LOS ANGELES -- Moody's Investors Service cautioned yesterday that a proposed tax limitation initiative in Idaho could substantially reduce some local governments' revenue and possibly prompt downgrades in the near term.

The initiative, which will appear on the statewide Nov. 3 ballot, calls for limiting the property tax levies of all cities, counties, school districts, and other taxing districts to an amount equal to 1% of the market value of taxable property.

The limitation "is an overall tax rate cap," Moody's said in a press release. This means the combined levies by taxing entities on a particular parcel of property cannot exceed 1% of its market value.

Moody's noted that Idaho's attorney general has raised numerous questions about ambiguities in the initiative some of which involve areas where the proposal conflicts with the state's system of property taxation.

However the ambiguities and inconsistencies are addressed, Moody's said, "it appears likely that the measure, if enacted, would reduce the financial flexibility of many local government and would result in significant cuts in government services for some."

The rating agency said cities and counties would incur the biggest revenue losses under the initiative, because property taxes typically account for over half of their operating revenues.

School district and special districts, which rely more on state aid and user fees, respectively "would also be affected, but no as severely," Moody's said.

"The passage of the initiative would probably not result in any immediate rating downgrades," the agency said, noting that it would evaluate the measure's effect on each local government beginning in fiscal 1994. The measure would first affect tax collections due Dec. 20, 1993, thereby giving local agencies time to study alternative revenue sources and make any necessary budget cuts, Moody's continued.

But "given the dramatic impact the tax limitation could have on some governments, particularly cities and counties, rating downgrades over the near term are possible," Moody's said.

The agency also noted that passage of the initiative would likely reduce the overall use of general obligation bonds to finance capital projects.

The initiative would require that GO bonds be approved by two-thirds of a local government's registered voters instead of the currently required two-thirds of people who actually vote.

Local Officials have said that the initiative's GO threshold would be virtually impossible to meet, and Idaho's attorney general and others have raised questions about the legality of the initiative's GO voting provision.

Moody's noted that the state does not levy a general property tax and would not be directly affected by the measure. It added, however, that the initiative "could pose long-term indirect financial pressures if the state is pressed to compensate localities for lost property taxes."

If the initiative passes, the Idaho Stated Tax Commission has estimated that property tax revenue losses could range from 5% to 45% for various taxing entities in the state.

Moody's maintains ratings on tax-support bonds and lease obligations of 39 school districts, 14 cities and counties, and four special districts in Idaho. That total excludes ratings on insured refunded, and credit-supported debt.

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