[Vision2020] report from Rep Tom Trail

Wed Mar 31 11:47:08 PDT 2010

Constituents:

This past week Bob Huntley and I held a press conference in Boise concerning the deteriorating conditions of funding

for K12 and Higher Education in Idaho.   Representation from the Idaho Education 'Association,  Idaho Labor Unions,

business interests, and the community attended.   I've decided to share the comments that I made at the press conference

in this newsletter.   Several weeks ago,  Rep. Dennis Lake,  Chairman of the House Rev and Tax Committee came to my

office and asked me for a copy of a tax proposal that Bob Huntley and I had developed several years ago.   Rep. Lake

said that he liked many components of the proposal.   He also stated that the major theme of the 2011 legislative session

will be tax reform.  I consider Rep. Lake's comments to strongly indicate what the major thrust will be of the next session.

I've also included a summary report of sales tax exemptions which are at the heart of an unequal and unfair part of the Idaho

Tax System.   Sen. Schroeder and I as well as several other legislators had legislative proposals to sunset and review

all of the 75 tax exemptions that we have on the books in this state.  Actually Washington State is far ahead of us with

more than 500 tax exemptions, but my favorite is their tax exemption on bull semen.

During the election cycle the word is that one should not talk about tax reform because it might damage your credibility

at the polls.   My take is that since it will obviously be the ISSUE for the coming session (beside jobs and economic

development) that now is the time to begin the debate.

Rep. Tom Trail

                                                IDAHO EDUCATION AT THE CROSSROADS

IDAHO PUBLIC AND HIGHER EDUCATION ARE AT A CROSS ROADS.    OUR EDUCATIONAL INFRASTRUCTURE HAS SUFFERED

FROM THE CUTBACKS OF THE PAST FEW YEARS, AND IT IS LIKELY SUFFER MORE IN THE COMING FEW YEARS UNLESS A

DRAMATIC  TURNAROUND OCCURS.     THE IDAHO CONSTITUTION CLEARLY OUTLINES THAT WE HAVE A CONSTITUTIONAL

OBLIGATION TO PROVIDE A THOROUGH AND UNIFORM EDUCATION FOR OUR CHILDREN.    THIS OBLIGATION CLEARLY

SIGNIFIES THAT WE NEED TO PROVIDE THE RESOURCES BOTH TO K12 STUDENTS BUT ALSO FOR STUDENTS IN HIGHER

EDUCATION.     THIS YEAR'S BUDGET FOR K12 IS DOWN ABOUT 7 PERCENT, AND HIGHER EDUCATION HAS SUFFERED

A 22 PERCENT LOSS DURING THE PAST TWO YEARS.

IDAHO ELECTED OFFICIALS ARE STRONG SUPPORTERS OF PUBLIC EDUCATION, AND I'VE HEARD THE GOVERNOR 

NOTE THAT WE MUST DO OUR BEST TO PREPARE IDAHO STUDENTS TO COMPETE IN THE WORLD ECONOMY.  BUT

WHEN WE HAVE SCHOOLS THAT HAVE GONE TO FOUR DAY SCHOOL DAYS,   INCREASES IN CLASS SIZE, AND A  DECLINE

IN SUPPORT FOR SCHOOL RESOURCES---THIS RAISES THE QUESTION OF WHETHER OR NOT WE ARE MEETING OUR

CONSTITUTIONAL OBLIGATION TO PROVIDE A THOROUGH AND UNIFORM EDUCATION FOR OUR K12 STUDENTS.

IN 1985  HIGHER EDUCATION RECEIVED ALMOST 17 PERCENT OF THE STATE BUDGET.    THIS HAS DECLINED TO ABOUT

8 PERCENT TODAY.     PRIORITY PROGRAMS HAVE BEEN ELIMINATED,  CLASS SIZES HAVE INCREASED.    TOP RESEARCHERS

AND TEACHERS ARE LEAVING FOR BETTER OPPORTUNITIES.     FEES FOR STUDENTS ARE INCREASING BY 10-12 PERCENT

PER YEAR,  AND THE AVERAGE FOUR YEAR GRADUATE LEAVES THEIR ALMA MATER WITH OVER $20,000 IN DEBT.    THE

UNIVERSITIES PREPARE OUR WORKFORCE TO MOVE OUR ECONOMY AHEAD, AND BUSINESSES  LOOKING TO LOCATE IN 

IDAHO PLACE A HIGH VALUE ON THE K12 AND HIGHER EDUCATION PROGRAMS IN THE STATE AND HOW THEY ARE

SUPPORTED.    WE NEED TO INVEST AND MAINTAIN

THAT INVESTMENT IN THE FUTURE.

CONSTITUTIONALLY WE HAVE TO BALANCE THE BUDGET.     OUR GOVERNOR  AND LEGISLATORS ALL SUPPORT

K12 AND HIGHER EDUCATION---NO ONE QUESTIONS THEIR COMMITMENT AND SETTING EDUCATION AS ONE OF

THE HIGHEST PRIORITIES IN THE STATE, BUT CURRENT TIMES AND CONDITIONS INDICATE THAT WE MUST

DO A GREAT DEAL MORE..

MR. HUNTLEY AND I ARE PROPOSING AN ALTERNATIVE TO THE GOVERNOR AND OTHERS THAT WE FEEL COULD

HELP US ADEQUATELY SUPPORT EDUCATION AND OTHER CRITICAL STATE SERVICES.    THE IDAHO ECONOMIC

RECOVERY ACT WOULD REDUCE THE 6% SALES TAX TO 5%.    THIS WOULD BENEFIT LOW INCOME FAMILIES

AND MAKE US MORE COMPETITIVE WITH OTHER STATES.   ADDITIONALLY WE PROPOSE THAT SERVICES BE

TAXED AT THE 5% LEVEL AND CERTAIN EXEMPTIONS ELIMINATED.    THE NET RETURN TO THE STATE AS

CALCULATED BY THE IDAHO STATE TAX COMMISSION WOULD BE APPROXIMATELY $190 MILLION WHICH COULD

BE USED FOR SUPPORTING OUR EDUCATIONAL INFRASTRUCTURE.     PRODUCTION/AGRICULTURAL EXEMPTIONS

WOULD NOT BE TOUCHED NOR WOULD THERE BE TAX ON HEALTH SERVICESL

WHY PROPOSE THIS NOW INSTEAD OF AT THE START OF THE NEXT SESSION?   WE FEEL THAT EDUCATION IS AT THE

CROSSROADS IN IDAHO AND THAT THIS PROPOSAL COULD HELP FILL IN THE GAP.    IN ADDITION WE WOULD HAVE

A FAIRER AND MORE EQUITABLE  TAX SYSTEM.

LEE IACOCCA SAID, "IN A COMPLETELY RATIONAL SOCIETY, THE BEST OF US WOULD ASPIRE TO BE TEACHERS AND THE

REST OF US WOULD HAVE TO SETTLE FOR SOMETHING LESS, BECAUSE PASSING CIVILIZATION FROM ONE TO THE

NEXT OUT TO BE THE HIGHEST HONOR AND HIGHEST RESPONSIBILITY ANYONE COULD HAVE."   OUR TEACHERS

PUT IN OVER 10 HOURS A DAY FOR FIVE DAYS A WEEK AND DEVOTE MORE TIME ON WEEKENDS.  IDAHO RANKS

41ST IN THE U.S. IN TEACHERS SALARIES AND 47TH IN EXPENDITURES PER STUDENT.

AGAIN,    WE ARE OFFERING AN ALTERNATIVE TO THE GOVERNOR AND LAW MAKERS OF THE STATE, AND WOULD

HOPE THAT THE PROPOSAL IS GIVEN ATTENTION.   AS ABRAHAM LINCOLN ONCE SAID,  IF YOU THINK EDUCATION

IS EXPENSIVE,  TRY IGNORANCE.

                                                                         SALES TAX EXEMPTIONS-THE SLEEPING GIANT IN IDAHO'S TAX SYSTEM

Idaho grants exemptions to the sales tax that are worth more than the taxes it collects.  Meanwhile Idaho can't pay for the schools

and services it wants.   This should be the issue for the 2011 Legislative Session and candidates should start talking about it

now.  Idaho has about 75 tax breaks, exceptions and exemptions that have been debated, it seems, since Idaho first passed

the sales tax in 1965.  Past legislatures have studied the issue, making only token changes.

In 2010-11 Idaho is expected to collect about $989 in sales taxes, while the exemptions are worth more than $1.7 billion.  It

is time for serious discussion in 2011.   Most of the state's vital services-including education, universities, Medicaid and prisons

have sustained cuts of historic magnitude.  Everyday Idahoans are feeling the pain and the effects will become even more

evident in the months to come.   The 2011 Legislature will be forced to budget without a net.  The state has drained its reserves

and used federal stimulus dollars to limit cuts.  This is beyond dispute.

Idaho would have a budget crisis under any circumstance: sales, personal and corporate income tax collections all dropped by

more than 10 percent in 2008-09.  But a narrow sales tax doesn't help.  Because the sales tax exempts many purchases

and services, it subject to the whims of the retail market.  Idaho's sales tax hinges on consumer confidence, which has fallen

during the Great Recession.  If the sales tax is applied more broadly, even at a lower rate, it would be a more resilient, reliable source

of funding.  Gov. Butch Otter and former Secretary of State, Pete Cenarrusa say it may be time to examine exemptions written

for an economy that has changed from a production to service oriented economy.  Even leaders in the Idaho business community

including Steven Ahrens, former lobbyist for the Idaho Association of Commerce and Industry sees sales tax change as part

of reforming the Idaho tax system.

We need to set up a system to review exemptions.    Exemptions are not a right, but a privilege granted by the State in the

belief that the exemption is for the greater good of the state.   All exemptions should be reviewed in a timely manner, and

those organizations who are granted the exemption should be able to justify and prove their specific exemption should be

continued.   It is a tough sell, for example, to repeal the exemption for medical services, Idaho's biggest tax break.  In the

Trail and Huntley tax proposal tax on medical services is left alone.

The production exemptions cover equipment and supplies used by manufacturers, farmers, loggers and other businesses.

These are politically popular breaks.  Supporters also have a good double taxation argument.  They say that it's unfair

to tax the goods used to create taxable products.  Again, under the Trail/Huntley proposal-production exemptions are

off the table.

Let's take a look at what makes up the $1.7 billion in Idaho tax exemptions.  These include $41,407,000 for prescriptions

and durable medical equipment, $148,000 for newspaper equipment and supplies, $10,954,000 for lottery tickets and pari-

mutual betting, $93,964,000 for production exemptions for equipment, $1,359,000 for funeral caskets, $396,929,000 for health

and medical services, $600,000 for ski lifts, $181,208,000 for professional services,  $200,000 for museums, $90,638,000 for

utility sales-exempts natural gas, water, and electricity, $38,263,000 for educational services, $480,000 for clean rooms

for semiconductor manufacturer, $101,430,000 for construction, $560,000 for precious metal bullion and coins, $71,131,000 for

production exemption for supplies, $151,141,000 for motor fuels-exempts gas from the sales tax, $84,217,000-information

services-local and long distance telephone and cable services, $118,421,000 for business services, $3,719,000 for school

lunches and senior meals, and $2,550,000 for alternative energy production.

A discussion of the tax breaks should be one the table, but more important is setting some parameters.  The sales tax

should be made more fair and brought in line with a modern service oriented economy.  We should reduce our reliance

on a retail based sales tax, and find a balance where Idaho can lower the overall sales tax rate for everyone.  It is our

hope that this will lead to a system that will lead to stronger support of Idaho's educational system and other critical

state priorites.  In the end we must begin building a tax structure for Idaho's future.

This is a long newsletter but a critical one in my opinion.   Please contact me at ttrail at moscow.com

Rep. Tom Trail
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