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Montana Viewpoint
THE MYSTERIES OF REAPPRAISAL

March 24, 2003

Every six years or so, the Legislature goes into panic mode and scrambles to deal with property reappraisal. Simply put, reappraisal is the re-evaluation of taxable property for, well, taxing it. The Montana Constitution specifies that the state has the responsibility to appraise and equalize all taxable property. That’s to make sure the process is done uniformly, and that property owners are paying taxes on property appraisals that are current.

In the 1970s and ’80s, before Montana became a retirement haven, this was not a big problem. Property values increased from year to year, but not that much, and they rose pretty much all over the state. With the influx of new residents into the mountain valleys came new, more expensive houses, and a corresponding increase in land values. But in Eastern Montana, property values dropped.

Property valuations are affected by different factors, and an increase in property values for one area may or may not affect a neighboring area. The rule is that similar properties must be given similar valuations. For instance, in Western Montana, prices for bare ground have increased dramatically, but not for lots in small towns. That means the increase in prices for adjacent rural acreage would not affect the appraised value of lots in town.

Likewise for home prices in small towns; since people are more interested in living out-of-town, town homes are hard to sell, which keeps their appraised value down relative to out-of-town homes.

In rural areas, although there are some elegant homes being built, most new homes are relatively modest. The only thing they have in common for appraisal practices is the increased land value. That value will increase for all, but since mansions aren’t double-wides, the value of the mansion won’t cause an increase in the value of the double-wide.

When it was simpler, a simple adjustment in the state tax rate kept taxes stable for all concerned. Nowadays, it takes some pretty complex juggling to make sure those in the West don’t get the pants taxed off them, and those in the East are treated fairly as well.

Because it is now so complex (second only to the mysteries of school funding), there is no simple action to take that will treat everyone the same. There’s no complex action, either. On October 24, 2002 Governor Martz created the Property Tax Reappraisal Advisory Council to look for equitable solutions.

Their recommendation was to keep the current system, but increase the percent of residential property value exempted from taxation, and decrease the tax rate. This wouldn’t keep taxes down for everyone, but it would give less of an increase, and 60% of homes would have a decrease in valuation as opposed to 35% if nothing was changed.

Their second recommendation was to take a serious look at “acquisition value” as a method to use in the future.

This session, in addition to the Council’s proposal, there are two bills that treat property appraisal readjustment differently. Senator Bob DePratu’s (R-Whitefish) solution is Senate Bill (SB) 260, which puts a cap on the amount residential property values can go up. This not only limits “appraisal creep,” but over time, it lowers taxes on residences that would have seen the largest property value increases.

Unfortunately this creates a Constitutional problem, because it creates UN-equalized residential property values. Eventually, homes that don’t qualify for the property value cap begin paying more in taxes than “capped” neighbors.

The Governor’s preferred solution is Senator Bob Story’s (R-Park City) SB 461. This is a variation on the Council’s proposal and has some Constitutional problems, too. In order to give the greatest possible tax break to homeowners, it increases the valuation of second homes, rentals, and commercial property to pay for the homeowners’ tax break. You cannot treat properties in the same property classification differently, and, except for commercial property, these are all in the same class.

Even though I sit on the property tax subcommittee with DePratu and Story, I can’t predict how this will turn out, except to say that taxes will increase for some and decrease for others due to reappraisal. But remember, there are other things that influence property tax increases. For instance, counties and schools have been forced to raise taxes locally to make up for statewide tax cuts given by the Legislature.

There are programs for people who have a hard time paying property taxes, and there is a tax cap in both Story’s bill and the Council’s proposal. Folks over 62 can apply for the Elderly Homeowner-Renter Credit, and other low income folks have the Low Income Property Tax Program. The County Treasurer’s office knows all about these programs, or you can give me a call at 444-4800.

This is not simple, as you can see, and it deserves more than a last minute attempt by state government to sort things out. It needs some long term study beginning early in the reappraisal cycle so that realistic solutions can bring stability, predictability, and Constitutionality to home values.

Jim Elliott
Phone: 406-444-1556
Mail: State Senate Helena, MT 59620

jim@jimelliott.org