Counties ask Attorney General to review property tax calculations

In the coming weeks Montanans will see how much their property taxes increase after many homeowners got notices earlier this summer the value of their property — as assessed by the state — has dramatically increased over the last couple of years.

Counties are now in the process of setting the amount of property taxes homeowners will pay on those increased values. Across the state the median value rose about 45% in the most recent reappraisal cycle, with some counties as high as 67%.

Property tax is calculated based on two factors — the taxable value of property (how much the state says a home is worth) and the millage rate. One mill generates $1 per each $1,000 in taxable value, and millage rates are set based on the amount of revenue a government needs to raise to provide services.

In Montana, counties are capped on how much more they can collect in property taxes every year by a formula that limits them to one-half of the average rate of inflation over the prior three years. To stay under the cap given higher taxable values of homes, counties must lower the number of mills they tax on a property.

Counties set their millage rate and collect money in property taxes to pay for their own budgets to provide local services. Another part of the property tax collection goes to education. That money shows up on tax bills as what is called the “95 mills,” money that gets sent to the state. Those mills, set by the state, have not floated up or down with changes in property values. The state then packages that pot of cash with income tax cash and sends it back out to school districts to equalize funding so that richer and poorer districts are on similar footing.

A group of counties, led by Beaverhead and supported by the Montana Association of Counties, is now saying the state should have also been adjusting those 95 mills for the last two decades but hasn’t — and they want the state Attorney General to step in and tell the state to change how it’s operating.

“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 from the Beaverhead County Commission reads.

But the state has no plans to make any changes.

“We have no intention of cutting the school funding,” said the governor’s budget director, Ryan Osmundson. “ … It hasn’t been done in 20 years. It doesn’t make sense to cut equalization.”

The state Attorney General has received the letter, according to a spokesperson. If the request meets standards, the Attorney General has to give an opinion within three months of the date of request unless the office lets the requesting party know it’s complex enough to need more time. AG opinions carry the weight of law unless overturned by a state district court or the Montana Supreme Court.

Lance Melton, the executive director of the Montana School Boards Association, said there’s “enough ambiguity in the law and enough complicated legislative history” that seeking an Attorney General’s opinion is merited.

But if the opinion goes the way Beaverhead County would like, Melton said it “will cause a significant amount of turmoil.” He said property taxes in some places would actually go up, because poorer districts get more back in school funding than they send out thanks to the equalization formula and property tax payers would still be left on the hook to fund schools as required by law. Unwinding decades of that system would be “pretty tough,” Melton said.

Beaverhead County, as one legislator pointed out, will get about $7 million in equalization money back under a new state law on the roughly $2.5 million it pays in the 95 mills.

That law passed earlier this year further benefits counties, Melton said. House Bill 587 from Rep. Llew Jones, R-Conrad, takes any money from the 95 mills that comes in over the previous year (as determined by a formula set in law) and uses the cash to fund teacher retirement accounts instead of asking county taxpayers to foot that bill. The law was estimated by legislative staff to decrease local property taxes to pay for that retirement by $33.3 million in the 2025 fiscal year, $38.5 million in the following and $51.2 million the year after.

Osmundson said he sees the counties’ request as a distraction from their budget and spending plans.

“They’re not proposing spending less money, they’re proposing shifting the tax,” Osmundson said. ” … It seems like more of a distraction or they didn’t like the fact it was brought up (some counties) spend too much.”

During and before the legislative session, Gianforte’s administration was critical of county budgets, saying they are the reason for higher property taxes.

A letter supporting Beaverhead County from the Montana Association of Counties defended against that point, saying the state is to blame because it sets school funding, property tax rates for all types of property classes (such as commercial or residential) and caps what local governments can tax.

MACo Executive Director Eric Bryson used the decreasing number of mills assessed by the county on Gov. Greg Gianforte’s Gallatin County home as an example by pointing out the county’s mills on the property dropped from 123.6 to 90.96 over the last three years while the 95 mills remained steady.

“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,” Bryson wrote.

He ended the letter by saying “We respectfully ask the state of Montana to demonstrate ‘greater fiscal responsibility’ and not take advantage of skyrocketing residential property values.”