Montana Property Tax Initiative Creates Many Unanswered Questions, Tax Analysts Say | 406 Politics
A proposed constitutional amendment aimed at curbing residential property tax increases received a chilling reception from lawmakers last week, who opted Friday to postpone a vote on the complex proposal as a related court battle unfolds.
Volunteers began collecting signatures earlier this month in hopes of putting the constitutional initiative on the ballot in November. A court hearing is scheduled for next week in a case that will determine whether the petition effort went through the proper legal channels, or whether petition campaign organizers may have to start over. A hearing in the case is scheduled to take place in Lewis and Clark County District Court on January 24.
Lawmakers from both parties on the Revenue Interim Committee met skeptically with supporters of the measure on Thursday, after a parade of lobbyists representing Montana local governments, public employees and major business groups all expressed concern. against the proposal. It would likely amount to a massive tax shift, they argued, placing a greater burden on businesses and other nonresidential property owners, draining local government funds for public services and miring the legislature in an unworkable revenue situation for coming years.
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The consequences of the proposed constitutional amendment would present a “Herculean effort” for future lawmakers, said Tim Burton, executive director of the Montana League of Cities and Towns.
“If this were to pass, there would be 90 days in the next legislative session where you would have to understand and piece together the cause and effect of this huge tax policy change in Montana,” he said, “and I don’t think 90 days is enough to consider all the unintended consequences.
Half a dozen supporters of the initiative, including two of its organizers, told the committee it was a necessary step to curb tax liabilities that have exploded for some longtime homeowners in the state. . Due to the Legislative Assembly’s relative silence on the issue, they argued, they were forced to take matters into their own hands.
Helena resident Richard Thieltges said his home, purchased in 1989 for $105,000, was reappraised this year to a value of $347,000. As a retiree living on a modest Social Security income, he said his new tax burden was about to push him out of his home.
“I have a small savings and this increase in my property taxes has to come from my savings,” Thieltges told the committee Thursday. “When my savings inevitably run out, I don’t know what will happen. I could very well become homeless.
The proposed initiative seeks to change residential property taxes in two ways. First, it proposes capping the amount that residential property assessments can increase over time. Starting in 2025, assessments would revert to their 2019 market value, which would establish a baseline, and the cap would limit any jump in these assessments to 2% or the rate of inflation, whichever is lower. Assessments currently take place every two years, but the initiative would allow the legislature to change that to an annual reassessment schedule.
Excluded from the shift from 2025 to 2019 values are properties that have been built, undergone significant improvements or changed ownership since January 1, 2019. But their valuations would still be capped.
Nick Van Brown, data analyst at the Legislative Tax Division, said the cap would cause a substantial discrepancy between the tax burden borne by residential and non-residential owners, and that this split would increase over time.
“The split is happening because business valuations are rising faster than home valuations,” Van Brown told lawmakers. “And that happens with all types of properties – businesses, farmland, forest land, whatever – your valuations start to split.”
Once the shift to 2019 values takes effect in 2025, he said, taxes on residential property would fall alongside a corresponding rise in non-residential property.
The other change proposed by IC 121 is more complicated. It sets a limit on the taxes that can be assessed for a given property. In Montana, tax rates for different types of property are set by the Legislative Assembly, and the initiative would not change that. For residential properties, this tax rate is 1.35%.
Tax jurisdictions levy taxes through a system of mills. First, the property tax rate of 1.35% is applied to the assessed value of a property. So for a $200,000 home, that comes out to $2,700 in assessed value.
Each mill is equal to one thousandth of this taxable value. So in the case of the $200,000 house, each mill applied by the taxing jurisdiction would equal the $2.70 that the owner must pay in taxes.
Under the proposed initiative, a property owner’s total property taxes would be capped at 1% of the assessed value of the property. This equates to a maximum property tax burden of $2,000 for a home valued at $200,000. Because each mill in this case is equal to $2.70, the initiative would effectively cap the maximum number of mills at 740.7. Beyond the classic example of a $200,000 home, the mill cap under the Constitutional initiative would be the same for all residential properties, regardless of value.
The new cap on factories would create potential problems for overlapping tax jurisdictions. Different taxing jurisdictions – such as state, counties, cities, fire districts, and water and sewer districts – levy different numbers of plants to build their budgets and pay for services. Where these jurisdictional lines overlap like a Venn diagram, the factories stack up in what is called a “pickup district.”
According to the initiative’s tax analysis, compiled by the Governor’s Budget Office and the Department of Revenue, these overlapping jurisdictions create 1,404 different tax districts across the state. In 169 of them, the total number of factories is currently above this ceiling of 740.7 factories.
Most, if not all, of them are in urban areas, said Ed Caplis, director of tax policy and research for the Montana Department of Revenue. One of the major unanswered questions, he said, is whether a taxing jurisdiction that is partly inside and partly outside one of these maximum levy districts can still raise mills on properties outside the upper district.
“There’s going to be a lot of debate, there’s a lot of unsettled stuff if this initiative goes through, so we have a lot of questions,” he said.
Opponents of the initiative have argued that this situation would cause tax jurisdictions to raise taxes on landowners outside of a levy district that has already reached the mill cap.
“We believe and suspect that would end up being a tax shift to all other types of property and for many of those involved in taxation here, most if not all others are some kind of commercial property,” Bridger said. Malum, a lobbyist for the Montana Chamber of Commerce.
Other opponents of the initiative included the Montana Federation of Public Employees and the Montana Farmers Union, both plaintiffs in the case challenging the initiative. Professional groups representing cattle ranchers, real estate agents and bankers have also spoken out against the proposal.
Analysts from the Governor’s Budget Office and the State Department of Revenue also estimated that starting in 2025, the proposal would create a hole in the state budget of $23-32 million. Proponents, however, have pointed out that the state’s revenue surplus this year is currently expected to be between $100 million and nearly $1 billion.
Matthew Monforton, a former Republican state legislator who is one of the organizers of the effort to amend the state constitution, argued that the state left struggling taxpayers “not the choice”.
“Despite the fact that we could all see this property tax wreck coming, last year the Legislature did virtually nothing,” Monforton said.
Sen. Greg Hertz, a Polson Republican who led several bills to cut income and business taxes during the last legislative session, was skeptical that the proposed initiative would be a viable solution. But he also acknowledged that the Legislative Assembly missed opportunities in the last session to consider other policies to help residents struggling with soaring property taxes.
“We probably haven’t looked at them from the legislative perspective that we should have,” Hertz said.
After Thursday’s hearing, lawmakers voted unanimously to send letters to several other interim committees, urging them to discuss the proposal’s potential impacts on local governments, education and the economy. State.
Part of the ongoing legal challenge against CI-121 centers on whether a new law requires the interim committee to vote on whether to approve the constitutional initiative, before signature collection can take place. The committee chair, Sen. Jill Cohenour, D-East Helena, initially indicated she would hold a vote on Friday in the event the court decides action is needed to move forward. On Friday, committee members finally decided to suspend the vote while the case unfolds.