hat
banner
banner
Montana Viewpoint
TAXES AND HOME VALUES
There may be a problem, but “Proposition 13” isn’t the solution.

April 3, 2006

A few people have asked me lately why Montana doesn’t adopt California’s method of taxing homes. It’s called “Acquisition Value,” but some folks may know it better as “Proposition 13” which was the name of the 1978 ballot initiative that made it law in California.

Proposition 13 has two components. The first is that the taxable value of your home is the price you paid for it; the second is that property taxes aren’t allowed to increase more than 1% a year.

Let’s take the simplest first, limiting property tax increases to 1% a year. If the goal is to limit state government spending, this won’t do it. Virtually every dollar we pay in property tax is spent on providing services locally. It’s spent on schools, roads, fire, police, ambulance services, Senior Citizens programs, and cemetery districts. Take a look, it’s all listed on your property tax statement.

So, how’s your road? Is it like Mark Twain said about the weather? “Everybody talks about it, but nobody ever does anything about it.”

How’s your law enforcement? Last time I needed it the single deputy on duty was 100 miles away at the other end of the county. This will not get better if property taxes are limited to 1% growth a year, especially when the ten-year average for inflation is 2.5%.

Taxes on new homes do increase county revenues, but they use services, too. It actually costs counties about $1.35 to provide services for every dollar collected in taxes.

In California the state had to step in to pay for county services, and local control of spending was lost.

The other part of Proposition 13 is basing the taxable value of a home on its purchase price. This has become attractive to some Montanans who believe that taxes have increased because people moving to Montana have bid up property prices.

They’re right about their taxes increasing, but they’ve got the reason wrong. Yes, the values of those homes in Western  Montana have increased dramatically (although they’ve decreased in much of Eastern Montana), but unlike Californians, we aren’t taxed on this value, which is called “Market Value.”

Bear with me here, I know it’s technical, but I’ll be gentle.

For whatever reason, Montana developed a system of multiplying the Market Value by a Tax Rate to get the Taxable Value, which is what our mill levies are applied to. There are some other deductions, too, so right now taxes are assessed against only about 2% of a home’s Market Value.

Each reappraisal cycle, legislators, most of whom have a vested interest in getting re-elected, cringe at the thought of handing a huge tax increase to the voters, so they lower the tax rate to keep the Taxable Value the same as it was before reappraisal.

Take a look at your tax statements for the last eight years, or, since it’s handier, take a look at mine. Since 1998 the Market Value of my home increased substantially, but the Taxable Value actually went down 18%. My taxes did go up, but that’s because the mill levy increased from 274 to 346 mills. But—and it’s a big but—my taxes did not go up faster than the rate of inflation.

Because Proposition 13 locks in Market Values for the homeowner, the person who has owned a home a long time pays lower taxes than someone who just bought an identical house next door. This means they pay different taxes but get the same services.

Imagine this; one night your house and your neighbor Louie’s house both catch fire. The volunteer fire department gets there just in time and the damage to each is minimal. Your volunteer fire department doesn’t get a lot of local tax support, so they have to charge for their services. You find that your bill is twice as high as Louie’s.

“How come?” you ask the Fire Chief.

“Well,” he says, “the longer you live here the less we charge, and Louie’s lived here twice as long as you.”

It works just like that, except instead of paying a bill, you pay higher taxes for the exact same public service.

So what is the problem that a Proposition 13 type fix needs to address? In Montana, increasing home values don’t mean higher taxes, homeowner’s taxes are not increasing faster than inflation, and nobody has to pay more for lousy roads than their neighbor.

Proposition 13 seems understandable, but is it better? I understand that candy tastes better than medicine, but it doesn’t help me when I’m sick. (I eat it anyway, but I still take my medicine.)

 

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

jim@jimelliott.org