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Governor’s Property Tax Reappraisal Advisory Council Meeting

Dec. 20, 2002



Chairman Senator Bob Story
Vice Chairman Kurt Alme
Representative John Brueggemann
Representative Gary Branae
Ward Ernst
Nick Hogan
Senator Emily Stonington
Susan Humbolt

Department of Revenue Staff Present:

Judy Paynter, Tax Policy and Research Process Lead
Brad Simshaw, Principal Tax Policy Analyst
Larry Finch, Principal Tax Policy Analyst
Marla Tilton, Administrative Assistant


The information base is the material prepared for the Council.  The only handouts referred to are those given in addition to the basic Council materials.

The meeting was called to order at 9:00 am and roll call was taken.

Chairman Bob Story opened the meeting and welcomed Susan Humble to the Council.  Chairman Story noted that the minutes would be approved at a later date.  Chairman Story reviewed the Council Charge.

Brad Simshaw, Department of Revenue, presented the report on Analysis of Preliminary Reappraisal Valuations. The Council discussed points in the report.

Ward Ernst asked if businesses were to leave, would there be a decrease in the reappraisal valuations?  Brad Simshaw responded no.  The records used in this report represented about 380,000 residential properties and less for commercial property.  This is a comparison of all property with a 2002 value to the new 2003 reappraisal value, so a business closing does not affect the change in commercial property appraisal values.

Senator Emily Stonington asked if there was any idea of what is going on in the small rural towns.  Brad Simshaw responded that there was no information on the small rural towns and that the reappraisal not only will change from the old 1997 value to a new 2003 value, but there will be many changes, even corrections, to errors that may have occurred in the prior reappraisal.

Chairman Bob Story noted that most of the counties have a low base and asked how many parcels were excluded because they were outliners.  Brad Simshaw commented about 5-10%.  Chairman Story stated that residential, agriculture and timber are valued every 6 years.  Chairman Story asked if the other classes of land were valued annually.  Brad Simshaw responded that they were valued annually.  Brad gave an example of utility property as natural growth.  Natural growth mostly means new construction, new property and buying new business equipment.  Utility property would have a change in valuation that is not only new construction but also they would be reappraised each year.  Brad added that you could have the same piece of property that actually changed in valuation each year because of revaluing property each year.

Chairman Bob Story asked if the method of appraisal is related more to income as opposed to market value.  Brad Simshaw responded that the appraisal method for residential property is generally on market base and for commercial property; it is generally an income approach.

Chairman Bob Story asked what the average mill levy was currently in the state.   Brad Simshaw responded that it is about 500 mills for residential property.

The Council broke from 10:00 am to 1:00 pm as three members of the Council were on the Rules Committee, which started to meet at 10:00 am.

Brad Simshaw, Department of Revenue, continued his report on Analysis of Preliminary Reappraisal Valuations.  The Council asked questions and discussed points in the report.

Lee Heiman, Staff Attorney, Legislative Services Division, presented information about Acquisition Value Questions.  The Council asked questions and discussed points in the report.

Larry Finch, Department of Revenue, presented the report on Acquisition Value Approach to Property Taxation.  The Council asked questions and discussed points in the report.

Chairman Bob Story asked for public comment.

A citizen, who did not introduce himself, commented that the acquisition value report did not discuss whether the current system is unfair or not.  In order to relieve the inequities that are inherent in the current system, tax reform should be considered.  We have to find a way to make the property tax a fair and equitable system for our people.

Chairman Bob Story responded with some history about property taxes.  He noted that about ten years ago the economy of Montana drove the property value.  When money started coming into the state from other places and resting here, it started changing the values of our homes and that is what brought the issue of higher property taxes to Montana.

The above referenced citizen also added that what we did in 1997 really was helpful because his personal taxes only increased about 20%.  The citizen noted that the increase was tolerable; but if that percentage goes higher, it will not be tolerable.  He ended by saying that tax reform is a requirement.

Senator Emily Stonington thanked the audience for coming to the meeting and added that her personal property taxes increased about 37%.  She commented that the system is very complex and if we look at the taxing side, we have a limited number of variables that we can deal with regardless of whether we go to acquisition value or stay with an appraisal system.  Senator Stonington said basically we have the value of the home, the option to phase in any value increase or not, the tax rate, and the number of mills that can be applied by schools or local governments.  In 1986, Initiative 105 was passed.  This limited local governments’ ability to apply more mills, but the schools continue to be able to apply greater and greater mills to fund the students in their schools.  The mill is the bottom line because the state has pulled back on its share of school support and those taxes have been shifted to the property tax payers through the mills.  If we can address that issue, we can get at this basic problem without having to look for a whole new way to tax properties.  Senator Stonington pointed out that the task this committee has, is really to address the property tax increases within the system of taxing the property.  Is there a better way of looking at those limited variables to address the problem of increased values and the potential problem of increasing taxes?

Chairman Bob Story asked Senator Stonington if she knew what caused the 37% increase in her taxes.  Senator Emily Stonington responded that her mills had increased from 362 to 443.  The mill increases were mostly voted mills.

Senator Emily Stonington asked Lee Heiman, Legislative Services Division, if other states were able to tax residential property differently if property was owned by non-residents versus residents.  Lee Heiman responded that this would be unconstitutional and was not aware of any states being able to tax residents differently.  Lee added that our homestead exemption terminology used in the tax code could include a specific definition for being a resident.

Chairman Bob Story asked Lee Heiman for further explanation of the homestead exemption.

Lee Heiman, Legislative Services Division, responded that the Montana Constitution recognizes the homestead exemption.  He added that many states have a homestead exemption for their residents.  He noted that some of the guidelines with other states are that if you live in a place for six months of the year, then you are allowed the homestead exemption.  This guideline is not saying that a person is a resident of the state, but that they lived in the residence for six months of the year.  The exemption would not cover a second or third home.  This is a simple homestead exemption; you could make it more complex by factoring in the value of the land and the value of the house with some kind of ratio and also the person’s age and person’s income as another ratio.  You can include the number of months of the year a person lives in the home.

Chairman Bob Story asked Lee Heiman how we avoid the United States challenge of Equal Protection?  Lee Heiman responded that the United States Equal Protection is broad regarding taxes.  The state needs to have a rational basis and then the federal constitution gives the legislature considerable freedom in how they approach taxes.

Chairman Bob Story asked the Council to review the questions Larry Finch, Department of Revenue, had presented at the end of his report:

  1. Are identified problems with the current system widespread (statewide), or are they isolated?
  2. If isolated, how many instances or occurrences of the problem actually arise in the isolated areas?  Does the problem really require a solution that impacts all property taxpayers?
  3. Does this type of solution provide answers that may be worse than the problem by complicating and confounding an existing system of taxation that generally works well?  Or is the solution one of specificity?
  4. If the solution is one of specificity, can there be a specific solution designed to target and alleviate the socially acknowledged burdens on selected segments of taxpayers before implementing wide-ranging and long-term reform?

Chairman Bob Story asked the Council if we should look at our charge as recommending a long-term fix or a short-term patch.

Kurt Alme also asked the Council what the scope should be for this group’s accomplishment and should we consider another meeting.  Kurt suggested that maybe the group should focus on working within the current system and, if the group thinks the acquisition value is worth a further look, then that should be noted as well.

Representative John Brueggemann commented that the problem is that the phase-in still leave 6% with a property tax increase greater than 25%.  John noted that even with dropping the mills and adjusting the rates, the rest of the state would be out of proportion.  Representative Brueggemann recommended a long-term commitment, but felt the Council should consider a band-aid.

Ward Ernst agreed that the phase-in of reappraisal was important and expressed concern about how to address the outliers.

Representative John Brueggemann added that the group might want to look at taxing by the square foot instead of the value of the property. 

Chairman Bob Story responded that in 1999 some of the ideas were to look at square footage or like the European way, the number of doors or windows.  Basically, the purpose of property tax is to raise money for those services related to property and we currently use property taxes to fund a big chunk of schools.  Chairman Story added that we need to fund what services property ownership demands, for example, fire protection, police protection, roads, sewage, water and those things more related to property.  Back in 1999, the head of the Montana Taxpayers Association gave the members of the Council some thought with his statement, “You guys spend a whole lot of time worrying about whether the system is fair or not. The system isn’t designed to be fair, it is designed to raise revenue.”

Senator Emily Stonington commented that fairness could mean so many different things.  Is it fair to see your property tax increase just because the person next door paid a huge amount of money for their property?  On the other hand is it fair to tax on a square foot basis because I might build a home that costs $70 per square foot and you might build a home that costs $200 per square foot?  Is it fair to have people’s taxes go up when they live on fixed income?

Chairman Bob Story asked the Council for their comments on the following different options they could recommend:

  • Band-aid
  • Band-aid and alternative
  • Band-aid, alternative and long term
  • Band-aid and something to help the outliers

Senator Emily Stonington moved that the Council recommend to the Governor an adjustment in the tax rate, an adjustment in the homestead exemption, and continuation of the phase-in of developing new property values in both residential and commercial properties (as shown in Table 3) and applying those to the new appraisal values.  Motion was seconded and passed unanimously.

Representative John Brueggemann commented that this motion would be the band-aid and that the long-term problem remains.

Senator Emily Stonington added that this recommendation would be a change to the existing tax policy.

Chairman Bob Story reminded Council members of Montana’s reappraisal history (reappraise / reduce the rate / reappraise / reduce the rate / in 1993, reappraise but don’t reduce the rate, which caused a tax revolt / in 1997, reappraise, reduce the rate and create homestead exemption).  The reappraisal worked well in that environment because we weren’t able to analyze the tax completely.  There were still 6% of the people that were going to pay 25% more tax.  It has been recently that we have seen the change.

After the Council’s discussion, Judy Paynter, Department of Revenue, suggested her staff could do additional research on the outliers that would include locations, characteristics of the property, land values and any commonality that the database contains.

Chairman Bob Story asked how much of the 20% increase was land and how much was growth in value.  Judy Paynter responded that residential property is somewhere around 45-58% increase in land value and a 12-15% increase in structural value.

Chairman Bob Story suggested that the Council should look at backing off the homestead exemption as such, taking more of the land and improvement split and putting the homestead exemption into the land.  The tax then should work out rather evenly for the average property owner.

Senator Emily Stonington expressed concern about dealing with the discrepancy in the 120-acre problem versus the 20-acre plus problem.  She commented that she receives many calls where someone lives on a 14 acre site and is paying $1,800 on the land and someone else right next door on a 21 acre site is paying $46.  That is a real discrepancy.  With this issue of reappraisal values going up so much on land, we need to look at the exemption policy we have and apply it to land so that it somehow equalizes.  Senator Stonington added that she would feel more comfortable if the Council had another meeting to make additional recommendations.

Judy Paynter, Department of Revenue, commented that the department has broken out both the land for residential and commercial properties and there is a comparable difference going on between the land growth versus the improvements growth.  Chairman Bob Story added that the land has increased 100%, which means that it went from $100 a lot to $200 a lot.

Judy Paynter, Department of Revenue, suggested that they could take a look at presenting some of the data in dollars instead of percentages.  Chairman Bob Story agreed with Judy’s suggestion because it might give the Council another option to review.  Representative John Brueggemann asked if the Department of Revenue could present data by county.

Senator Emily Stonington asked when do the individual notices go out to taxpayers?  Kurt Alme responded in June.

Kurt Alme asked the Council to give some thought to the following questions:

  • What exactly are we trying to do? Are we trying to keep people’s property taxes from changing or is it only certain people we are concerned about? 
  • Are we concerned about the folks with fixed income, are we concerned about people as long as they stay put, are we concerned about residents only as opposed to non-residents?

Chairman Senator Bob Story adjourned the meeting at 4:10 pm.

The next meeting date was set for Saturday, January 11, 2003. navigation footer
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