Beaverhead County, other counties, allege steep tax increases by state illegal

Attorney General’s Office mum on Beaverhead’s request to interpret levy calculation statute

By: - September 16, 2023 3:06 pm

Photo illustration illustration by Getty Images.

The State of Montana will be taking too much money from property taxpayers — despite a legal obligation to collect less.  That’s the argument being made by Beaverhead County and other Montana counties following recent and substantial increases in property tax appraisals and anticipated tax bills.

The counties are making the argument in light of a newly scrutinized state law provision a longtime Beaverhead County commissioner said the state has ignored for decades.

This year, a record number of people have appealed their residential property tax appraisals after the Department of Revenue sent out notices showing increases the state estimates hit 46% on average.

Large tax bills will follow. And brewing tension between Republican Gov. Greg Gianforte’s administration and some local governments is escalating into pushback from county elected officials that could end up in court.

Montana Code Annotated 15-10-420 sets the way the state calculates levies, including for a pot of money meant to ensure school districts get equal dollars to educate children.

In an interview, Beaverhead County Commissioner Mike McGinley said his county has been financially stable for many years, so it didn’t have a reason to double-check the statute.

But he started doing research this year, when it became “glaringly obvious” something was wrong with property tax calculations.

“It’s just been something that’s never been caught,” McGinley said of the provision.

The provision in question reads, in part, that the Department of Revenue “shall calculate, on a statewide basis, the number of mills to be imposed,” including for the education equalization fund. It also says the number of mills calculated “may not exceed the mill levy limits established in those sections.”

In tax lingo, a mill is a unit of measurement used to calculate property taxes.

In early August, Beaverhead County requested the Montana Attorney General’s Office provide an interpretation of the statute in question, McGinley said. This week, he said all 56 counties are in support of the request, but the Attorney General’s Office has only acknowledged it received the request and has not responded to its substance.

Three communications staff from the Attorney General’s Office did not respond to an email for comment sent Thursday by the Daily Montanan.

This week, the Montana Association of Counties, or MACO, said in a news release that Carbon, Custer, Lincoln, Missoula, Park and Ravalli counties have raised similar concerns, in addition to Beaverhead County.

A Sept. 8 letter from Gov. Gianforte in response to questions said the state is only meeting its responsibilities to education in the way it’s levying taxes.

The letter to Mineral County, which the Governor’s Office noted went to all counties, said if the state calculates taxes as the counties request, a few large industrial corporations and affluent school districts will receive “a windfall,” but “nearly all school districts” would suffer.

The counties disagree.

In addition to a request for an interpretation of statute by the Attorney General’s Office, counties are requesting the Department of Revenue explain who authorized property tax increases “beyond statutory limitations.”

The counties also have asked the DOR to provide the levy calculation it used for the sake of transparency. The Department of Revenue directed questions to the Governor’s Office, which directed the Daily Montanan to Gianforte’s letter to counties.

When the state collects property taxes, some of the money goes into a pot that gets redistributed to school districts to be sure they have equal funds to teach children, regardless of whether the district is considered rich or poor.

That “equalization” pool has been known as the “95 mills,” representing the size of that fund.

This year, property values have skyrocketed, but the state plans to collect the same number of mills for schools, McGinley said — 95. So he said the state is set to get some $95 million more than it did last year from taxpayers, or 35%.

“Property taxpayers all are having a heart attack because their property taxes are going up so fast,” McGinley said.

But he also said state law in fact requires a reduction in levying authority when taxable value increases. In this case, he said a formula based on the statute in question shows Montana should be levying 79 mills for that education equalization fund, not the maximum 95.

Even at the lower mills, he said the fund would still get an estimated $20 million more than last year because with property values up, tax collections are up.

In Beaverhead County, for instance, the county, elementary school and high school all are taking in more revenue — but he said all are decreasing the number of mills they’re levying, unlike the state.

“Nobody is going to have less money this year,” McGinley said. “It’s just how much money we’re going to put in the state’s pocket when they’re sitting on a $2 billion surplus, and it comes on the backs of the Montana taxpayers.”

McGinley, fiscal officer on the MACO board, said the support from local elected leaders to take on the Governor’s Office is coming regardless of whether a county is rural or urban, Republican or Democrat.

“There’s no two different counties than Missoula County and Beaverhead County, and we’re on the same line,” said McGinley, who has worked on local budgets for 22 years and served as a county commissioner nearly 24 years.

(Beaverhead elected three Republican commissioners, and Missoula elected three Democrats.)

In his discussions with the state, McGinley said the Governor’s Office has argued it’s giving rebates to taxpayers, and McGinley said “we thank him.” But he said that doesn’t mean the state’s approach to the education fund is correct.

“It’s, in our opinion, breaking state law,” he said. “It still needs to get fixed.”

McGinley has been working with local taxes for more than two decades, and he said by his read, the statute clearly indicates the state is obligated to reduce mills given increases in taxable value despite arguments from the Governor’s Office the statute is “muddy.”

“This isn’t muddy. This is crystal clear to crazy county commissioners like me,” McGinley said.

In the past, Gianforte has alleged some counties don’t do a good job of keeping spending under control, and in his letter to Mineral County, the governor asked the county to “hold the line on new spending,” “draw down mill levies that are within your control,” and “keep property taxes as low as possible.”

But MACO has said a look at Gianforte’s private mansion in Helena illustrates the problem that local governments are limited in their ability to levy taxes, but the state is not. Its analysis shows property taxes for the governor’s residence will drop from $7,837.15 in 2022 to $7,407.55 in 2023.

However, MACO’s analysis also shows what Gianforte is projected to pay to the state is going up, but what he’s paying to the city, county and schools is going down. McGinley said the numbers show the need for fairness — and that local governments are indeed holding the line.

“It clearly shows that the reduction is due to local governments adhering to our statutory mill levy limitations, and the sole increase in his property taxes exists in only those mills collected by the state, which are within the control of the Governor’s Office,” McGinley said in a news release from MACO.

State statute limits local governments to increasing taxes at half the rate of inflation the previous three years, and local government leaders have long argued they fall behind as a result year after year.

In the news release from MACO, commissioners from other counties echoed McGinley’s sentiment. Fergus County Commissioner Ross Butcher said counties are dedicated to responsible spending and keeping property taxes as low as possible for residents.

“They are calling on the state to follow their lead in maintaining transparency and fiscal responsibility in property tax calculations,” Butcher said in a statement.

In an interview, McGinley said if the AG’s Office offers an interpretation that doesn’t line up with the counties’ position, the counties will consider taking the matter to court.

In the governor’s letter to Mineral County, Gianforte lists legislation he signed this year that supports counties. He said lobbyists “have made a lot of hay recently” to try to draw down the 95 mills, but he argued the state’s approach is legally sound and ensures the equal access to education the Montana Constitution protects.

“We take our responsibility seriously to distribute the 95 public school mills to ensure each student in our public schools has access to a quality education,” Gianforte said. “We would do this anyway, as it is our moral obligation, but we are also required to do so by law and by our Constitution.”

Editor’s note: This story has been updated to reflect a letter from the Governor’s Office was sent to all counties.

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Keila Szpaller
Keila Szpaller

Keila Szpaller is deputy editor of the Daily Montanan and covers education. Before joining States Newsroom Montana, she served as city editor of the Missoulian, the largest news outlet in western Montana.