in 2008, but was drawn down to $11.2 million by 2011, according to Fiscal Facts. As of Aug. 31, the balance of the public education stabilization fund was $62.2 million, Fulkerson said. In addition, in 2010 the Legislature created the Higher Education Stabilization Fund. As of Aug. 31, it had a balance of $11.3 million, he said.

Because education has such rainy-day funds dedicated to its use, school districts would likely not be covered by Rice’s proposal. In addition, some school funding comes from the state, Rice said.

“Any time we’re talking about school district funding, we need to talk about those separately,” he said.