4/12/99

KUFM / KGPR

T. M. Power

Lobbing Fiscal Time Bombs into the Next Millennium

During the last two sessions of the legislature, the property tax has been a central focus. First, the 1996 reappraisal of property led to residential property values rising 44 percent statewide and twice that in Western Montana, an astounding 90 percent. Second, the property tax on business equipment has been a sore point with the business and economic development communities because it is so much higher here than similar taxes in surrounding states.

Both of the last two legislatures wrestled with both of these issues. On the residential property tax, legislators in 1997 were convinced that the only way to avoid a dramatic increase in property taxes was to effectively suspend the 1996 property reappraisal results and stick with the old, inaccurate property values. Legislation to that effect was passed, but the courts struck it down because those whose property had decreased in value were being taxed unfairly. Given all of the heat that the issue of the higher property appraisals generated two years ago, one would have expected the legislature to be in an uproar over the court ruling which canceled the legislature’s effort to save us from crippling property tax increases. Instead there has been hardly any controversy or debate at all.

The reason for this is that after the court ruling, the legislature was willing to admit that there never really was any threat that the higher property appraisals would lead to 90 percent increases in property taxes.

The reason for this is simple. The property tax dollars we actually pay are the result of multiplying the property value by a tax rate. When the property value goes up, it is a relatively simple matter to lower the tax rate so that the dollars we pay in property taxes remain the same despite the higher appraised value. The legislature now seems poised now to do exactly this: phase in the higher property values over the next four years and simultaneously cut the property tax rate proportionately. "Abbra kadabra" the threatened 90 percent increase in property taxes that was used to frighten us all two years ago disappears. It is a shame it took two years, a good deal of public confusion, and a court ruling for the legislature to admit to this simple solution and abandon the crisis talk.

This does not mean that concerns over high residential property taxes are going to disappear. As the legislature seeks to solve the other property tax problem, the business equipment tax, it is setting the stage for future increases in residential taxes and/or a sales tax. The legislature began cutting the business equipment tax in 1997 and has now passed a law phasing it out entirely over the next several years.

That is fine. We would all like to pay less taxes, although we are not usually willing to accept low quality public services. The problem is that the legislature has not proposed alternative sources of revenue to replace the tax it is getting rid of. That means that in the future we will either have to accept significant deterioration in public services or we will have to raise other taxes. The residential property tax will be the easiest target. That is where the legislature repeatedly turned during the late 80s and early 90s as it cut taxes on natural resources such as coal. Tax rates on residential property increased twice as fast as the appraised value of that property between 1987 and 1997. As tax cuts favoring business have been adopted, the rest of us have been asked to pick up a larger share of the tax burden.

That is where this legislature is also headed. Agreeing that the tax on business equipment is too high does not mean that one has to agree that the overall level of taxation of business activity needs to be reduced. One can reduce a tax that is out of line while increasing other business taxes that are not. After all that is what was done with the property tax on electric generating equipment. Although some legislators sought to shift this tax directly to Montana consumers through a high sales tax on electricity, the majority realized that that was neither either fair nor necessary. Instead the legislature adopted a tax on wholesale electricity transactions in the state. The revenues will continue to come from that industry but not in a way that burdens certain businesses more than others. The same could have been done with the business equipment tax but was not.

This is not surprising. There are legislators who think that any tax on business is wrong and want a sales tax so that you and I can carry the entire burden of government services. There are others who just want to slash government activity because they do not believe it contributes anything but, at best, mischief and waste to the state. Those groups, who make up a majority in the legislature, want to create a fiscal crisis so that they can pursue their own ideological agendas. Although they could not carry the day during this legislative session, they have buried and activated their time bomb to explode in future years. Thanks a lot!