As we look forward to 2024, property taxes have taken on special urgency for many Montanans. Considering my vote against a special session of the Legislature this month that would have addressed property taxes, I would like to take a deep dive into our tax system to explain my thinking.
The primary source of funding for Montana’s state government is income tax. The state receives approximately 70% of its General Fund revenue from income tax. It redistributes the vast majority of that revenue to pay for education, healthcare, and the corrections system.
In comparison, schools and local governments get most of their funding from property taxes. Property tax revenues are allocated as follows: 56% to schools, 28% to counties, 11% to cities and towns, 4% to special districts and 1% to the university system.
Montana has 18 property tax classifications, and the Legislature sets the tax rate for each. The Department of Revenue appraises properties, and local governments and schools define their budgets in terms of mills needed to provide education and services. No county is the same and each has a different percentage of the tax classifications. Making one simple tax adjustment for one classification may be good for one county, but detrimental for another.
Over the past 20 years statewide, residential taxes have increased the most of all tax classifications; Jefferson County saw this most acutely in the most recent assessment cycle, when the market value of residential property increased by 51%. In contrast, taxes on agriculture and timber classifications combined have decreased by 68%, and the commercial share has decreased by 28%. These changes reflect the economic reality of our state: Timber mills and coal generation facilities have closed, and retail malls have shut down in the face of growing e-commerce.
Keep in mind that a cut in the residential tax rate results in a shift to the other classes. Simply lowering our residential rate would further hurt our main street businesses and agriculture sectors, among others. Therefore, a comprehensive solution must be examined.
Another important factor to consider is the funding of our public schools. The statewide 95-mill school equity levy was a result of a lawsuit the state lost in 1989 regarding school funding adequacy and equity, which linked to Montana’s Constitutional requirement that “equality of educational opportunity is guaranteed to each person of the state.” These 95 mill revenues are redistributed from high property tax bases to help those with low property tax bases. This is done through a state formula calculation referred to as Guaranteed Tax Base Aide (GTB) that offsets local school mills and is only a portion of the money schools receive from the state.
There is no easy, quick fix to this property tax issue. For example, the tax cut proposed by those advocating for a special session — which failed to pass — would result in giving millionaires who aren’t Montana residents thousands of dollars in property tax cuts. They have multimillion-dollar vacation homes, and they do not pay income tax. But through our property tax system, they do help pay for our public schools and local government services.
In its 2023 session, the Montana Legislature implemented several measures to address property taxes. One of these was passing a two-year rebate that covers most of the median home tax increases. This temporary rebate will give lawmakers enough time to come up with a more permanent solution. Additionally, the Legislature segregated the 95 mills into a state special revenue account to directly buy down local taxes.
In addition, the Property Tax Assistance Program (PTAP), which allows low-income homeowners to receive up to a 70% tax reduction, was expanded. Previously, it covered the first $200,000 value of a home’s value; it now covers the first $350,000. The Legislature also provided relief to those over 62 years old, renters, and disabled veterans, depending on their income. These measures were taken to address the issue of property taxes and help Montana homeowners and small businesses.
I would like to see a long-term tax solution that will benefit Montana homeowners and long-term renters. As Montana attracts more and more out-of-staters, it is necessary to update our complex property tax system accordingly, while not significantly impacting Montanans. Perhaps a future policy solution could be to redefine the residential class so that the growing short-term rentals and out-of-state vacation homes do not qualify for the low tax rate set for owner dwellings and long-term rentals.
But finding the right approach will take time and serious work. Controlling taxes is a collective effort that involves the State Department of Revenue, the Legislature, local governments, and the Governor. There is much to consider, and there is no one-size-fits-all solution.
It is essential to carefully examine the effects and outcomes of changes to property tax laws. Currently, the Revenue Interim Committee is studying the issue of property tax, and most of its members also voted against the special session. I appreciate the committee’s unwavering dedication to finding a solution that will benefit Montanans in the long run. I believe it is crucial to allow tax experts and the committee to analyze various models to determine which tax solutions are effective while minimizing unintended consequences. Above all, I want a plan that prioritizes Montana residents, ensuring that living and raising a family here remains affordable.
Our population is growing, which has increased demand for various services. Our local government officials are making every effort to maintain a conservative budget. Although my taxes have increased, I understand that they are being used for essential services and schools. I am grateful to our public servants, including teachers, public safety officials, road maintenance crews, and all the other local government workers.
I am confident that we will find a solution to this situation. Please share your ideas to solve this issue with me at marta.bertoglio@legmt.gov.
I wish you a healthy and prosperous New Year. Thank you for the opportunity to serve you.
Marta Bertoglio (R-Clancy) represents House District 75.
