Gianforte Administration Takes School Tax Dispute with Counties to Court

Lawsuit asks a judge to clarify how tax cap law applies to ‘95 mills’ property tax collected for school funding equalization

By Eric Dietrich, Montana Free Press
The Montana State Capitol in Helena. Beacon file photo

The administration of Gov. Greg Gianforte filed a lawsuit Monday against Missoula County seeking a judicial ruling on a dispute with county governments over whether the state has the authority to require the full collection of a school funding property tax.

Last week, several county commissioners from different parts of the state told Montana Free Press they intend to have their treasurers collect less than the full 95 mills of taxes that have been collected as part of property tax bills for decades to help fund the state’s school equalization program, which balances funding between tax-base-rich and tax-base-poor districts.

The commissioners said they believe the dramatically higher property values on the books as a result of this year’s property reappraisal cycle mean levying the full 95 mills would violate a longstanding statute that caps how fast local government tax collections can grow. While the rates for most local government property taxes levied in Montana are recalibrated to align with budget needs as property values change, the 95 mills are an exception in that they produce a tax that’s directly proportional to property values.

Counties have insisted that there’s ample room in the state General Fund to offset lower property tax collections. The Gianforte administration and education advocates, however, have argued that scaling back the equalization property tax will jeopardize school budgets and, in the long run, force homeowners to pay more to support their local schools as the equalization tax directs fewer dollars from highly valued industrial and resort properties to schools outside those properties’ immediate districts.

In their legal filing, Gianforte administration officials note that the school equalization mills were created by the Legislature decades ago in response to a lawsuit that successfully argued the state’s prior funding system failed to uphold the Montana Constitution’s guarantee of a quality education system that provides equal opportunity for each student.

“The County’s interpretation interferes with the State’s constitutional obligation to ‘fund and distribute in an equitable manner to the school districts the state’s share of the cost of the basic elementary and secondary school system,’” the Gianforte administration writes.

The Montana Department of Revenue directed counties to collect the full 95 mills in a Sept. 11 memo. The dissenting county officials, however, interpret state law as authorizing only 77.89 mills of collections this year.

If adopted statewide, the lower rate would collect $79 million a year less. At an individual scale, the difference between the two tax rates is about $104 a year for a home valued at $450,000.

“The counties are going to do what we believe the law says,” Beaverhead County Commissioner Mike McGinley said last week. “If the state of Montana wants to sue the counties to increase property taxes, then we’ll have that battle.”

It remains unclear how many counties will join the fledgling tax revolt. Commissioners from Beaverhead, Fergus, Richland and Missoula counties have told MTFP they expect their commissions to adopt the reduced rate, and also said there was wide support for that approach at a Montana Association of Counties convention last week. The association has provided county officials with briefing materials to help them evaluate the decision, but hasn’t taken a formal position on the matter.

County officials have been adamant that schools wouldn’t be harmed by reducing the tax collections, arguing that the difference would be made up by the state General Fund. The General Fund has been flush with cash in recent years as a result of above-expected income tax collections.

The Gianforte administration’s lawsuit, filed in Missoula County District Court, names Missoula County, the county commission and county treasurer as defendants. The state and Montana Department of Administration Director Misty Ann Giles, who also serves as the state treasurer, are listed as plaintiffs. The state is represented in the case by Helena attorney Matthew Cochenour.

As part of the factual basis justifying its complaint, the lawsuit cites a prior MTFP story that quoted Missoula County Commissioner Josh Slotnick alongside commissioners from other counties, each saying their commissions planned to adopt the lower tax rate.

In an interview Monday, Slotnick questioned why the Gianforte administration would file the lawsuit in Missoula County instead of Beaverhead or Fergus counties, where he said county commissioners have been the driving forces in arguing against the higher tax rate.

“The commissioners in those counties have really showed great leadership on this issue,” Slotnick said. “We’re just following along.”

Beaverhead County’s McGinley, who has been described by himself and others as the effort’s “ringleader,” echoed the sentiment in an interview.

“I don’t know why it’s them — it’s going to be everybody doing this,” McGinley said.

According to Slotnick, the Missoula County Commission plans to vote on reducing its tax collections at a public meeting this coming Thursday, Oct. 5. McGinley said the Beaverhead County Commission passed an analogous measure Monday morning.

This story originally appeared in the Montana Free Press, which can be found online at montanafreepress.org.

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