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Revenue Sharing Legislation Introduced to Spark Discussion Among Cities Over the Interim

Posted By Justin Ruen, Monday, March 12, 2018

The House Revenue & Taxation Committee introduced a proposal last week that would make dramatic changes to the revenue sharing distribution formula for cities and counties, however, the sponsor has pledged that the bill will not advance this session. 

House Bill 664, sponsored by Rep. Jason Monks, R-Nampa, was introduced to spark discussion concerning the revenue sharing formula over the interim and AIC will create a work group to look at the issue and see if changes should be made.

There are currently two revenue sharing formulas for cities and counties.  The oldest dates to the early 1970s shortly after the State of Idaho passed the sales tax into law.  The Idaho Legislature repealed the property tax on business inventory that was in effect at that time, which levied taxes on cars in dealers’ lots, cans on grocery store shelves, and livestock owned by ranchers.  Starting a precedent that has been followed to this day, the Legislature dedicated a portion of state sales tax revenue to offset the revenue losses to local governments resulting from a property tax exemption.  The replacement amounts were based on the taxable business inventory that the city or county had at that time.  We call this formula the County Distribution, Business Inventory Replacement, or Base and Excess Distribution.

Fast forward to the late 1990s and there were concerns among rapidly growing cities that the Business Inventory Replacement formula was out of date and needed to be reexamined.  An interim committee looked at the issue in 1998 and reform legislation passed in 2000 that changed the Business Inventory Replacement formula.  Each city’s quarterly replacement revenue was capped at the fourth quarter 1999 amount and allowed to grow up to 5% (this amount was called the base), and excess revenue above this amount was directed into a new distribution allocated on a population basis (hence the name Base and Excess).

The other revenue sharing formula is called the State Distribution and dates to the mid-1980s.  In 1978, Idaho voters overwhelmingly passed the 1% Initiative, a statewide property tax limitation ballot measure modeled after Proposition 13 in California.  The initiative was so flawed that the Idaho Legislature couldn’t implement it, but what followed was several years of local government budget freezes in the late 1970s and early 1980s.  Local governments were also hit hard at this time by the loss of the federal Revenue Sharing program that allocated money to local governments with relatively few strings attached.  The Idaho Legislature understood the dire fiscal straits that cities and counties were in and came to the rescue by creating a new revenue sharing formula from state sales tax revenue.  The cities’ revenue was allocated based on population (50%) and market value (50%).

Recently there has been discussion among some cities that the base of the Business Inventory Replacement formula should be reallocated on a population basis, but there are also concerns about ensuring that such changes do not negatively impact cities that rely on those revenues for their operating budgets.

Rep. Monks has tried to balance those concerns with the distribution formula in House Bill 664, which would establish an average per capita dollar amount for city revenue sharing including both the County and State Distribution formulas, which is now $72.01 per capita.  Cities that receive more than the city per capita average would have their distributions frozen until they fell sufficiently to reach the average level.  Cities that are below the city per capita average would get the new revenue in future years to bring them up to that level. 

The cities that would be most impacted by the Monks proposal are:

(1)    Resort, recreation or lakeside cities that have high market values relative to their population: Dover, East Hope, Hayden Lake, Island Park, Ketchum, McCall, Sun Valley, and Warm River.

(2)    Cities that have a very high base under the County Distribution: Elk River, Kellogg, and Wallace.

(3)    Cities with a combination of (1) and (2): Stanley.

In the most extreme cases, cities could potentially have their revenue frozen for 20 or 30 years, although the Monks bill would ensure that they would continue receiving their “floor” amount for as long as it took for the city’s per capita amount to drop to the city average.  You can review the summary of the current per capita amounts for cities by clicking the link below this post. 

AIC has committed to form a work group to study the issue and determine if changes should be made to the revenue sharing formula.  We welcome any feedback you have on the current distribution formula or the proposal in House Bill 664; you can email Justin Ruen at and Jess Harrison at 


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