Amends existing law to allow fire protection districts to enter into certain agreements to transfer territory and to allow certain taxing districts to be exempt from certain budget limitations.

LEGISLATURE OF THE STATE OF IDAHO Sixty-eighth Legislature Second Regular Session - 2026 IN THE HOUSE OF REPRESENTATIVES HOUSE BILL NO. 765 BY WAYS AND MEANS COMMITTEE AN ACT1 RELATING TO TAXING DISTRICTS; AMENDING SECTION 31-1411, IDAHO CODE, TO RE-2 VISE PROVISIONS REGARDING THE DE-ANNEXATION AND ANNEXATION OF CERTAIN3 PROPERTY AND TO MAKE TECHNICAL CORRECTIONS; AMENDING SECTION 63-301A,4 IDAHO CODE, TO PROVIDE FOR CERTAIN DEDUCTIONS FROM THE NEW CONSTRUCTION5 ROLL; AMENDING SECTION 63-802, IDAHO CODE, TO REVISE PROVISIONS REGARD-6 ING CERTAIN BUDGET LIMITATIONS OF FIRE DISTRICTS AND LIBRARY DISTRICTS7 AND TO MAKE A TECHNICAL CORRECTION; AND DECLARING AN EMERGENCY AND PRO-8 VIDING RETROACTIVE APPLICATION.9

Be It Enacted by the Legislature of the State of Idaho:10

SECTION 1. That Section 31-1411, Idaho Code, be, and the same is hereby11 amended to read as follows:12 31-1411. ANNEXATION OF TERRITORY IN SAME COUNTY -- PETITION -- HEAR-13 ING -- ORDER -- CERTIFICATION TO COUNTY COMMISSIONERS -- ALTERNATE PROCEDURE14 -- ELECTION -- PETITION TO DE-ANNEX PROPERTY FROM EXISTING DISTRICT AND AN-15 NEX INTO ANOTHER DISTRICT. (1) After the organization of a fire protection16 district, additional contiguous or noncontiguous territory lying within the17 same county may be added thereto and shall thereupon and thenceforth be in-18 cluded in such district. Territory that is not contained in an existing fire19 district, and is not immediately adjoining the boundaries of the fire dis-20 trict into which annexation is sought, may be annexed into the district pro-21 vided the territory consists of not less than forty (40) contiguous acres.22 At least seventy-five percent (75%) or more of the owners or contract pur-23 chasers of the land sought to be annexed shall petition the fire protection24 board and request annexation of the territory particularly described in said25 the petition. Upon receipt of any such a petition to annex, the fire protec-26 tion board shall hold a hearing not less than ten (10) nor more than thirty27 (30) days thereafter, or, upon the written consent of the petitioner, within28 one hundred eighty (180) days, and said the board shall cause notice of such29 the hearing, designating the time and place, to be published in at least one30 (1) issue of a newspaper of general circulation within the district. Any31 person supporting or objecting to such the petition shall be heard at such32 the hearing, if in attendance, and at the close of such the hearing said,33 the board shall approve or reject said the petition. If the board approves34 said the petition, it shall make an order to that effect and certify a copy of35 said the order containing an accurate legal description of the annexed ter-36 ritory to the board of county commissioners of the county where said the fire37 district is situated. Said The board of county commissioners shall there-38 upon enter an order of annexation and cause the same to be recorded so as to39 include the annexed property on the tax rolls as provided in this chapter40 provided.41

2 (2) In the event that more than twenty-five percent (25%) of the owners1 or contract purchasers of the land sought to be annexed do not join in said2 the petition, and the board determines by resolution, entered on the min-3 utes of the board, that the annexation would be in the best interests of the4 district and that an election on the issue should be held, additional terri-5 tory may nevertheless be annexed by the affirmative vote of a majority of the6 qualified electors of such the additional territory voting on the question7 at an election held therefor, which vote may be taken at an election held as8 provided in section 31-1405, Idaho Code. The same procedure shall be adopted9 as provided in sections 31-1402 through 31-1406, Idaho Code.10 (3) Any area embraced within the limits of any fire protection district11 may be de-annexed by such fire protection district and annexed into another12 fire protection district:13 (a) If owners or contract purchasers of territory located within an14 existing fire protection district seek to petition to be annexed into15 another fire protection district, they must demonstrate that they are16 likely to receive an improved response to requests for services from17 the other fire protection district, and obtain written approval of the18 board of the fire protection district within which the territory is al-19 ready located. The written approval must be attached to their petition20 to annex. The procedure for the annexation petition shall be the same as21 otherwise provided in this section. Upon receipt of a petition to an-22 nex, the fire protection board shall hold a hearing no less than ten (10)23 nor more than thirty (30) days thereafter or, upon the written consent24 of the petitioner, within one hundred eighty (180) days, and the board25 shall cause notice of such hearing, designating the time and place, to26 be published in at least one (1) issue of a newspaper of general circu-27 lation within the district. Any person supporting or objecting to the28 petition shall be heard at the hearing, if in attendance, and at the29 close of the hearing, the board shall approve or reject the petition. If30 the board approves the petition, it shall make an order to that effect31 and certify a copy of the order containing an accurate legal descrip-32 tion of the annexed territory to the board of county commissioners of33 the county where the fire district is situated and to the state tax com-34 mission pursuant to section 63-215, Idaho Code. The board of county35 commissioners shall thereupon enter an order of annexation and cause36 the same to be recorded so as to include the annexed property on the tax37 rolls as provided in this chapter; or38 (b) With the consent of the governing boards of each fire protection39 district, expressed by ordinance or resolution of each district. If the40 boards approve any annexation and corresponding de-annexation of ter-41 ritory, the fire protection district annexing territory shall make an42 order to that effect and certify a copy of the order containing an accu-43 rate legal description of the annexed territory to the board of county44 commissioners of the county where the fire district is situated and to45 the state tax commission pursuant to section 63-215, Idaho Code. The46 board of county commissioners shall thereupon enter an order of annexa-47 tion and cause the same to be recorded so as to include the annexed prop-48 erty on the tax rolls as provided in this chapter.49

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SECTION 2. That Section 63-301A, Idaho Code, be, and the same is hereby1 amended to read as follows:2 63-301A. NEW CONSTRUCTION ROLL. (1) The county assessor shall prepare3 a new construction roll, which shall be in addition to the property roll,4 which new construction roll shall show:5 (a) The name of the taxpayer;6 (b) The description of the new construction, suitably detailed to meet7 the requirements of the individual county;8 (c) The amount of taxable market value added to the property on the cur-9 rent year's property roll that is directly the result of new construc-10 tion;11 (d) The amount of taxable market value added as provided in subsection12 (3)(f) of this section as a result of dissolution of any revenue alloca-13 tion area; and14 (e) The amount of taxable market value to be deducted to reflect the ad-15 justments required in this paragraph:16 (i) Any board of tax appeals or court-ordered value change, if17 property has a taxable value lower than that shown on any new con-18 struction roll in any one (1) of the immediate five (5) tax years19 preceding the current tax year;20 (ii) Any reduction in value resulting from correction of value im-21 properly included on any previous new construction roll as a re-22 sult of double or otherwise erroneous assessment;23 (iii) Any reduction in value resulting from the exemption provided24 in section 63-602W(4), Idaho Code, in any one (1) of the immediate25 five (5) tax years preceding the current tax year; and26 (iv) Any voluntary reduction in value reflecting a portion of27 certain homestead exemptions as provided in section 63-602G(10),28 Idaho Code.; and29 (v) Any reduction in value resulting from a fire protection dis-30 trict de-annexing territory pursuant to section 31-1411(3), Idaho31 Code, or library district de-annexing territory pursuant to sec-32 tion 33-2711A, Idaho Code. The full taxable market value for as-33 sessment purposes of such de-annexed territory, as certified by34 the county assessor, shall be deducted from the new construction35 roll for the de-annexing district in the year following the de-an-36 nexation.37 (2) As soon as possible, but in any event by no later than the first Mon-38 day in June, the new construction roll shall be certified to the county audi-39 tor and a listing showing the amount of value on the new construction roll in40 each taxing district or unit shall be forwarded to the state tax commission41 on or before the fourth Monday in July. Provided however, the value shown42 in subsection (3)(e) of this section shall be reported to the appropriate43 county auditor by the state tax commission by the third Monday in July and the44 value sent by the county auditor to each taxing district. The value estab-45 lished pursuant to subsection (3)(e) of this section is subject to correc-46 tion by the state tax commission until the first Monday in September, and any47 such corrections shall be sent to the appropriate county auditor, who shall48 notify any affected taxing districts.49

4 (3) Except as otherwise provided in this subsection, the value shown on1 the new construction roll shall include ninety percent (90%) of the taxable2 market value increase from:3 (a) Construction of any new structure that previously did not exist,4 once it is completed and taxable;5 (b) Additions or alterations to existing nonresidential structures;6 (c) Installation of new or used manufactured housing that did not pre-7 viously exist within the county;8 (d) Property newly taxable as a result of loss of the exemption provided9 by section 63-602W(3) or (4), Idaho Code;10 (e) The construction of any improvement or installation of any equip-11 ment used for or in conjunction with the generation of electricity and12 the addition of any improvement or equipment intended to be so used, ex-13 cept property that has a value allocated or apportioned pursuant to sec-14 tion 63-405, Idaho Code, or that is owned by a cooperative or municipal-15 ity as those terms are defined in section 61-332A, Idaho Code, or that16 is owned by a public utility as that term is defined in section 61-332A,17 Idaho Code, owning any other property that is allocated or apportioned.18 No replacement equipment or improvements may be included;19 (f) Provided such increases do not include increases already reported20 on the new construction roll as permitted in paragraphs (i) and (j) of21 this subsection, increases in value over the base value of property22 on the base assessment roll within an urban renewal revenue alloca-23 tion area that has been terminated pursuant to section 50-2914, Idaho24 Code, to the extent that this increment exceeds the incremental value25 as of December 31, 2006, or, for revenue allocation areas formed af-26 ter December 31, 2006, eighty percent (80%) of the increment value.27 Notwithstanding other provisions of this section, the new construction28 roll shall not include new construction located within an urban renewal29 district's revenue allocation area, except as provided in this para-30 graph or paragraph (k) of this subsection;31 (g) New construction, in any one (1) of the immediate five (5) tax years32 preceding the current tax year, allowable but never included on a new33 construction roll, provided however, that for such property the value34 on the new construction roll shall reflect the taxable value that would35 have been included on the new construction roll for the first year in36 which the property should have been included;37 (h) Formerly exempt improvements on state college-owned or state uni-38 versity-owned land for student dining, housing, or other education-re-39 lated purposes approved by the state board of education and board of40 regents of the university of Idaho as proper for the operation of such41 state college or university, provided such improvements were never in-42 cluded on any previous new construction roll;43 (i) Increases in base value when due to previously determined incre-44 ment value added to the base value as required in sections 50-2903 and45 50-2903A, Idaho Code, due to a modification of the urban renewal plan.46 In this case, the amount added to the new construction roll will equal47 eighty percent (80%) of the amount by which the increment value in the48 year immediately preceding the year in which the base value adjustment49 described in this subsection occurs exceeds the incremental value as of50

5 December 31, 2006, or, for revenue allocation areas formed after Decem-1 ber 31, 2006, the entire increment value; and2 (j) Increases in base value when due to previously determined incre-3 ment value added to the base value as a result of a de-annexation within4 a revenue allocation area as defined in section 50-2903, Idaho Code.5 In this case, the amount added to the new construction roll will equal6 eighty percent (80%) of the amount by which the increment value in the7 year immediately preceding the year in which the de-annexation de-8 scribed in this subsection occurs exceeds the incremental value as of9 December 31, 2006, or, for revenue allocation areas formed after Decem-10 ber 31, 2006, the entire increment value within the area subject to the11 de-annexation.12 (k) In the case of a fire protection district or ambulance service13 district that encompasses all or part of any urban renewal revenue14 allocation area that such district withdrew from pursuant to section15 50-2906(5), Idaho Code, eighty percent (80%) of the increment value may16 be included on the new construction roll for the year in which the dis-17 trict withdrew from such urban renewal revenue allocation area. Each18 year thereafter, ninety percent (90%) of the taxable value of otherwise19 qualifying new construction shall be included in the new construction20 roll for such fire protection district or ambulance service district,21 even if such new construction would not otherwise qualify because it was22 located within a revenue allocation area.23 (4) The amount of taxable market value of new construction shall be the24 change in net taxable market value that is attributable directly to the new25 construction or loss of the exemption provided by section 63-602W(3) or (4),26 Idaho Code. It shall not include any change in value of existing property27 that is due to external market forces such as general or localized inflation,28 except as provided in subsection (3)(f) of this section.29 (5) The amount of taxable market value of new construction shall not in-30 clude any new construction of property that has been granted a provisional31 property tax exemption, pursuant to section 63-1305C, Idaho Code. A prop-32 erty owner may apply to the board of county commissioners, if an application33 is required pursuant to section 63-602, Idaho Code, for an exemption from34 property tax at the time the initial building permits are applied for or at35 the time construction of the property has begun, whichever is earlier, or at36 any time thereafter.37 (6) The amount of taxable market value of new construction shall not in-38 clude any new construction of property for which an exemption from sales and39 use tax has been granted pursuant to section 63-3622VV, Idaho Code.40

SECTION 3. That Section 63-802, Idaho Code, be, and the same is hereby41 amended to read as follows:42 63-802. LIMITATION ON BUDGET REQUESTS -- LIMITATION ON TAX CHARGES --43 EXCEPTIONS. (1) Except as otherwise provided in this section, no taxing dis-44 trict shall certify a budget request for an amount of property tax revenues45 to finance an annual budget that exceeds the maximum sum permitted under this46 section:47 (a)(i) The highest dollar amount of property taxes certified for48 its annual budget for any one (1) of the three (3) tax years preced-49

6 ing the current tax year, which amount may be increased by a growth1 factor of not to exceed three percent (3%) plus the amount of rev-2 enue calculated as described in this subsection. The taxing dis-3 trict shall determine what portion of the three percent (3%) in-4 crease permitted under this subparagraph that it requires and then5 calculate a preliminary levy rate based on the percent chosen. In6 calculating the preliminary levy rate, the most current taxable7 market value shall be used, except that for taxable market values8 of centrally assessed operating property, the prior year's valua-9 tion may be used instead of the current year's taxable market val-10 ues. The preliminary levy rate shall be multiplied by the value11 shown on the new construction roll compiled pursuant to section12 63-301A, Idaho Code, and by ninety percent (90%) of the value of13 annexation during the previous calendar year, as certified by the14 state tax commission for taxable market values of operating prop-15 erty of public utilities and by the county assessor; except for a16 fire protection district annexing property prior to July 1, 2021,17 pursuant to section 31-1429, Idaho Code, the new levy rate shall be18 multiplied by one hundred percent (100%) of the value of any such19 property annexed prior to July 1, 2021.20 (ii) The total budget increase calculated under this paragraph21 must not exceed eight percent (8%), except that any increase in the22 amount of property tax revenue to finance an annual budget added as23 a result of the following shall not be subject to such limitation:24 1. The termination, de-annexation, plan modification of,25 or the withdrawal of certain taxing districts from, a rev-26 enue allocation area of an urban renewal district pursuant27 to section 63-301A(3)(f), (i), (j), or (k), Idaho Code, or28 section 50-2908(1)(g), Idaho Code, shall not be subject to29 such limitation;30 2. A fire protection district annexing territory pursuant31 to section 31-1411(3) or 31-1429, Idaho Code; or32 3. A library district annexing territory of another library33 district pursuant to section 33-2711A, Idaho Code.34 (iii) Following the first year in which a fire protection district35 has annexed city property pursuant to section 31-1429, Idaho Code,36 the city shall subtract an amount equal to the moneys spent on fire37 protection services during the last full year the city provided38 fire protection services to its residents from its budget limita-39 tion under this section.40 (b) If the taxing district has not imposed a levy for three (3) or more41 years, the highest dollar amount of property taxes certified for its an-42 nual budget for the purpose of paragraph (a)(i) of this subsection shall43 be the dollar amount of property taxes certified for its annual budget44 during the last year in which a levy was made.45 (c) The dollar amount of the actual budget request may be substituted46 for the amount in paragraph (a) of this subsection if the taxing dis-47 trict is newly created, except as may be provided in paragraph (i) of48 this subsection.49

7 (d) This section does not apply to school district levies imposed in1 section 33-802, Idaho Code.2 (e)(i) In the case of a nonschool district for which less than the3 maximum allowable increase in the dollar amount of property taxes4 is certified for annual budget purposes in any one (1) year, such a5 district may, in any following year, recover the forgone increase6 by certifying, in addition to any increase otherwise allowed, any7 or all of the increase originally forgone. Provided however, that8 prior to budgeting any forgone increase, the district must provide9 notice of its intent to do so, hold a public hearing that may be in10 conjunction with its annual budget hearing, and certify by resolu-11 tion the amount of forgone increase to be budgeted and the specific12 purpose for which the forgone increase is being budgeted. Upon13 adoption of the resolution, the clerk of the district shall file a14 copy of the resolution with the county clerk and the state tax com-15 mission. Said additional amount shall be included in future cal-16 culations for increases as allowed, except as provided in subpara-17 graph (iii) of this paragraph.18 (ii) If the forgone increase is budgeted for the purpose of main-19 tenance and operations, the rate of recovering the reserved for-20 gone moneys may increase the taxing district's budget by no more21 than one percent (1%) per year.22 (iii) If the forgone increase is budgeted for a capital project or23 projects, the rate of recovering the reserved forgone moneys may24 not exceed three percent (3%) of the taxing district's budget for25 the year in which the forgone increase is budgeted. Forgone moneys26 budgeted for a capital project must be deducted from the taxing27 district's forgone balance in the year in which it is budgeted.28 Upon completion of such a capital project, the taxing district29 shall certify such completion to the state tax commission and30 county clerk. If, upon certification, the state tax commission31 finds that the taxing district included forgone moneys for a capi-32 tal project in calculating the increase permitted under paragraph33 (a) of this subsection, the state tax commission shall direct the34 taxing district to reduce its property tax budget for any year35 in which the forgone moneys were used to calculate a budget in-36 crease, in an amount equal to the forgone moneys budgeted plus any37 increases attributed to the forgone moneys improperly included in38 the taxing district's property tax budget. For the purpose of this39 paragraph, a capital project includes:40 1. The construction, expansion, renovation, or replacement41 of public facilities, including the acquisition of land and42 other site improvements;43 2. The construction, expansion, or reconstruction of public44 works improvements, including roads, bridges, water sys-45 tems, sewer systems, and broadband systems; and46 3. The purchase of equipment with a useful life of ten (10)47 years or more.48 (f) If a taxing district elects to budget less than the maximum allow-49 able increase in the dollar amount of property taxes, the taxing dis-50

8 trict may reserve the right to recover all or any portion of that year's1 forgone increase in a subsequent year by adoption of a resolution spec-2 ifying the dollar amount of property taxes being reserved. Otherwise,3 that year's forgone increase may not be recovered under paragraph (e) of4 this subsection. The district must provide notice of its intent to do so5 and hold a public hearing that may be in conjunction with its annual bud-6 get hearing, if applicable. The resolution to reserve the right to re-7 cover the forgone increase for that year shall be adopted at the annual8 budget hearing of the taxing district if the district has a budget hear-9 ing requirement.10 (g) In the case of cities, if the immediately preceding year's levy sub-11 ject to the limitation provided by this section is less than 0.004, the12 city may increase its budget by an amount not to exceed the difference13 between 0.004 and the actual prior year's levy multiplied by the prior14 year's market value for assessment purposes. The additional amount15 must be approved by sixty percent (60%) of the voters voting on the ques-16 tion at an election called for that purpose and held on the date in May or17 November provided by law and may be included in the annual budget of the18 city for purposes of this section.19 (h) A taxing district may submit to the electors within the district20 the question of whether the budget from property tax revenues may be21 increased beyond the amount authorized in this section, but not beyond22 the levy authorized by statute. The additional amount must be approved23 by sixty-six and two-thirds percent (66 2/3%) or more of the voters24 voting on the question at an election called for that purpose and held25 on the May or November dates provided by section 34-106, Idaho Code.26 If approved by the required minimum sixty-six and two-thirds percent27 (66 2/3%) of the voters voting at the election, the new budget amount28 shall be the base budget for the purposes of this section.29 (i) When a nonschool district consolidates with another nonschool30 district or dissolves and a new district performing similar governmen-31 tal functions as the dissolved district forms with the same boundaries32 within three (3) years, the maximum amount of a budget of the district33 from property tax revenues shall not be greater than the sum of the34 amounts that would have been authorized by this section for the district35 itself or for the districts that were consolidated or dissolved and in-36 corporated into a new district.37 (j) This section does not apply to cooperative service agency levies38 imposed in sections 33-317 and 33-317A, Idaho Code.39 (k) The amount of money received in the twelve (12) months immediately40 preceding June 30 of the current tax year as a result of distributions of41 the tax provided in section 63-3502B(2), Idaho Code.42 (2) In the case of fire districts, during the year immediately follow-43 ing the election of a public utility or public utilities to consent to be pro-44 vided fire protection pursuant to section 31-1425, Idaho Code, the maximum45 amount of property tax revenues permitted in subsection (1) of this section46 may be increased by an amount equal to the current year's taxable value of the47 consenting public utility or public utilities multiplied by that portion of48 the prior year's levy subject to the limitation provided by subsection (1) of49 this section.50

9 (3) No board of county commissioners shall set a levy, nor shall the1 state tax commission approve a levy for annual budget purposes, which ex-2 ceeds the limitation imposed in subsection (1) of this section unless au-3 thority to exceed such limitation has been approved by a majority of the tax-4 ing district's electors voting on the question at an election called for that5 purpose and held pursuant to section 34-106, Idaho Code, provided however,6 that such voter approval shall be for a period of not to exceed two (2) years.7 (4) The amount of property tax revenues to finance an annual budget does8 not include revenues from nonproperty tax sources and does not include rev-9 enue from levies for the payment of judicially confirmed obligations pur-10 suant to sections 63-1315 and 63-1316, Idaho Code, and revenue from levies11 that are voter-approved for bonds, override levies or supplemental levies,12 plant facilities reserve fund levies, school emergency fund levies, or for13 levies applicable to newly annexed property or for levies applicable to new14 construction as evidenced by the value of property subject to the occupancy15 tax pursuant to section 63-317, Idaho Code, for the preceding tax year. The16 amount of property tax revenues to finance an annual budget does not include17 any property taxes that were collected and refunded on property that is ex-18 empt from taxation, pursuant to section 63-1305C, Idaho Code.19 (5) The amount of property tax revenues to finance an annual budget20 shall include moneys received as recovery of property tax for a revoked pro-21 visional property tax exemption under section 63-1305C, Idaho Code.22 (6) For tax year 2023, before calculating the amount required in sub-23 section (1)(a)(i) of this section, the board of county commissioners shall24 reduce the approved property tax levy portion of its budget for the immedi-25 ate prior three (3) years in an amount equal to the amount levied for indigent26 public defense. The reduced budget amount shall be the base budget for the27 purpose of subsection (1)(a)(i) of this section.28

SECTION 4. An emergency existing therefor, which emergency is hereby29 declared to exist, this act shall be in full force and effect on and after its30 passage and approval, and retroactively to January 1, 2026.31