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Published on Sunday, September 07, 2008

Gazette Opinion: Let's talk about advantages of local tax control

By The Gazette Staff

Montana's economy has been growing relatively well, even in the national economic downturn. That fact is reflected in state revenue reports.

State general fund revenue for the year ended in June was $1.9 billion. The biggest chunk is the individual income tax, which accounted for $866 million, a figure that has nearly doubled over the past decade, according to the Legislative Fiscal Division. Other state revenue sources, including oil severance, corporation tax, video gaming and tobacco have grown substantially, too. But data from the legislative staff shows that state property tax revenues have grown much more slowly. Property taxes produced $202 million for state coffers in fiscal 1998 and $205 million in fiscal 2008.

The 95-mill levy hasn't changed, but reductions in tax rates have kept property tax revenues from increasing at the same clip as the state's economy.

"Individual income tax has had about 5 percent annual growth rate, not property taxes," said Terry Johnson, who analyzes revenue for the legislative division. "Property taxes traditionally have not grown very fast."

That has become a problem for some local governments in Montana. Public schools, cities and counties depend on local property taxes for the majority of their general funds. State law forbids local entities from imposing other taxes, such as sales tax.

Thus, even as state leaders and legislators contemplate what to do with the additional revenue generated by economic growth, many Montana cities struggle to pay for new services demanded by their growing communities. This is why proposals for local option tax authority will come up again in the 2009 Legislature - even though similar bills have failed in past sessions.

Promoting local option tax authorizing legislation is a step toward the goal of building a better community, according to John Brewer, president and CEO of the Billings Chamber of Commerce. The chamber views local option tax as one of the tools needed to give residents the ability to fund public services and infrastructure to enhance the quality of life in Billings.

Statewide interest

The Montana League of Cities and Towns has supported such legislation for 26 years, Executive Director Alec Hansen said from Helena. The league, which counts 129 member cities, usually has voted unanimously to support local option tax bills that would:

    - Be voted on by the people.

    - Not be a general sales tax.

    - Reduce local property taxes.

The league also in recent years has included revenue sharing with the surrounding area in its proposal.

"We happen to believe that voters in Butte, Big Timber or wherever are in a better position to determine the type and amount of tax they want," Hansen said. "People back home are completely capable of running their government. They don't need to be told how by Helena."

To explain the benefits of local option taxes, Hansen points to Whitefish and West Yellowstone whose citizens voted in "resort" taxes many years ago.

"They saw their streets improve and their property taxes go down," Hansen said. "They have the lowest mill levies in Western Montana and the lowest in the state, except for Colstrip."

However, the state law that allowed West Yellowstone, Whitefish, Virginia City, Big Sky and Red Lodge to vote on limited sales taxes only gives that option to small towns that derive most of their business from tourists.

Economic outlook

In numerous presentations to Billings area business people, economist Larry Swanson has used economic data to demonstrate that investment in local infrastructure and public services here are falling far behind the growth in private sector investment that generates more demand for public services.

"Property tax revenues are unable to grow as fast as many area economies are growing in the state," said Swanson, who is director of the O'Connor Center for the Rocky Mountain West at the University of Montana. "We find local government - city and county government, local public education, etc. - to be a shrinking piece of the growing pie." Swanson said.

As Swanson said, "Montana is a very diverse state. Local options allow for this diversity."

We call on state and local leaders across Montana to join in serious discussions about local government funding. Let's have a fulsome debate on local control vs. state control and the constraints state statutes have placed on local taxpayer decisions.

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