The Montana State Capitol in Helena on Wednesday, April 26, 2023. (Photo by Mike Clark for the Daily Montanan)
Montana lawmakers will have to decide whether, and how, to reduce property tax assessment rates in the 2025 legislature to keep property taxes from rising for many Montana homeowners – something they failed to do during the 2023 session.
It’s a similar position they were in two years ago.
In a meeting Monday, the Montana Department of Revenue told the Legislative Revenue Interim Committee that residential property market values are expected to increase another 21% for 2025, and that offsetting that increase in taxable value and another blow to homeowners could be done if lawmakers reduce the residential assessment rate from 1.35% to 1.11% for the upcoming biennium.
Department of Revenue senior economist Jared Isom said the projected 21.45% increase to residential “may be a little higher than some were expecting.”
It’s similar information to what lawmakers were told by the department in late 2022 ahead of the 2023 session, when the department said the post-reappraisal estimated increase in values could be offset by dropping the residential rate from 1.35% to 0.94%.
But that year, the Republican-supermajority legislature did not lower the assessment rate, resulting in a 21% median property tax increase for Montana homeowners offset by two annual $675 property tax rebates that homeowners needed to apply for this year and last.
The current tax structure has residential property taxpayers shouldering about 59% of the property tax burden, according to department data and discussions at Monday’s meeting among lawmakers. That compares to residential property owners shouldering 38% of the burden in 1994, according to the Montana Budget and Policy Center.
The department’s preliminary estimates presented to the committee on Monday morning showed that if lawmakers choose not to reduce the residential rate for 2025, residential property taxable value would rise by about 21% from this year, and taxes would increase an average of 11%.
In some counties, market values could jump 25% to 32%, according to department data.
According to department data posted on the committee’s website and senior economist Isom, who gave the presentation on the preliminary data to the committee Monday, reducing the assessment rate to 1.11% would reduce the average property tax hit to homeowners next year by 8.1% compared to if the assessment rate remained 1.35%.
The same data table showed that also implementing revenue neutral taxable values for commercial, agricultural and forest land would result in slight tax increases for those landowners if lawmakers chose to adopt revenue neutral rates for all those classes. That’s in part because residential taxpayers have more of the burden of all property taxes in Montana and that class of property has been growing more quickly than the others, Isom explained.
During the committee hearing, committee vice chairperson Rep. Mark Thane, D-Missoula, asked Isom if the department could provide the committee with information on what estimated tax neutral rate would have to be implemented to base that rate off the pre-2023 market values and effectively offset the last two reappraisal cycles.
The department said it did not have that information readily available at the meeting but could look into it.
Thane’s thought also came up during public comment from Butte’s Evan Barrett, who suggested that only looking at revenue neutral rates based on the 2023 biennium effectively enshrines what the called a “permanent property tax increase” from the 2023 session into place of around $200 million a year.
“What you’ve got is money baked into the cake that we have to write a check out for every year,” he said.
Kurt Swimley, a fiscal analyst with the Montana Legislative Fiscal Division, said the division already has lots of property tax data to make forecasts and estimates about $70 million in revenue would come into the state from rising property taxes without the adjustment between fiscal years 2025 and 2026.
“A lot of this is because residential property remains the most valuable class of property in Montana and is also growing in value, and has been growing for a few years now, at a faster rate than other classes of property,” Swimley told the committee.
Rose Bender, the director of research for the Montana Budget and Policy Center, told the committee that cutting the assessment rate would benefit higher-value homeowners more than an approach like the ones proposed by the governor’s Property Tax Task Force and legislative Democrats of a homestead exemption that would create different tax rates for differently valued homes.
The task force’s recommendation, incorporated into the governor’s budget proposal unveiled last Friday, would set the residential property tax assessment rate for primary residences and long-term rentals worth up to a little more than $1 million at 1.1%.
Second and subsequent homes and short-term rentals would be assessed at a rate of 1.9% under the proposal, meaning owners of higher valued homes and short-term rentals would partially subsidize the tax cut for homeowners with lower-valued homes.
Bender said such a proposal would be better targeted than an outright rate cut and would benefit people on fixed incomes.
“I encourage you all to look at that proposal and consider potentially even some changes to that proposal to fully address those living on fixed incomes, especially in light of these new taxable value neutral rates,” Bender told the committee.
Several Republicans on the committee suggested that shifting the burden away from homeowners back to businesses and other property owners, some of whom could pass those costs along to customers, might not be palatable for them. Instead, they suggested government spending should also be cut.
“That’s what I want to discuss during the session,” said Sen. Jeremy Trebas, R-Great Falls. “Really, what’s being advocated here is just a shift in who pays, which is a really disingenuous game of hide the ball that previous legislatures and governors have played. I’m not willing to play that game, so let’s be up front and transparent.”
Rep. Sherry Essmann, R-Billings, said she agreed with Trebas.
“You know, if I had my way, I’d hire Elon Musk and Vivek Ramaswamy to come in and do an evaluation on our state government and figure out where economies can be realized,” she said. “I know that’s not possible, but I would like to just join Sen. Trebas in the effort to look for reduced expenses.”
Before the legislative session, the committee needs to decide how much revenue it anticipates it will have for the next biennium’s budget.
The committee has until Dec. 1 to adopt the revenue estimate from the Legislative Fiscal Division, but members said Monday they wanted more time to analyze the governor’s budget proposal and the two budget forecasts presented Monday by the fiscal division and Office of Budget Program and Planning before signing off on the estimate.
The committee unanimously agreed to adopt the estimate in a preliminary fashion Monday, then to meet again next Tuesday to make possible changes to the estimate, which lawmakers can adjust during the legislative session but which helps them make decisions about how to craft the budget that will be in place for the next two fiscal years.
2.3-DOR-Taxable-Value-Neutral-Rates-Presentation