Reappraisal switch advances in Senate

A legislative proposal to simplify state property taxes and mitigate changes in values will likely head to the Senate floor sometime next week.

One of the key elements of the legislation would switch Montana to a two-year reappraisal cycle.

Property values are currently reappraised for tax purposes every six years. Many property owners in the Flathead still remember how that played out during the last reappraisal cycle.

Just before the bursting of the real estate “bubble” that saw speculative building and buying inflate real-estate prices, many residential property values in Northwest Montana spiked dramatically.

Between 2002 and 2008, Flathead County residential property had risen by an average of 72.6 percent, and some homeowners were reporting four-fold increases in their home values. Overall, 76 percent of residential taxpayers in the county saw increases in the taxable values of their homes.

The housing market crash of 2008-2009 brought property values — but not taxes — back down. 

“Lakefront properties saw a huge increase [in appraised values] because that’s what the hot properties were at the time in that part of the state,” said Scott Williams, the state Revenue Department’s western regional director. He said the department took the step of extending the reappraisal period to July 1 in 2008 in an attempt to account for the clear signs of a collapsing real estate market.

“But the effects of the recession didn’t fully hit Montana until further into 2008 and really more in 2009,” he said.

By the time reappraised tax values took effect in 2009, the value of many homes had plummeted in the wake of the late-2008 stock market and housing crash. Property owners were left to pay taxes on the inflated value for the next six years.

Sen. Bruce Tutvedt, R-Kalispell, wants to make sure that doesn’t happen again. He introduced Senate Bill 173, which among other tax-simplification measures would move the state’s reappraisal cycle from a six-year to a two-year period. 

He said that will allow a property’s taxable value to respond more directly to the real-estate market, minimizing the effects of huge jumps in value that are then further complicated by phase-in calculations and floating mill levies.

“There’s a consensus that simplification is a good goal, transparency is a good goal, but the system resists change,” he said. “I think the two-year cycle brings a lot of good things... If we just let [property values] trend over time I think it takes the politics out of it and we end up with a fairer system.”

Tutvedt and other proponents of overhauling the system believe this may be the best time to do so.

“At this time, the appraised value from July 1, 2008, is about equal to what they are today,” Tutvedt said. “This is an opportunity to simplify the system.”

Values from the 2014 reappraisal are still being finalized, but Tutvedt said preliminary estimates show far fewer outliers in terms of changes from 2008, and noted that about two-thirds of assessed residential properties have seen a decrease. Williams said that Flathead County appeared to be following that trend.

“Going forward into this reappraisal, there is a decrease countywide on average properties. In all of Western Montana we are going to have a decrease overall. But that doesn’t mean there aren’t going to be some properties that increase.”

So far, he said the median decrease in property values for Flathead County is about 20 percent. On the ends of that spectrum, he said there were decreases of up to 40 percent, while others will see a slight increase, such as Whitefish, where many residential property values have nearly returned to 2008 levels.

The taxation committee, which Tutvedt chairs, forwarded the bill to the Senate on a 9-3 vote after attaching several amendments. Changes were expected, and Tutvedt called his bill “an opening salvo” when he brought it before the committee last month, leaving open the door to significant rewrites.

One of those amendments, offered by Tutvedt, carries significant implications for the timber industry. Without any change in property-tax law, the timber industry would be locked into taxable values for the next six years that reflect a nearly 50 percent decline in the value of forest lands, meaning a related drop in their tax burden. As originally written, the bill would have put the timber industry into two-year cycles, eliminating four years of guaranteed low taxes.

During the Feb. 4 hearing, several timber industry representatives spoke against the proposed two-year cycles, which they said are at odds with the basic nature of their industry.

“Forest lands are really uniquely situated property,” said Mark Baker, a Helena lawyer representing Plum Creek Timber Co. “It is a commodity that is different from other commodities. Our growth cycle is not over the course of months of even one year. It is over the course of several years. So frankly, a six-year cycle allows for an averaging out of the ups and downs.”

He added that tripling the frequency of reappraisals would likewise triple the administrative and compliance costs for forest landowners.

State Sen. Mark Blasdel, R-Kalispell, offered an amendment that would simply remove timber lands from the bill, but it was rejected in favor of Tutvedt’s amendment to base forest land values on a 10-year, commodity-based average each two-year cycle, as is done with agricultural land. 

Agricultural land, which is currently appraised based on seven-year averages, would also move to a 10-year average. The amendment also brings timber lands’ capitalization rate — which gets multiplied by the commodity average to determine taxable value — in line with agriculture, lowering it from 8 percent to 6.4 percent.

Sen. Jill Cohenour, D-East Helena, pointed out that lowering the tax burden for timber would shift the difference to other classes, including residential, which Tutvedt conceded was accurate.

Residential and commercial properties are currently lumped together in the same class. The tax bill initially would have separated them, but another amendment brought them back together.

In an interview Thursday, Tutvedt said he expects the bill to be debated on the floor early next week.

“I think the bill came out in a very good form that keeps the simplicity and the goal of taxable value neutrality by class,” he said. “It keeps the two-year cycle which will be much more easy for the taxpayer to understand.”

Reporter Samuel Wilson can be reached at 758-4407 or by email at swilson@dailyinterlake.com