Debt, Taxes and Local Government

Every time a city council talks about a new fire station, a county weighs a jail expansion, or a school board decides whether to run a bond, the Idaho Constitution is in the room. Idaho's framers wrote some of the strictest public debt rules in the country, and the Idaho Supreme Court said so itself in 1912, saying Idaho's framers had "pronounced a more positive prohibition against excessive indebtedness than is to be found in any other constitution."

This lesson covers the money articles (VII, Finance and Revenue, and VIII, Public Indebtedness and Subsidies) and the local government articles (XII, Municipal Corporations, and XVIII, County Organization). It ends with a step-by-step test for whether a local project needs a public vote. Constitutional text is quoted from the official Idaho Constitution. This is civic education, not legal advice.

Article VII: how Idaho taxes

The basic tax power (Section 2)

Section 2 tells the Legislature to "provide such revenue as may be needful, by levying a tax by valuation, so that every person or corporation shall pay a tax in proportion to the value of his, her, or its property." It also allows a license tax on people and businesses and a per capita tax. The property tax is the tax the Constitution itself describes first.

Uniformity and exemptions (Sections 3, 4 and 5)

Section 3 says "property" will be "defined and classified by law." Section 4 exempts public property: that of the United States (unless Congress allows taxing it), the state, counties, cities, school districts, other municipal corporations and public libraries. Section 5 is the uniformity rule:

"All taxes shall be uniform upon the same class of subjects within the territorial limits, of the authority levying the tax, and shall be levied and collected under general laws, which shall prescribe such regulations as shall secure a just valuation for taxation of all property, real and personal: provided, that the legislature may allow such exemptions from taxation from time to time as shall seem necessary and just..."

Idaho Const. art. VII, sec. 5

Three practical points follow from that text.

• Uniform within a class. The Legislature sorts property into classes (Section 3), and taxes must be uniform within each class inside the taxing district's borders. A highway district's levy must apply the same way across that district.
• Exemptions are a legislative choice. The homeowner's exemption is the best-known example. Under Idaho Code 63-602G, the first $125,000 of a qualifying owner-occupied home's assessed market value, or 50 percent of it, whichever is less, is exempt.
• No double taxation. Section 5 also bans "duplicate taxation of property for the same purpose during the same year."

The Legislature cannot set your city's tax (Section 6)

Section 6 says the Legislature "shall not impose taxes for the purpose of any county, city, town, or other municipal corporation," but may give those governments "the power to assess and collect taxes for all purposes of such corporation." That is why local levies are set by local boards, within limits the Legislature writes into statute. The 3 percent annual cap on local property tax budget growth is one such statutory limit, covered in the three percent cap lesson.

Other Article VII rules worth knowing

• Section 9: the state property tax rate "for state purposes" may not exceed ten mills per dollar of assessed value unless voters approve a higher rate at a general election.
• Section 11: the Legislature may not authorize spending that exceeds the tax "then provided for by law" for the fiscal year, unless it also levies a tax to cover it. Idaho's balanced budget requirement starts here. War and insurrection are excepted.
• Section 15: counties must run "on a cash basis."
• Section 17: gasoline taxes and vehicle registration fees, after collection costs and refunds, "shall be used exclusively" for building, repairing, maintaining and policing public highways, and may not be diverted. When someone proposes using fuel tax money for something other than roads, this is the section to read.

Article VIII, Section 1: the state debt limit

Section 1 says the Legislature "shall not in any manner create any debt or debts, liability or liabilities" except in war, invasion or insurrection, unless:

1. a law authorizes it "for some single object or work, to be distinctly specified therein";
2. the law provides a way to pay interest and principal, "exclusive of loans," within twenty years; and
3. the law is submitted to the people "at a general election" and receives "a majority of all the votes cast for or against it."

The section then lists exceptions. It "shall not apply to liabilities incurred for ordinary operating expenses, nor shall it apply to debts or liabilities that are repaid by the end of the fiscal year." Debts of independent public bodies that cannot levy taxes or obligate the state general fund are not state debts. And the section does not make illegal "those types of financial transactions that were legal on or before November 3, 1998."

Section 2 adds that the state may not lend its credit to private parties or become a stockholder in a corporation. It also creates the public school guarantee fund, which lets the state guarantee school district bonds without counting that guarantee as state debt.

Article VIII, Section 3: the local debt limit

This is the section that governs most local bond elections in Idaho. Here is its core:

"No county, city, board of education, or school district, or other subdivision of the state, shall incur any indebtedness, or liability, in any manner, or for any purpose, exceeding in that year, the income and revenue provided for it for such year, without the assent of two-thirds of the qualified electors thereof voting at an election to be held for that purpose..."

Idaho Const. art. VIII, sec. 3

What the section requires

• Who it covers: counties, cities, school boards and districts, and any "other subdivision of the state," which includes special districts.
• What triggers it: any "indebtedness, or liability" beyond that year's income and revenue. "Liability" is broader than a bond. The court said in 1912 that it is "a much more sweeping and comprehensive term."
• The vote: two-thirds of those voting, at an election held for that purpose.
• Repayment plan: an annual tax must be provided to pay interest and build a sinking fund to retire the principal "within thirty years."
• The penalty: "Any indebtedness or liability incurred contrary to this provision shall be void."

The exceptions written into the text

Exception	What it covers	Vote needed
Ordinary and necessary expenses	"Ordinary and necessary expenses authorized by the general laws of the state"	None
City revenue bonds	Off-street parking, public recreation and air navigation facilities, paid only from user rates and charges	Two-thirds
Utility revenue bonds	Water systems, sewer systems, water and sewage treatment plants, and rehabilitating existing electric generating facilities, paid only from rates and charges	Simple majority
Port district revenue bonds	Port district powers, paid from non-property-tax revenue	None

Article VIII also has separate sections (3A through 3E and 5) for pollution control bonds, port facilities, public hospitals, municipal electric systems, airports and nonrecourse industrial development bonds. Read the specific section before assuming a project fits.

"Ordinary and necessary": what the courts say

Most local fights are about the first exception. A government that wants to avoid an election argues the expense is "ordinary and necessary." Opponents argue it is not.

Other cases that shape Section 3

• Feil v. City of Coeur d'Alene, 23 Idaho 32, 129 P. 643 (1912). The court described Idaho's clause as stricter than any other state's it had seen and distinguished "liability" from "indebtedness." Later courts still cite it.
• Asson v. City of Burley, 105 Idaho 432, 670 P.2d 839 (1983). Burley, Rupert, Heyburn, Idaho Falls and Bonners Ferry had signed 1976 agreements with the Washington Public Power Supply System to buy shares of two planned nuclear plants, without an election. When the projects were terminated, the cities remained on the hook for shares of about $2.25 billion in WPPSS bonds. The court held Section 3 applies no matter how the debt is repaid, rejected the "special fund" and "ordinary and necessary" arguments ("'ordinary' would not be one of them"), and declared the agreements void as to the cities.
• Greater Boise Auditorium District v. Frazier, Docket No. 43074 (Oct. 15, 2015). The auditorium district financed a convention center building through a lease with the city's urban renewal agency. The lease ran one year at a time, and the district could walk away by not renewing. The court held that because of its "genuine non-appropriation provisions," the lease did not create a liability beyond the current year's funds, and it satisfied Section 3.

Put those cases together and you have the modern rule. A multi-year commitment that binds the government to pay in future years needs a vote unless an exception applies. A truly year-to-year obligation the government can drop without penalty may not.

Judicial confirmation: asking a court first

Boise used a procedure that local governments still use often. Under the Judicial Confirmation Law, Idaho Code 7-1304, a governing body may petition the district court to determine whether a bond, obligation or related agreement is valid. Before filing, it must hold a public hearing and adopt a resolution or ordinance authorizing the petition. Anyone can file a written request to be notified by certified mail at least 14 days before such hearings, valid through December 31 of that year. Residents can appear in court and object, as happened in both Frazier cases. For a reporter or advocate, a notice of a judicial confirmation hearing is a signal that a government plans a large financial commitment without an election.

School districts, bonds and levies

School districts are named in Section 3, so school bonds need two-thirds. That is the supermajority behind the failed school bonds the court described in the ISEEO school funding case (see Lesson 7). Supplemental maintenance and operation levies are different: they are not debt, and under Idaho Code 33-802(3) a supplemental levy of a set amount for up to two years needs a simple majority. Under Idaho Code 34-106, these local elections generally may be held only on the third Tuesday in May or the Tuesday after the first Monday in November, apart from emergencies. The mechanics of school bonds and levies are covered in the levies and bonds lesson and in a separate school bond course now in the queue, so this lesson sticks to the constitutional rule.

No gifts of public credit

Article VIII, Section 4 and Article XII, Section 4 both bar local governments from lending their credit to, or becoming responsible for the debts of, private individuals, associations or corporations. Article XII, Section 4 also bars cities and counties from becoming stockholders in private companies. These clauses come up when a city is asked to guarantee a developer's loan or invest in a private venture. Article VIII, Section 5 allows narrow nonrecourse industrial development bonds that are paid only from the project and private sources, never from taxes.

Article XII: cities and their police power

Section 1 tells the Legislature to provide by "general laws" for incorporating, organizing and classifying cities. Section 2 is the local government's basic grant of power:

"Any county or incorporated city or town may make and enforce, within its limits, all such local police, sanitary and other regulations as are not in conflict with its charter or with the general laws."

Idaho Const. art. XII, sec. 2

"Police" here means the general power to protect public health, safety and welfare, not just law enforcement. It covers zoning, nuisance, animal control and much more. The limit is the last phrase: no conflict with "the general laws." In Envirosafe Services of Idaho, Inc. v. County of Owyhee, 112 Idaho 687, 735 P.2d 998 (1987), the Idaho Supreme Court held that a local rule can conflict with state law even without a direct contradiction, when the Legislature intended a state law to fully occupy a field. There, the state hazardous waste act preempted county regulation of hazardous waste.

Article XVIII: counties and county officers

Counties are creations of the state. Section 5 requires the Legislature to establish "a system of county governments which shall be uniform throughout the state." Section 11 says county officers "shall perform such duties as shall be prescribed by law."

Section 6 fixes the elected county offices. The Legislature must provide for electing county commissioners and, every four years, a sheriff, assessor, coroner and treasurer (who is also public administrator). The clerk of the district court is also ex officio auditor and recorder. Then comes a firm limit: "No other county offices shall be established." Section 6 also lets commissioners hire outside counsel when necessary and lets them set pay for deputies appointed by the other elected officers.

Section 10 sets a three-member board of county commissioners with staggered two and four year terms. Section 12 allows optional forms of county government, but only if county voters approve the change by majority, and they may revisit it no more often than every four years. For what commissioners can and cannot do day to day, see the county commissioner authority lesson.