Counties want Attorney General opinion on school equalization levy calculation, property taxes

Aug 25, 2023

Beaverhead County asked the question, association criticizes governor’s talking points

By: Nicole Girten - August 25, 2023 8:57 am

Beaverhead County wants to know if the state is overtaxing its citizens.

Beaverhead County Attorney Jed Fitch penned a letter to Attorney General Austin Knudsen a week ago requesting an opinion on whether the state is accurately calculating mill levies or over taxing citizens by using the the 95 mills used for school equalization and funding.

Beaverhead County Commissioners sent a letter to Knudsen supporting Fitch’s request and the Montana Association of Counties sent a letter to Gov. Greg Gianforte critiquing his rhetoric for localities to show “”greater fiscal responsibility.”

Fitch said in the letter increased appraised values during this reappraisal cycle will result in the over-levying of property taxpayers unless the state reduces the amount calculated for school taxes.

“We anticipate another request from the State of Montana to levy the 95 mills without performing the calculation required under 15-10-420, thereby over levying property taxpayers across Montana,” the letter read.

15-10-420 in the Montana Code Annotated is the statute that outlines the procedure for calculating mill levies in the state.

In his conclusion, Fitch said he saw the department has incorrectly interpreted state statute and “levied carry forward mills in conflict with the restrictions placed by the legislature.”

Counties, like Beaverhead, argue that because the Legislature has capped how quickly local and county taxes can grow, that should apply to school districts’ taxing authority, too. Since a landmark school funding lawsuit was waged more than 20 years ago, school funding has been set by state law at 95 mills and remained constant.

However, state law caps the amount of money towns and counties can levy to one-half of the average rate of inflation for the prior 3 years. Because of that law, the counties argue that as property values soar, they earn less, but school districts get more regardless. Instead, they argue that Montana has never accurately collected funding for schools, and those districts should be held to the same caps.

Meanwhile, school supporters said the 95-mill taxation rate is a direct response to the legal challenge settled decades ago which found a disparity between many districts, depending on how many students and schools a county had, and how much land in some counties was valued. In order to fix that, a standard mill levy rate was adopted so that taxation was equalized, and the revenue generated was reallocated by the state using a complicated redistribution model.

“We hold those 95 mills pretty near and dear in terms of the solution that it employed for ensuring equity across different taxing jurisdictions and different tax bases,” Lance Melton of the Montana School Boards Association said.

However, Montana law isn’t clear on the issue, one of the few things everyone seems to acknowledge.

In a 2020 analysis from Montana Legislative Services, Legislative Staff Attorney Jaret Coles concluded in his opinion there is no carry over of statewide mill levy authority to subsequent tax years when the mill levy calculation exceeds statutory limits, but said arguments can be made to support both sides of the question.

Melton said comparing the state schools’ and county mill levy calculations were like apples and oranges. He said the county’s legal argument is wrong, especially in that it is arguing that public servants from across agencies and administrations for more than 20 years have been wrong in how they collect the 95 mills, though he does admit the language of the statute is ambiguous.

“And then nobody raised a fuss about it until yesterday,” he said. “The most conventional wisdom is that the mills imposed across this state are going to go down and and with the exception of the 95 mills, which are already self-executing and being used to keep variable taxes down in each district across the state of Montana. So it just seems like a little bit of a dustup.”

Rep. Llew Jones, R-Conrad, said there are three schools of thought when it comes to the mill levy calculation, those that think the mills should be capped, those that believe that the levy will rise as property values increase, as DOR has done with precedent, and those that think the mills should float downward, as the counties are suggesting. Jones said this is largely a distraction, but said he’s glad to see people talking about the tax system, one he says is antiquated and in need of reform.

He said Beaverhead County’s idea would save money for big businesses like Northwestern Energy and the Yellowstone Club as they operate in areas with less population.

“I’m not entirely sure, given that schools are the largest consumer of property taxes, that reducing taxes on places that don’t have schools that may indeed have some significant property so that we could increase taxes ultimately on schools is going to do much for the residential consumer at all,” he said.

Beaverhead County Commissioners sent a letter to Knudsen in support of Fitch’s request.

“Because of the high reappraisal values of residential homes in Beaverhead County and across the state, it has become glaringly apparent that the state school 95 mills have been incorrectly levied for many years,” the letter read.

Commissioners said in their letter that counties’ allowable mills go down as property valuations rise, explaining that the county’s taxable value rose from just above $26 billion to more than $35 billion, but that under current mill rules their allowable mills dropped from 108.27 to 88.62.

Pointing to the 95 mills, county commissioners said that if the school mills used the same calculation they would increase only by 10%, as opposed to the 34.7% it’s at now.

“This difference in revenue is approximately $64 for every man, women, child in Beaverhead County,” the letter read. “I am sure that no one in the state legislature intended to have the state portion of the local property tax to increase by 34.7%.”

Rose Bender with the Montana Budget and Policy Center told the Daily Montanan the state is going to be on the hook for the state equalization money, whether the mills go down or not, at least in the short term, because the budget for the next biennium is set. Long term, there may be some uncertainty for schools if Knudsen agrees with the Beaverhead County opinion.

“The governor’s office would really have to look back into their budget and figure out where their decrease in revenue that they’re going to see from the lower mills is going to come from,” she said.

In years past appraisal cycles were longer and the legislature was able to mitigate the issue prior.

“Yes, we’ve been levying 95 mils, but there’s been very few times when values have increased like this, mostly because of legislative decisions to mitigate those value increases,” she said.

Bender said the 95 mills are an essential part of funding public schools and any decision on adjusting the mills will have implications on the state’s budget and school funding “whether today, tomorrow or in the future.”

“That’s just something that Montanans really need to take into consideration,” she said.

In a letter to Gianforte, the counties critiqued the rhetoric from Gianforte’s office, saying he’s often repeated that local governments need to show “greater fiscal responsibility,” when setting mill levies with appreciating home values. The organization said that appreciating values actually decrease counties’ levy authority.

“While this is a great talking point and sounds good in theory, the message is misleading at best and overlooks the fact that county mills are capped by the provisions of (Montana law),” the letter read.

The letter then compared how levies were adjusted for Gianforte’s residential property in Gallatin County, showing them going down in recent years as the 95 mills remain consistent, even though those mills are under the same statute.

“Rapid increases in appraised values, resulting in increases in the value of a mill in a taxing jurisdiction, result in a windfall for the state mills, while at the same time county mills are forced to adjust,” the letter read.

Gianforte’s Office continues to point to property tax rebates, (which you can apply for online) as well as the expansion of Property Tax Assistance Program for low-income Montanans for disabled veterans and unmarried widows, in addition to the ability to pay property taxes in installments throughout the year.

“By calling for a reduction in 95 mills, lobbyists seek to jeopardize funding for public schools and threaten the quality of public education for thousands of young Montanans just as they’re going back to school,” said Kaitlin Price, a spokesperson for Gianforte, in a statement Thursday.

MACo said mills subject to statute “do not reap an unchecked benefit from increasing taxable values,” and state mills should follow the same restraints county mills follow, or the 95 mill hard cap, whichever is less.

“We respectfully ask the State of Montana to demonstrate ‘greater fiscal responsibility’ and not take advantage of skyrocketing residential property values,” the letter read.

Montana Budget & Policy Center

Shaping policy for a stronger Montana.

MBPC is a nonprofit organization focused on providing credible and timely research and analysis on budget, tax, and economic issues that impact low- and moderate-income Montana families.