Market values in Flathead County top $5.5 billion

The market value of real estate and personal property in Flathead County increased by more than $400 million in 2005, topping $5.5 billion for the first time.

The numbers were released this week by the Montana Department of Revenue. They cover agricultural lands and equipment, private forest lands, residential and commercial lots and improvements (homes and businesses), business equipment, utilities, railroads and airline properties.

The value of public buildings, assets of nonprofit organizations and federal or state land holdings are not included.

Department of Revenue officials say it's impossible to tell how much of the $400 million came from new construction, versus property reappraisals, renovations or other changes.

However, they say it's reasonable to assume that at least half the growth is due to new homes and businesses that were built two years ago. (It takes that long for new construction to show up on the tax rolls).

Whatever the cause, the $400-million increase was the largest year-over-year growth since 1993, when market values jumped by more than $500 million. There was also a billion-dollar increase in 1986 and another $500-million increase in 1978.

Flathead County's market value ultimately provides the foundation for local property tax revenues, through a three-step process:

-Determine the taxable value - The market value of land and property is multiplied by the tax rate for that property type to yield its taxable value.

State tax codes include hundreds of different property types and dozens of tax rates, ranging from less than 1 percent to 22.5 percent.

Tax rates are set by the Legislature, and they change almost every year.

Residential and commercial lots, homes and businesses account for 77 percent, or $4.3 billion, of the county's total $5.5-billion market value. These property types currently have a tax rate of 3.22 percent.

Therefore, a home with a market value of $100,000 would have a taxable value of $3,220. (For simplicity, this example ignores the homeowner's exemption that would reduce the market value by about a third.)

Flathead County's taxable values increased about 6 percent this year, to $166.7 million.

-Establish the mill levy - Property tax mills are approved by local governments. Kalispell, for example, recently approved a levy of 170 mills; Flathead County is considering a levy of 133.79 mills.

-Calculate the property tax - The property tax is a function of the total mill levy and the taxable value.

For example, assuming Kalispell were the only taxing jurisdiction, that home with a taxable value of $3,220 would have a tax bill of $547.40 - $3,220 times 170 mills (.17).

Given this formula, it would seem that a $400-million (8.1 percent) increase in market value would do wonderful things for Flathead County's finances.

However, local governments throughout Montana say they don't benefit from higher market values as extensively as they might wish, specifically because the Legislature continually reduces the tax rates for critical property categories, such as residential and commercial properties and business equipment.

Five years ago, for example, the tax rate for homes and businesses was 3.627 percent, compared to 3.22 percent now.

This year alone, that slight difference will cost Flathead County about $2.3 million in property tax revenue.

In time, these legislative tax rate reductions have drastically limited growth in the county's tax base: While market values here have increased 23-fold in the last 30 years, taxable values have only increased three-fold.

This discrepancy is occasionally cited as an indication that growth doesn't pay for itself.

Some officials also have suggested that legislative restrictions on taxable values are partially responsible for the difficulties that local governments here have in paying for road improvements and other infrastructure and service needs.

Reporter Bill Spence may be reached at 758-4459 or by e-mail at bspence@dailyinterlake.com.