Comparing apples to taxes: Analyzing Lewistown’s tax rate not so easy

By: 
DEB HILL
News-Argus Managing Editor

Dan Clark, director of the Local Government Center at MSU.

As the municipal election season moves into full swing, taxes, specifically Lewistown’s taxes, seem to be at the heart of the debate.

Taxes took center stage at the first public candidate forum Wednesday night, with over half of the candidates mentioning taxes as an issue. At least one candidate has declared Lewistown to have the highest taxes in the state.

But comparing the tax burden from one community to the next is not as easy as some may think.

 

Tax rates don’t vary

One could look at property tax rates, for example. But, according to Dan Clark, director of the Local Government Center at MSU in Bozeman, city officials have no authority over property tax rates.

“How much your property is taxed is set by the state, depending on the property’s classification,” Clark explained. “There are currently 14 classifications, including residential, forest land and agriculture.”

The rates for each classification are set by state law, so the tax rate for a home in Lewistown is the same as the tax rate for one in, say, Havre. All that will differ is the assessed value of each home, Clark said.

 

City’s ability to raise taxes restricted by law

Lewistown City Manager Holly Phelps added another layer of complexity to the discussion.

“By statute, our ability to raise property tax is limited to a percentage of the rate of inflation,” Phelps said.

The statute Phelps refers to grew out of I-105, a voter initiative passed in 1986 in an attempt to freeze property taxes. Over the years since, the legislature has modified or reworked parts of I-105 that were unclear.

One such modification, passed in 1996 and now found in Montana Code Annotated 15-10-420, explains governments can only impose tax levies “sufficient to generate the amount of property taxes actually assessed in the prior year, plus one-half of the average rate of inflation for the prior three years.”

In other words, Phelps said, the city commission cannot legally raise the amount of property tax levied without approval of the voters.

To compare general fund tax amounts from one community to another requires a look the valuation of all property within each city and its classification, Phelps said, since that is what determines the amount of tax each city will get.

Phelps said Lewistown’s general fund pays for police, fire, the library, parks and recreation and the cemetery, as well as general administration of the city.

 

Comparing mills

Those that work with taxes have their own language. Take, for example, a mill.

Technically, a mill is equal to one-tenth of a cent, according to Clark, who said the MSU Extension publication “Montana Counties on the Move” contains the best description of how mills work.

According to that publication, when a city sets its annual budget, it starts with the total taxable valuation of property under its jurisdiction, multiplies that by one-tenth of a cent (.001) and determines the amount of property tax one mill will raise. That number is then divided into the total amount of tax needed for the city’s general fund, and the result is the number of mills the city will levy that year.

Number of mills seems like an easy way to compare city taxes across Montana.

But it doesn’t work, according to Clark.

“The number of mills is meaningless without knowing the value of a mill in this town or that town,” Clark said. “Even if your town has a large number of mills, you might pay less in taxes based on the value of a mill in your town compared with that of another town.”

For example, a chart posted on the Local Government Center’s website shows the number of general fund mills levied by all cities in Montana in 2015. That year, the number of mills levied in Lewistown was 221.17. Each of those mills was worth $5,813.38.

That same year, Denton levied 231.85 mills, but each Denton mill was worth only $229.03.

“A mill is defined as 1/1000th of the market value of real property in the town,” Clark explained. “As property values rise, the value of a mill goes up. When values drop, the number of mills goes up to reach the same amount of taxes. We call it a ‘floating’ mill, as the number changes from year to year.”

 

Details matter

Craig Shepherd, financial administrator for the city of Hamilton agrees it’s hard to compare taxes between different cities.

“Different things may be in one entity’s general fund and not in the other’s,” Shepherd said.

 “Hamilton is a city with around 4,400 in population. You wouldn’t think a small town like Hamilton would need 17 public safety personnel and a $500,000 public safety budget, but we are surrounded by a county population of about 50,000. We need more law enforcement than a rural town normally would,” he explained.

“Our mayor and council members all together make $60,000 per year,” he added. “You can’t just compare one entity to another. You have to get into the detail.”

 

Ideas welcome

City Commission Chairman Dave Byerly said mill values in Lewistown have historically been lower than some other areas of the state.

“To raise exact same amount of taxes as, for example, Colstrip, we need more mills because our values are much lower than theirs,” Byerly said.

In 2015, Colstrip levied only 40.17 mills, but each mill was worth $59,732.71.

“Taxes are complicated,” Byerly said. “Our general fund is around $3-4 million. I don’t feel like Lewistown has a swollen budget. There are things we’d love to do and can’t afford.”

Byerly added the city commission approves claims (expenditures) at every meeting.

“We have detailed records of where every dollar goes. If someone has concerns, they can come look at every dollar spent. I’m all ears for anyone who wants to come to us with ideas for how to spend less.”

 

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