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The initiative that could upend Montana’s tax system

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By Eric Dietrich MONTANA FREE PRESS

HELENA — Meetings of the Montana Legislature’s tax policy committees, particularly the interim group that meets in off-seasons when the Legislature is out of session, are rarely dramatic affairs.

Last month, though, a succession of conservative activists stepped up to a microphone in a state Capitol hearing room to advocate for a taxpayer revolt that could reshape Montana for generations.

As former state Sen. Al Olszewski put it: “We’re tired of renting our homes from the government.”

The activists, fed up with property tax increases they say threaten to price thousands of Montanans out of their homes, had assembled to voice support for Constitutional Initiative 121. Modeled after California’s landmark Proposition 13, the proposal would amend Montana’s Constitution to place strict limits on how much property tax homeowners have to pay and how fast those taxes can grow.

“We’re tired of renting our homes from the government.”

FORMER STATE SEN. AL OLSZEWSKI

“Your property taxes would be based on the price of your home when you buy your home, not the price of your home 10 years down the road, 20 years down the road, after inflation has driven up the prices, after out-of-state investment has driven up the prices,” said Bozeman Attorney Matt Monforton, who is sponsoring the initiative with Republican State Auditor Troy Downing.

If the initiative’s backers collect enough signatures to get it on the ballot, and then persuade a majority of Montana voters to support it in this fall’s election, CI-121 would fundamentally transform how the taxes that fund Montana schools, law enforcement and local governments are calculated.

As such, the proposal has raised alarms across the state’s political spectrum, drawing opposition not only from left-leaning groups that routinely lobby for more public spending, but also from traditionally tax-skeptical entities like the Montana Bankers Association, Montana Farm Bureau and Montana Chamber of Commerce.

“We believe the unintended consequences outweigh the perceived benefit of CI-121,” Chamber lobbyist Bridger Mahlum told lawmakers at the January meeting.

“Prices are rising for goods and services anyway with inflation,” he said. “Local governments have to be able to afford that in their budgets too.”

The initiative’s opponents generally acknowledge that the state needs to explore property tax relief, but say they’d rather the Legislature enact narrow measures that help low-income residents and seniors who most need help than adopt a sweeping change that limits taxes on modest homes and mansions alike.

Sen. Greg Hertz, the Polson Republican who sponsored some of the key bills implementing Gov. Greg Gianforte’s tax-cut agenda during last year’s legislative session, also said this week that he opposes CI-121.

“You look at the initiative and what it does is shift taxes basically from one taxpayer to another,” he said.

Montforton dismissed the opposition in an interview this week.

“There were a lot of concerns voiced by Helena’s liberal special interest groups. We are unpersuaded by them,” he said.

“You look at the initiative and what it does is shift taxes basically from one taxpayer to another.”

STATE SEN. GREG HERTZ, R-POLSON

TAX BILL MATH

As one of five states without a statewide sales tax, Montana’s state and local governments lean heavily on income and property taxes for revenue. By and large, income taxes fuel state investments in universities, social welfare programs and prisons. Most property taxes flow to local services administered by cities, counties and school districts.

The system used to calculate how much each Montana property owner owes to keep their local government running is convoluted, but in broad strokes it works like this: Local government leaders, an elected school board for example, sit down once a year to set their budget, deciding the total amount they need to collect from property owners to pay teachers and put gas in school buses.

That collective burden is then divided among the district’s individual taxpayers, with each landowner assigned a slice of the pie proportional to their share of the district’s overall tax base. For residential properties, the tax values used for those calculations are based on assessed property values determined by the Montana Department of Revenue — essentially the department’s best effort to estimate what the property would sell for.

That means people with more expensive homes and, in theory, more wealth, pay higher property taxes. The owner of a property with twice the value of their next-door neighbor’s is responsible for twice their neighbor’s share of the local school budget.

That means rising property values can lead to higher taxes, depending on how fast a home’s value is changing relative to the other properties in the tax base — and whether that school board is holding its budget constant. If you build an addition onto your home that doubles its value while your neighbor’s valuation stays the same, you’ll pay more, assuming the school budget stays flat. But if every property in the district doubles in tax value and the school budget isn’t increased, each homeowner’s tax burden remains unchanged.

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