CI-121 would create inequity in the tax system
For the past 100 years, the Montana Taxpayers Association (MONTAX) has been Montana’s most trusted resource for nonpartisan tax and government spending information. One of our mission promises is to encourage fair tax solutions that benefit all Montana taxpayers.
As Executive Director of MONTAX, I think it is important to state that our organization believes that CI 121 – a constitutional initiative masquerading as a “property tax cap” – does NOT fit that mission. In fact, CI-121 would create a huge inequity in our property tax system and pit taxpayers against taxpayers and local governments against local governments.
We ask Montanans not to sign petitions to put CI-121 on the ballot in November.
Proponents of this initiative claim it will limit residential property taxes to benefit homeowners. What it really does is reduce the ability of local governments and schools to maintain current service levels. It is also likely to result in significant tax shifts to residential properties outside of high-tax cities and to non-residential properties.
Here are the facts:
• Residential property owners already pay one of the lowest effective tax rates of any property class in Montana. Most property tax-funded services primarily benefit homeowners. Lowering the amount of taxes residential property owners pay will likely result in an even heavier property tax burden on our small businesses and farm properties.
• Owners of residential properties in high-tax cities and owners of multi-million dollar properties will be the main beneficiaries of the CI-121.
• CI-121 would amend the Montana Constitution and implement virtually irreversible changes to the property tax system.
• CI-121 would hurt families buying their first home and seniors trying to downsize. When “protected” properties change hands or are significantly improved, the significance of which is yet to be determined, they would immediately drop to current market value at skyrocketing costs for unsuspecting owners.
• Unless granted by the legislature, there will be no protection for tenants and taxes on rental properties may increase.
This initiative would not only create divisions among the people of Montana, but it would also generate enormous problems and confusion for local governments and schools as they race to acquire the last available tax dollar before the constitutional tax ceiling is reached.
No one will know which properties are protected by CI-121 until the initiative is in place and the Legislative Assembly defines “residential property”. To make matters worse, homeowners whose taxes have been capped can still vote for levy increases and bond issues, even though they won’t have to pay them.
If passed, state, local governments and schools could lose more than $150 million in current funding. In the face of this significant shortfall, the legislature will likely allow lost revenue to be transferred to other properties such as commercial properties and agricultural land. The initiative promises to “return” residential properties to their 2019 values, which will put them four years behind properties not designated as residential and all other property categories. This will aggravate the unfair tax differentials that already exist between different categories of property.
Finally, identical houses could be taxed at different levels depending on arbitrary reasons such as when the house was purchased or if the owner made “major improvements”. The Department of Revenue will also need to constantly reassess residential property values to be able to assign accurate values when property changes or improvements are made.
We agree that our tax system needs updating, but CI-121 is not the answer. It is poorly designed and offers false hope to many owners.
Bob Story is executive director of the Montana Taxpayers Association.