A dispute over whether a Montana statute intended to cap property tax growth applies to a state-level school property tax escalated this week as several county governments said they plan to buck the Montana Department of Revenue’s direction to collect a full 95 mills for a tax that supports state school equalization funding.
County commissioners from Beaverhead, Missoula, Richland and Fergus counties told Montana Free Press in interviews Thursday afternoon that they plan to bring motions before their respective commissions that would cut the school equalization tax billed by their county treasurers from 95 mills to 77.89 mills. Several also said that there was widespread support for the approach at the annual Montana Association of Counties conference held this week in Butte.
Beaverhead County Commissioner Mike McGinley, described by himself and others as the revolt’s ringleader, said he expects many of the state’s 56 counties to go along with the effort, in some cases by amending tax resolutions already passed by their commissions.
“The counties are going to do what we believe the law says,” McGinley said. “If the state of Montana wants to sue the counties to increase property taxes, then we’ll have that battle.”
“The mood in the room — if there was any dissent, I didn’t hear it. I didn’t see it. I felt like I was in a rally or something,” said Missoula County Commissioner Josh Slotnik. “People are mad.”
Each “mill” represents $1 of tax for each $1,000 of a property’s taxable value — equivalent, for residential properties, to about $1 of tax for every $74,100 of market value. That means the 17.11-mill difference between the two tax levels is equivalent to about $104 a year for a home valued at $450,000.
School funding advocates and Gov. Greg Gianforte, a Republican, have maintained that a correct reading of state law requires the collection of the full 95 mills. They also say the tax, which funds a program that balances funding between tax-base-rich and tax-base-poor school districts, performs an important role in ensuring that highly valued mines and resort properties help pay for schools beyond their immediate communities. Those costs, they say, would otherwise fall on homeowners in predominantly residential districts.
“Drawing down the 95 public school mill rate not only would provide a windfall for a few large industrial corporations and a few school districts already flush with resources, like Big Sky, but also over time would increase the tax burden on Montanans in most local jurisdictions,” Gianforte wrote in a letter to county commissioners Sept. 8.
Beaverhead and other counties have been arguing publicly for weeks that the Gianforte administration, which directed county treasurers on Sept. 11 to collect the full 95 mills, should have calculated that portion of the tax bill at a lower rate.
An effort by the counties to ask Attorney General Austin Knudsen for a legal opinion supporting their position was rebuffed Monday, with Knudsen’s office saying it believed the matter would be more appropriately handled through a court case.
Property values have risen dramatically in Montana, but that doesn’t necessarily mean you (or your landlord) will pay higher property taxes. If you want to know why, read our property tax explainer — with pictures.
Separately, state Sen. Brad Molnar, R-Laurel, filed a lawsuit against the revenue department in Yellowstone County District Court Tuesday, alleging based on similar logic that he and other taxpayers will be overcharged on their tax bills. Commissioners from other counties said Thursday that if the Yellowstone County Commission reduces its collections, that will likely nullify Molnar’s case.
The county argument, which stretches deep into the weeds of the state’s somewhat convoluted tax law, essentially reasons that a tax cap statute that limits how fast local governments can grow their collections should also apply to the 95 mills, which are set by the state. They note that the historic valuation growth Montana properties saw during this year’s reappraisal cycle — 46% for the median residential property — means the 95 mills, unadjusted, will bring nearly $100 million in additional revenue to state coffers.
The counties also argue that an allowance that gives local governments some flexibility under the cap to “bank” unused taxing authority in one year for potential use later, shouldn’t be available to state government. Calculations produced by the revenue department appear to show it making use of that allowance to adjust the school equalization tax from the 78 mill level to the full 95 mill mark.
Briefing materials sent to commissioners by the Montana Association of Counties, which hasn’t taken a formal position on the issue, say the full 95 mills will produce an additional $99 million in taxes over the next year as a result of higher property values. Scaling that back to the 78 mill mark in all 56 counties would reduce that figure by $79 million.
Fergus County Commissioner and county association president Ross Butcher said Thursday that many county governments, particularly in slow-growing rural areas, have been struggling under the local tax cap statute. Enacted in the late 1990s, the statute limits city and county tax collections on property that isn’t newly developed to half of the three-year-average rate of inflation.
“For a lot of counties, that’s a struggle,” Butcher said. “It’s been 20 years of half the rate of inflation, which makes it very difficult to manage the infrastructure needs and so on.”
Additionally, Butcher said, many commissioners have been upset by rhetoric from the state-level Republicans, who consistently blamed property tax frustrations on local governments during this year’s Legislative session.
“There was a lot of discussion about local government not being fiscally responsible,” Butcher said. “It seemed like the state Legislature and the administration were questioning local government’s ability to manage the tax issue.”
Compounding the frustration, the reappraisal notices the revenue department sent earlier this year shocked many homeowners with ballooning property values and indicated — incorrectly — that taxes would rise proportionally. The tax estimates on those forms, Butcher said, failed to account for how the half-the-rate-of-inflation tax cap would keep tax bills in check, forcing county officials to put significant effort into reassuring anxious property owners.
“We think it’s appropriate that we point out that the state is the only one collecting property taxes that’s not following the law,” Butcher said.
Montana School Boards Association Executive Director Lance Melton, an attorney, said in an interview Thursday that he believes the county officials are mistaken. Melton, who has argued the tax cap doesn’t apply at all to the school equalization mills, said he believes state law clearly requires counties to abide by the department’s direction to levy the full 95 mills. He also said that if the counties believe otherwise, they should have brought the matter before a court.
“I’m just astounded that governmental officials who have sworn to uphold the law are going to take the law in their own hands and just ignore it,” Melton said.
The Montana Association of Counties has argued that Gov. Greg Gianforte should have scaled back a fixed-rate property tax that equalizes school funding between rich and poor districts. The governor counters that would actually increase taxes for many homeowners.
County officials argue that schools won’t be harmed if counties choose to reduce their collections. They note that revenue from the 95 mills represents only about a third of the money the state puts into education funding, and say the state General Fund should be able to cover the difference.
“The state General Fund is the only place where this is going to be an effect,” McGinley said.
Melton disagreed, saying an $80 million hole in General Fund revenues could force the Legislature or governor to cut school funding.
“It gambles with our community schools and the very funding on which they’re relying to serve kids in the current fiscal year,” Melton said.
The General Fund, which has run a surplus in recent years, is largely filled by income taxes. A new law that reworks how the 95 mills are piped through the state’s coffers, potentially buying down other school property taxes, takes effect next year.
McGinley and other county commissioners maintained Thursday that they’re simply doing their jobs trying to keep the taxes their constituents pay as low as possible. He acknowledged, however, that the issue probably needs to be brought before a judge.
“That’s why we’ve got courts,” he said. “Like ’em or not, that’s what they’re for.”
This story is published by Montana Free Press as part of the Long Streets Project, which explores Montana’s economy with in-depth reporting. This work is supported in part by a grant from the Greater Montana Foundation, which encourages communication on issues, trends, and values of importance to Montanans. Discuss MTFP’s Long Streets work with Lead Reporter Eric Dietrich at firstname.lastname@example.org.
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