Staff warns statutory sales tax distributions reduce share available to state general fund; committee hears options

Legislative budget staff told the Joint Finance-Appropriations Committee that statutory sales tax distributions and recent earmarks have reduced the portion of gross sales tax collections that flows into the state general fund and cautioned that the change lowers the legislature’s flexibility in a future downturn.

Division Manager Keith Bybee led a walkthrough of the sales tax distribution table in the legislative budget book (pages 32–34). He showed that while gross sales tax collections have grown — from about $3.1 billion in 2024 to a projected $3.37 billion in 2025 and $3.5 billion in 2026 — statutory distributions and transfers reduce the percentage of those collections reaching the general fund. Staff presented that the general fund’s share of sales tax collections has fallen from roughly 85–86% before the Great Recession to about 65% in the FY2025 projection after recent statutory earmarks and the creation of a tax relief fund.

Key elements explained: - The sales tax distribution formula (statute cited in the presentation as Idaho code 63‑36) requires statutory transfers and revenue sharing to local governments (11.5% of net collections) and other earmarks such as funds for the school modernization program and the tax relief fund (collection of online retail sales taxes routed to that new fund). Those statutory allocations substantially reduce net amounts available to the general fund. - The tax relief fund is projected to contribute a large and growing amount to the formula; staff noted that it reroutes online retail sales tax revenues and then distributes a portion to public schools facilities, a public defense fund and the general fund per the statutory formula. - The presentation addressed the Techum allocation: currently the statutory formula sets a percentage (shown to staff as 4.5% of net collections) and earmarks $80 million for bonding; the governor’s proposal discussed in committee would direct additional dollars (an approximate $50 million figure was discussed) toward Techum‑eligible road projects and bonding. Staff said specifics were not yet set in bill language and that whether the governor’s proposal would come from the existing percentage or be an additional carve‑out will determine the fiscal tradeoffs.

Committee members asked how these statutory allocations affect the legislature’s flexibility. Bybee and other members observed that during a downturn declines in income tax (which is more volatile) would reduce revenue but many sales tax dollars are already earmarked, leaving less discretionary general fund revenue to absorb cuts. One committee member noted that, with statutory allocations growing, the state’s budget stabilization reserves may need to bear more of the adjustment burden in a recession and that the committee should be mindful of choices made in good years that affect the next downturn.

Representative Petzke asked why the Techum allocation is percentage‑based rather than a fixed dollar amount; staff replied that earlier iterations of the law set a percentage that produced the then‑projected amount and later added a fixed bonding guarantee (the $80 million floor), and that proposals to add dollars could be handled either by raising the percentage or by specifying an additional dollar amount in statute. Representative Handy and others noted that local governments can receive spillover distributions above the guaranteed Techum bond amount under the current statutory language.

Provenance and next steps: Bybee said he would correct a chart error in the legislative budget book and distribute updated files to committee members. Staff will continue to track proposals that affect statutory distributions and present impacts as bills are filed and debated.