Ballot initiative could upend Montana's tax system
A proposed ballot initiative could change the way Montana assesses property taxes. A group of organizers are gathering signatures in an attempt to put the question in front of voters later this year. If that happens and voters approve it, Constitutional Initiative 121 could upend the state’s tax system.
Montana Public Radio's Freddy Monares spoke with Montana Free Press reporter Eric Dietrich about the initiative.
Freddy Monares: Eric, if this gets on the ballot and voters approve it, how will this change things for taxpayers here?
Eric Dietrich: So, first off, there are a couple of things to understand about property taxes. First is that nobody likes paying them, but they're the primary source of funding for local government. So schools, law enforcement, parks. And the other thing to understand is that how much everyone pays in property taxes is based on home value. So in theory, if your home was worth twice as much as your neighbor's, you're responsible for twice the share of the local school budget.
So, enter CI-121. It does two things. First, it limits the total amount that homeowners can pay in property taxes to 1% of their assessed value. And secondly, it limits how fast the valuation of your home can rise. So either inflation or 2% every year, whichever is less, and that change would be retroactive to 2019, so before the pandemic. However, that cap would reset whenever a house is sold or significantly remodeled.
Now, this change is modeled off California's Proposition 13. What impacts did we see there when the change was made?
So, for anyone who wasn't familiar, Prop 13 was a landmark tax initiative that California passed in the late '70s. The research I looked at indicated that immediately following that measure's passage, property tax collections in California dropped by 60%. It's been 40 years; we've had time to see how it plays out. And if you look at the research there, more recent research has found that most of the benefit from Prop 13 has ended up going to higher income residents.
And then also, research has found that governments have largely backfilled the revenues that they've foregone with sales and income taxes. So California remains a high-tax state.
Yeah, and less property taxes falls in line with conservative views. Are those the people who are backing this?
Yes, this is something that's splitting the Republican Party. I think it's probably fair to say that there are some folks that are kind of on the right side of the Republican Party, like one of the backers here is state auditor Troy Downing.
But even some fairly conservative Republicans, most of those folks actually are worried about this, like they're worried about they would have some kind of unintended consequences. They're worried that writing this into the state constitution would make it hard for them to come back and tweak it if it doesn't work out as well as intended because it's hard to change the state constitution.
What are supporters saying about this initiative?
Supporters say this is an important way to help protect Montana homeowners from rising property taxes, and this is probably the key distinction. They think that local governments have plenty of fat to trim, and they argue that it's worked out OK in other states that have done similar things like this.
And what about opponents?
We should note here that there are a lot of opponents to this. But also some of the stakeholder groups in the capital that are typically tax adverse, like the Chamber of Commerce and the Realtors — they're opposed to this, too. And that's for a couple different reasons, one of which [is that] this would be only on residential property, and so the Chamber of Commerce particularly is worried that businesses could end up trying to pick up the extra tax burden. So this could potentially raise business taxes in order to lower residential taxes. A lot of ag groups are worried about the same thing for farmland.
Yeah, and you've reported that the governor's budget office prepared a fiscal analysis of the proposal. What did that say?
That was an effort to put some hard numbers to this, because everybody's kind of talking about it in hypotheticals, but I think the most important number out of that was an estimate that this would immediately cost local governments in the state $150 million a year and then more over time as this grows.
Now, it seems like there's a consensus, even among people who oppose the initiative, that the property tax method has to be revised. Has anyone offered alternatives to do that?
They have. So legislators of both parties that don't like CI-121 are saying what they'd rather do instead is adopt income-based property tax relief proposals that basically say, "If you're low income, we'll give you a break on your taxes to help you pay your tax bill." The state does have some programs like that already, but they're kind of small and haven't necessarily been updated, and they're saying that they want to deal with that in next year's legislative session.
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