Idaho tax initiative may threaten localities, could harm ratings, Standard and Poor's says.

LOS ANGELES - A proposal to limit property taxes in Idaho may harm some local governments' credit quality and reduce their ability to issue debt, according to a Standard & Poor's Corp. report scheduled for release today.

The so-called One Percent Initiative, favored by 60% of respondents in a recent poll, will appear on the statewide ballot Nov. 3. If passed, all Idaho property taxes would be limited to 1% of market value effective Jan. 1, 1993.

The tax measure would strain local governments' revenue-raising ability and lead to immediate reductions in services as local governments scramble to find alternative revenues," according to Standard & Poor's. The agency noted that most of the state's localities rely on property taxes for more than 50% of operating revenues.

Standard & Poor's is concerned that the measure does not provide any viable revenue-raising alternatives for local governments, which could lead to a major restructuring of government and reduction of services.

Also, the measure would require that GO bonds receive two-thirds approval of all qualified voters, whereas the state constitution sets a threshold of two-thirds of all citizens actually voting.

The rating agency cited a report from the state attorney general, which says the measure "jeopardizes the contract rights of bondholders who have purchased tax increment bonds under Idaho's Economic Development Act ... It would introduce such a note of uncertainty as to threaten the ability of local governments to issue bonds at reasonable interest rates. "

Standard & Poor's predicted that the measure's passage could trigger significant litigation or new legislation before its implementation. The rating agency said it would examine the "immediate and long-term credit implications on a case-by-case basis."

Earlier this month, Moody's Investors Service in a report said the tax limit could cause localities to suffer prompt downgrades.

Moody's said cities and counties would incur the biggest revenue losses under the initiative. Schools, which get some state funding, and special districts, which rely on user fees, would not suffer as severely, the agency said.

Moody's noted that the state does not levy a general property tax and would not be directly affected by the measure, if passed. However, the state may be asked to cover local governments' property tax shortfalls, Moody's said. The Idaho State Tax Commission has estimated that property tax revenue losses could range from 5% to 45% for various entities.

Idaho's per capita property tax rate matches the national average and is the second lowest in the 11 western states. Based on 1990 assessed values, residents paid an average of $415 per year in property taxes; only New Mexico was lower, according to Standard & Poor's.

Supporters of the grass-roots measure say it will control government spending and put the ability to raise revenues in the hands of voters. Opponents, including public officials, municipal unions, colleges, and the Idaho Association of Commerce and Industry, consider it an inequitable measure.

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