Idaho's 3 Percent Cap, New Construction and Forgone Balances

Idaho Code 63-802 is the rule that decides how fast most local property tax budgets can grow. Every city, county and special district lives under it. Officials quote it at every budget hearing, and residents rarely get a straight explanation. Here is one, with the arithmetic.

Two limits come first. The cap applies to a district's regular property tax budget, the part the law calls non-exempt. And the cap does not apply to school district levies under Idaho Code 33-802, which run on their own rules (lesson 6). The Tax Commission's 2026 school training notes that for schools the 3 percent cap reaches only small funds like tort liability insurance, and that school districts cannot accrue forgone amounts.

The basic formula

A district's maximum non-exempt property tax budget is built from these parts:

1. Base: the highest dollar amount certified in any one of the three preceding tax years (63-802(1)(a)(i)).
2. Growth: up to 3 percent of that base. The district chooses how much.
3. New construction: the preliminary levy rate times the value on the new construction roll. Under 63-301A(3), that roll counts 90 percent of the taxable value added by new buildings and qualifying improvements.
4. Annexation: the preliminary levy rate times 90 percent of the value annexed during the previous calendar year.
5. Ceiling: growth, new construction and annexation together may not exceed 8 percent of the base. For fire protection and ambulance districts the ceiling is 15 percent.

The preliminary levy rate is the base plus the chosen growth, divided by the most current taxable value. (The statute lets districts use last year's value for utility operating property, and the Tax Commission's worksheet handles that detail.) Fire and ambulance districts use the previous year's levy rate instead.

Some increases sit outside the 8 percent ceiling, including value released when an urban renewal revenue allocation area ends and certain fire and library district annexations. Recovered forgone amounts also sit outside it, according to the Tax Commission.

Notice that the 3 percent is optional and is figured on the base, the highest of three years, rather than on last year's amount. And new construction grows the budget because new buildings bring new taxpayers who will share it. The 90 percent rule, added in 2021 by HB 389 according to the Tax Commission's own policy timeline, keeps some of that new value from becoming new budget.

Forgone balances

A district that certifies less than its maximum has a forgone amount. If Larkspur's council certifies $4,300,000 instead of $4,424,961.78, the forgone amount for 2026 is $124,961.78.

The rules, from 63-802(1)(e) and (f):

• Reserve it or lose it. To keep the right to recover a year's forgone amount, the district must give notice, hold a public hearing (it can be the budget hearing) and adopt a resolution naming the dollar amount reserved. Otherwise that year's forgone increase cannot be recovered.
• Recovery takes another hearing. To budget forgone money later, the district gives notice of its intent, holds a hearing and certifies by resolution the amount and "the specific purpose" it will be used for. The resolution goes to the county clerk and the Tax Commission.
• Operations: 1 percent a year. Forgone recovered for maintenance and operations can raise the budget by no more than 1 percent per year.
• Capital: up to 3 percent, once. Forgone used for a capital project (buildings, roads, water and sewer systems, broadband, equipment with a ten-year life) can be up to 3 percent of that year's budget. It comes off the forgone balance, and the district must certify when the project is finished.
• Fire and ambulance districts: the 2026 changes (HB 959, per the Tax Commission) stop these districts from reserving new forgone amounts after tax year 2025.

The Tax Commission's 2026 training says flatly that forgone amounts "never expire." A district can carry a balance for decades. That makes the forgone balance one of the best numbers to know about any district you follow.

What sits outside the cap

Idaho Code 63-802(4) leaves out of the limited budget: revenue from non-property sources, levies for judicially confirmed obligations, and voter-approved levies for bonds, overrides, supplementals, plant facilities and school emergencies. Levies on newly annexed property and certain new construction are handled through the formula above. So a tax bill can rise far more than 3 percent and still be legal, because voters approved a bond or levy.

When voters can lift the limit

Each type of district also has a maximum levy rate in its own statute. The Tax Commission's guidance is that the stricter of the budget limit and the levy rate limit applies.

One more trap: under 63-802A, a district that fails to tell the county clerk its budget hearing date by April 30 cannot include any increase allowed by 63-802(1)(a) that year, which covers the 3 percent plus new construction and annexation, and cannot recover forgone amounts.