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Dave Fern: Burdens facing many residential property owners

by Dave Fern
| August 10, 2022 1:00 AM

Like many of you who are homeowners, my property taxes have taken an upward trajectory in the last few years. A significant portion of this increase can be attributed to a steep increase in the taxable appraisal of our homes conducted bi-annually by the Department of Revenue. The department is projecting a 30% increase in the latest rounds of appraisals. These increases have not been neutralized by the steady growth of our taxable value in the district. This may seem counterintuitive but several factors can be attributed to the disproportionate increase in taxes.

About 20% of the residential property tax is allocated to the portion of your bill (101 mills), that funds education, K-12, through state-wide funding and equalization. So, as the taxable value increases, these mills do not float downward. This is an example of the property owner assisting the state in its obligations to adequately fund education. There are three large local entities (and additional smaller entities as well), which include the portion of the K-12 general budget not funded by the 101 mils, the City of Whitefish and Flathead County. With increased students and the legislative inflationary increase in budget authority of school districts, and the allowable increase of city and county budgets at one-half of inflation plus a proportion of increased taxable value; budgets have experienced increases. Add to that; property owners here in the Whitefish School District (and renters at the secondary level), have financed more than fifty million dollars in new school construction since the beginning of the century. These projects have addressed serious safety, capacity and academic issues, but the bill to do so rests solely on the backs of property owners.

The legislature has been slow to realize the detrimental effect of such increases, despite warnings from legislators such as myself, representing fast-growth portions of the state. With growth having spread into areas afar from lakes, rivers and mountains, there is now a state-wide sense of urgency, calling for some action. The recent failure of CI-121 to garner enough signatures only reflects an amendment written in a way that would like have shifted residential taxes to businesses and agriculture, and cause havoc to various districts throughout the state that are exceeding the initiative’s limit upon mills (budgets and obligations to pay back bonds). Nevertheless, the initiative put a real scare in many legislators.

The 2023 legislature may choose to enact a few measures to mitigate the effect of the upcoming appraisals. In the last session, I authored a study request on residential property taxes. This bill was widely supported and was part of the work of the Revenue Interim Committee, which occurs between sessions. The committee is looking to increase the threshold of eligibility along with expanded financial assistance to programs such as the Property Tax Assistance Program, and has also included the Elderly homeowners and Renters Credit program. In November of this year, the Department of Revenue will release data from 56 counties that will assist the committee in determining, if a change in tax rate (1.35%), is warranted and can be done in a way that would have minimal impacts on the other 16 classifications. I expect the interim committee to request a joint tax committee work group to convene over the first part of the session, to implement a new tax rate, along with other property tax mitigation strategies not covered by the interim committee.

Without a general sales tax, Montana finds itself very dependent on the residential property tax. With efforts by the executive office to lower the state income tax, (it was lowered .01% last session costing about 32 million dollars), there is only so much capacity to do comprehensive reforms of our residential property tax system. It would seem, as evidenced by increasing budgets in fast-growth areas, that it will be difficult to grow ourselves out of this problem.

I am a little more optimistic that the 2023 legislature will start to address the burdens facing many residential property owners who have seen an increasing delta between tax liabilities and income.

Representative Dave Fern

HD 5, Whitefish

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