2025 Legislature Preview with Rep. Mark Thane

Every two years, the Montana Legislature meets for 90 days to pass bills and the statewide budget. Bills become laws and dictate policy on everything from taxes to healthcare access and more.

Starting in January, 100 representatives and 50 senators will meet in Helena to work together in committees and hearings to address issues that matter to all Montanans. This week, the commissioners spoke with Missoula Rep. Mark Thane about his predictions for the session, his insights on school funding and what types of tax relief are on the table.

This is a longer episode with lots of tax talk. Click here for a refresher on tax vocabulary.

Thank you to Missoula's Community Media Resource for podcast recording support!

Transcript

Dave Strohmaier: [00:00:10] Well, welcome back to the agenda with your Missoula County Commissioners. I am County Commissioner Dave Strohmaier. I am joined today by my fellow commissioners Juanita Vero and Josh Slotnick. And also we have a special guest with us, as we typically do. But this week we are joined by Montana Representative Mark Thane, who represents House district 89. Rumor has it it encompasses Lolo and some of the neighborhoods on the south side of Missoula. Correct me if I'm wrong, Mark. That's correct. Okay. Mark's a former teacher and educator and was the vice chair of the tax committee during the 2023 legislative session. Welcome, Mark.

Mark Thane: [00:00:52] Thank you. I appreciate the opportunity. Anytime you can talk taxes. Pretty exciting stuff.

Dave Strohmaier: [00:00:57] We are so excited today. And to and to kind of grease the wheels on this conversation or grease something, I don't know. We've got Josh Slotnick, our resident commissioner, expert on taxes. Do you want to say a few words? Josh, first.

Josh Slotnick: [00:01:12] I want to say on on our intro, we said, Mark as a teacher and an educator, but also the former superintendent of MCPS Which I know you're truly and authentically humble guy. That's a gigantic job. Also, I want to note that now in your current role, being a state representative, you are one of the probably, say, one of the few people in the state who both have an understanding of property taxes and school funding. Rare that somebody understands both because both of these things are super complicated.

Mark Thane: [00:01:37] Absolutely. You know, one of the things that I found really interesting moving into the legislature was my initial assignment on house taxation I in the 2021 session. And although my background is education, I just chose to immerse myself in tax and tax policy, and I really enjoy that. Yeah.

Josh Slotnick: [00:01:54] Me too. It was not my background either. So do a quick little rundown on residential property taxes and then get your thoughts on it, because my understanding is just as of one person's. And then if we can kind of contrast that a bit with how school funding works. Sure. Be great. In terms of residential property taxes, one of the things I want to point out right from the start is that the value of your house alone does not determine your property taxes, and most folks are under the false assumption that your house functions in terms of property taxes, the way that your 1040 EZ does in terms of income taxes, that if income taxes, you fill out the form, and the form is inherently an equation and it spits out a number and that's what you pay. Well, with property taxes, state figures out how valuable your house is. We crunch some numbers and that's what you pay. It's not actually accurate. Certainly what your house is valued at plays a role, but a much bigger role is what is the total value of all the property in the county. What's important is not how much your house is worth, but what portion of the total value of all the property in the county actually belongs to your house. So if your house represents 0.002% of all the value in the entire county, then you are responsible for 0.002% of all the taxes that the county collects. Does that make sense? Almost regardless of what your house is worth, it isn't the dollar value of your house, it's what portion of total value does your house represent? And that's the portion of total taxation that belongs to Josh.

Dave Strohmaier: [00:03:19] What do you have up your sleeve?

Juanita Vero: [00:03:21] No, but you're saying that the county collects. And I think sometimes. Okay. All right. The county collects. Doesn't necessarily. I mean, are you saying what we're responsible for collecting, but not what what's a revenue? What's county revenue?

Josh Slotnick: [00:03:34] Oh, those are two radically different things. Exactly. Radically different things. I'm talking about taxation, not revenue. When people there could be confused.

Juanita Vero: [00:03:41] Actually, the words, the word collection can be.

Josh Slotnick: [00:03:44] Two thirds of the money we use two thirds of the money we spend. That's revenue does not come from local property taxes. What I'm talking about is how much does the county bring in from taxation, from all the different property owners in the entire county pull all that big number together. It's more than $50 million. And then over here, right next to it, let's put all the value together. If we have all the value of all the property all together. And what's Mark's house and there is 0.02%, then you're responsible for 0.002% of that second big pie. The amount that we generate in taxes. So the key to this is not just the value of your house or your property, but the value of your property in relation to the value of all the rest of the property. And why this is a big deal is because not all property is valued in the same way. The state actually is divided property into 16 different classes, and each class is valued differently and has its own tax rate. And as we saw in 2023, we'll see again in 2025. Some classes of property go up in value, some stay the same, some go up slowly, some go up greatly, and some even go backwards. It's certainly important how much we ask from the entirety of the county, but it's far more important in terms of your own property tax bill as to what the value of your property is in relation to everyone else's, and if you represent 0.005% and you used to rent 0.002%, then your tax liability is going to change. If your house went up in value by 30% and your neighbors went down by a bunch and industry went away, you're going to pay more than what feels like your fair share. So it's a game of proportionality.

Dave Strohmaier: [00:05:12] And so what role is the legislature playing?

Josh Slotnick: [00:05:15] Well, the legislature gets to determine two really important things. One, they get to determine what is our method of valuation for each class. And they get to determine a tax rate for each class. And if you multiply the tax rate by the assessed value, you get what's called a taxable value. And what we're concerned with is what portion of total taxable value belongs to you. Because that same portion is going to be reflected in your tax bill. You're going to pay that same proportion of the total tax bill. That's your tax bill. So making sense.

Mark Thane: [00:05:45] Touched on a number of things. First of all there are 16 classes of property. What we've seen over the course of the last two reappraisal cycles is that class for residential, which also includes some small commercial, has appreciated at a much faster rate than any other class of property. A lot of headlines were written about major utility and a significant reduction in their taxes. That was not because of any action taken by the legislature specifically to give them a tax break. But what happened was the valuation method on residential property is based on true market value, and it's a computerized model that looks at like sales and determines what your property is worth. What happens with centrally assessed properties like railroads, utilities. Et cetera. The formula is very different. It's not based on the hard assets solely that they own, but it's also involves things like what's the cost of borrowing capital. So right now with interest rates high, the cost of borrowing capital is high. So the valuation of those industries actually declined. So they did take a smaller tax burden because their valuation essentially went down while residential values went up. And as Josh indicated in his opening. It's really about the proportionality. [00:06:56] And right now residences have been hit hard. I can illustrate that real simply by saying in 2020, residential property owners took on 50% of the property tax burden across the state after the last reappraisal cycle. That's now 59%. We at Revenue Interim Committee about three weeks ago got the preliminary look at the new assessment data for 2025, and we anticipate a 21% increase statewide average in residential property assessments, again. [00:07:26]

Dave Strohmaier: [00:07:26]  [00:07:26]21%.

Mark Thane: [00:07:27]  [00:07:27]21%, which is probably about an 11% increase in property tax burden. What would likely happen if we don't do something to deal with the property tax situation? You would find class four residential property bearing somewhere in the high 60% range of the burden of full property taxes. [00:07:44] So it's incumbent upon us as a legislature to do something. I think there's collective will on both sides of the aisle to address it during the campaign. I think all the candidates probably knocked a lot of doors far and away. Property tax was the number one issue that constituents raised. So we have some proposals. The governor's task force has proposals and we can get into those and contrast those in a little bit. But the bottom line is those kinds of increases are not sustainable. We have a lot of working families. We have a lot of seniors on fixed incomes who simply cannot bear any additional property tax burden. One of the challenges, of course, for you is that your budget's also constrained. You've experienced high inflation just like everybody else has. And in order to pay your staff a living wage, in order to continue to provide benefits, to continue to supply the materials necessary to operate the county road department or emergency services, you need to enhance your budget, and you're constrained by the budget and the half the rate of inflation that you're allowed to increase your budget by. But you're also probably constrained by constituents who feel as though they're taxed out right now. So it's a difficult balance to strike.

Josh Slotnick: [00:08:49] I'm really glad you mentioned that. Statutory limit. It's called the mill cap. And you described it just perfectly half the three year average of inflation. Basically, according to statute, we can ask of the county as an entirety the same amount of dollars that we got last year with a little bump that's equivalent to half the three year average of inflation. And as you pointed out, Mark, it doesn't really work because we don't pay people increases at half the three year average of inflation. We don't buy fuel for a sheriff's vehicles, electricity or asphalt or any of the other things we buy at half the rate of three year average of inflation. We buy these things at the full rate of inflation.

Juanita Vero: [00:09:23] And when did that scheme come about?

Josh Slotnick: [00:09:25] Wasn't that the big bill?

Mark Thane: [00:09:27] Yeah, it's been on the books for a number of years. I can't tell you exactly why.

Juanita Vero: [00:09:30] But decades or is this is this something that can be changed?

Mark Thane: [00:09:33] I would say so. Certainly it can be changed. And there actually were bills last session asking to address that and actually a Republican sponsored bill. And the thought behind the bill was that you, as elected officials locally, have to be responsive to your constituents if you choose to go out and do a 35% tax increase, your constituents will decide at the ballot box whether or not to return you to your seats. But the reality is they also demand services from you. And so you have to figure out how to strike that appropriate balance and how to fund those necessary services. And I think, again, my perspective is that the best solutions are crafted at the local level. And so we at the state can set some policy. We can set policy that influences how much of that tax burden is borne by residences or centrally assessed or ag lands. But ultimately, you'll decide what your budgets are, and to put an artificial cap on that is a disservice to the local community, because the need and the call for services in Missoula might be very different than it is in Garfield County, and the ability to fund it might be very different. So on a statewide level, to put in a policy like that that's restrictive, that doesn't necessarily work for all 56 counties seems to be a bit disingenuous. So I think if I had the magic wand, I'd remove the cap. You'd make your decisions, and you would then be charged with the responsibility to communicate to the constituents why that's necessary.

Dave Strohmaier: [00:10:57] Mark, before we. Yeah, I think we would live with the consequences of that one way or another. So before we dive into any solutions.

Juanita Vero: [00:11:04] Sorry. Go ahead. Yes.

Dave Strohmaier: [00:11:06] No no no. A whole other piece of taxation that I have a very tenuous grasp on myself. And I think the public has equally a difficult time wrapping their minds around is school funding. Certainly from what I have encountered in my years of elected office, there's a fair amount of confusion as far as the relationship between county government and schools. Some folks are under the assumption that because they get the tax bill for Missoula County, that everything that appears on there is county government driven.

Josh Slotnick: [00:11:37] But I would ask one other thing.

Dave Strohmaier: [00:11:39] Oh, another thing. Okay.

Josh Slotnick: [00:11:41] Absolutely. Do school funding. There was just one set of words I wanted to say out loud because they are so commonly used in these taxes. Read my lips. We met its burden shift. And you've alluded to it. You used the word burden. You're totally on it. But I just wanted to say this out loud for our many listeners, when you hear the words burden shift, we are talking about what Mark was just talking about. Where is the burden going to go right now? It can be more than 60% on residential property taxpayers, homeowners and renters. If we were to lower their taxes, it doesn't mean that the amount of money that goes to local government shrinks. We wouldn't be able to do anything. What it means is instead of 60% of the total burden being residential property taxpayers, homeowners and renters, it might be 50% and the other 50% is spread across the other tax classes. Now, those other tax classes would not like this one little bit. Not that they're evil or bad or anything. Nobody wants to pay more money, so shifting a burden away from one group necessarily means shifting it onto another. Hence a real fight. And and some of these entities, the centrally assessed specifically have a well oiled lobbyist machines and attorneys, and they know their stuff. And we have a lot of folks who are volunteer legislators, first timers for thousand plus bills to learn, tons of really complex systems to learn. They are at a deep disadvantage when faced off against the white shoe law firms hired by our utilities and our national telecoms. So solving the burden shift is very difficult. I don't want it to be oversimplified at all.

Mark Thane: [00:13:06] No, and it won't be oversimplified. I will talk about school funding and then when we get to potential solutions, I'll definitely talk about the shifting tax burden. If we could teach you about school funding in 60 minutes, it would be yeoman's work.

Juanita Vero: [00:13:19] 60 minutes.

Mark Thane: [00:13:20] You've got.

Juanita Vero: [00:13:21] Six minutes. So yeah. Yeah.

Mark Thane: [00:13:23] So school funding is really complex. So a couple things to note. Personally, when I look at my tax bill, there are about a thousand mils levied on my home in Missoula 95 of those mils are levied by the state. The state collects the money, but then it's redistributed to schools through the school equalization formula, which came out of the Columbia Falls lawsuit in the 1990s. So the state doesn't fund any of its functions other than that little chunk of education with property tax dollars. They're dependent on resource extraction, income tax fees. Et cetera. Property tax is largely local, and there are three big buckets city government, county government and schools. So schools have some state money through the 95 mills that flow to them. They also have permissive mills that are levied at the local level because as a result of the lawsuit, school districts are required to meet a minimum base standard. The Montana Constitution guarantees the equity to opportunity for education in the state of Montana.

Josh Slotnick: [00:14:19] So can you describe what that means? I will.

Mark Thane: [00:14:22] So what the what the lawsuit basically established was there were communities across the state, like Missoula that historically could pass any mill levies they wanted to, and they could fund their educational priorities. There were other communities that couldn't pass a mill levy to save their soul. So you ended up with very disparate budgets. So school districts did not have equity of opportunity for education because of the programing they could offer due to the revenue streams. So the courts intervened and said every district has to come up to a certain base level of funding, and the way you get there is through some permissive levies, through some targeted funds that come through the equalization formula and through the 95 mills that come from the state.

Dave Strohmaier: [00:14:59] And what is a permissive levy?

Mark Thane: [00:15:01] Just a permissive levy is a levy that nobody gets to vote on. It's just levied okay.

Josh Slotnick: [00:15:06] And it reflects costs, right. It goes up with costs.

Mark Thane: [00:15:09] Not necessarily. Again, it establishes the base budget. The school district knows the number in advance and goes back and builds their budget based off that base. And then there's potential to go over base. And the way you go over base is a limited authority to levy additional voted mills. Again, there's still some variation because some school districts have passed levies, others have not. But it's within a window. And so essentially you've got a base, you've got a top target, and you've got a small margin within which all school districts need to fall. There are also targeted funds for at risk students or for Indian education for all, etc. that flow from the state. So you set.

Josh Slotnick: [00:15:48] A base and a top target. Right. What's the difference between those two things?

Mark Thane: [00:15:51] I can't tell you what the percentage is off the top of my head right now, but.

Josh Slotnick: [00:15:55] Semantically or definition wise, what those things mean.

Mark Thane: [00:15:58] Just the difference is basically compelled by the courts to meet a base level of funding to provide for equity. And then if your particular school district wants to engage in activities that might be above and beyond what your base can afford, or if you're in a high cost community where you have to pay a higher wage in order for people to afford housing, you can enhance that budget with voted mills in order to establish what the top line of your budget would be.

Dave Strohmaier: [00:16:22] But is there still a cap on that?

Mark Thane: [00:16:23] There's still a cap on the top.

Dave Strohmaier: [00:16:25] So hypothetically, a very wealthy community wants to tax themselves at a significantly higher level for education.

Juanita Vero: [00:16:35] They're capped.

Mark Thane: [00:16:36] They're not allowed to. There's a state formula that tells you what your max budget is, and you cannot exceed the max budget. And just like city and county governments, school districts are held to half the rate of inflation for the previous three years. So, as you well know, we just came out of a period with 9% inflation one year in the two years of the biennium. The school districts got 2.7% increase in the inflationary numbers last year. This year it's 3.0 because it's capped then at 3%, so half the rate of inflation. But schools also have a 3% cap they can't exceed. So you saw in Missoula County public schools this year kind of the perfect storm in that the Arpa monies, the federal monies that came out as a result of Covid dried up. In addition to that, there's an enrollment decline, and we can talk about why that exists. And their budget was significantly impaired to the point where they had over 40 layoffs. So what's happened in Missoula? And this is true also in Bozeman, the cost of housing has essentially frozen young families out of the community. And you probably see that. So in Missoula County Public Schools, the enrollment decline in kindergarten through eighth grade was nearly 500 students.

Mark Thane: [00:17:45] Same is true in Bozeman. So you've got two growing communities, but young families can't afford to be there. Families are pushed to the periphery in Missoula. The high school district is up, which tells us that maybe more established families, older families can afford to live in Missoula. So school funding is a huge challenge. There are a couple proposals this year to try and deal with some of the inequities that exist. There is a proposal to boost statewide the beginning teacher salary, so there is some movement there. There's also one other big opportunity for school districts, and that is the state took part of the surplus last biennium and are creating a health insurance trust to try and create a statewide pool that school districts can buy into to reduce their cost of benefits for health insurance. Imagine if you're a small class C school and you have only 20 people on staff, and you go out to bid an insurance policy and you have somebody on your staff that has cancer or has an open heart surgery, the cost of that premium goes through the ceiling. So there's an economy of scale that comes into play. If we can get school districts to band together.

Josh Slotnick: [00:18:46] Imagine a situation where schoolteacher, public school teachers in Montana were actually employed by the state, and they could take advantage then, of all the benefits of the economy of scale around things like insurance and retirement that state employees enjoy.

Mark Thane: [00:18:58] Well, there is a state teachers retirement system, so all teachers that are public school teachers in the state participate in the health insurance trust. We did a zoom meeting about two weeks ago, and they're very optimistic that they'll meet the thresholds for the number of school districts to opt in, as well as the threshold for covered lives that could impact school budgets.

Josh Slotnick: [00:19:17] So you're saying it could be the case that local school teachers use state health insurance, as opposed?

Mark Thane: [00:19:23] It could be, although it's a separate program from the existing state program, but it would be a state wide health insurance trust for educators.

Josh Slotnick: [00:19:32] Then you'd get the benefits of the economy of scale of all the school teachers in the state, as opposed to just the folks in one district.

Mark Thane: [00:19:38] Yeah. Mark, do you think.

Dave Strohmaier: [00:19:39] There's a critical enough mass of your colleagues in the legislature who understand the issues around taxation, such that you can come around to some common solutions.

Mark Thane: [00:19:52] Sure. So I will serve as vice chair of House taxation again this session. Our committee has been put together and there will be 21 of us on the committee. 11 will be new to house taxation. So there's going to be a bit of a learning curve, quite honestly, unless you're engaged in pretty immersed in taxation, I think there's a fair lack of understanding. And I don't mean to disparage any legislators, but it's a lot to learn, as you well know. So they depend on hearing what the leaders of their caucus and those that are engaged on the tax committee have to say, as they prepare to cast their vote.

Juanita Vero: [00:20:25] Remind me who's chair.

Mark Thane: [00:20:26] Chair will be Paul Felder.

Juanita Vero: [00:20:28] From.

Mark Thane: [00:20:29] Mineral County. Mark Sanders county, what would what.

Josh Slotnick: [00:20:31] Would you say, let's say, to a freshman legislator in this, this person, I'm just going to make somebody up. This mythical person says, well, have you seen that the spending that Missoula County and Gallatin County enjoy? My God, it's out of control. We've got population is going up. Inflation is going up. But spending makes those two curves look ridiculous. It's through the roof. Really. What we need to do if you want to lower taxes is just build in some statutory limits. So these jokers can't spend money like drunken sailors. That's what we got to do.

Mark Thane: [00:20:58] You've already got a statutory limit on the revenue you can collect. I and I would also say that, you know, the county budgets, not the purview of the legislature. We can set policy. You obviously have to follow state policy, but it's not our place to tell you how to run your business. And I believe that firmly the best decisions are made at the local level. So property tax will be a hot issue. So will income tax quite honestly. But really we have a couple competing proposals. You're well aware that the governor convened a task force and they came out with recommendations. The governor's task force approach is to try and solve the problems solely within class for residential. And the way they do that is they've got something they're calling a homestead exemption. In my mind, it's not truly a homestead exemption, but if you occupy a primary residence nine months of the year or more, you could qualify for a reduced property tax rate. So, as Josh said in his introduction, the tax rate right now is 1.35%. Two years ago, the Department of Revenue presented to the legislature and the governor they're required, statutorily required memo that said, in order to be revenue neutral at that point in time, tax rates should have been lowered to 0.94%.

Mark Thane: [00:22:08] That didn't happen about three weeks ago. Again, Department of Revenue fulfilled their statutory obligation and gave us a memo that said what the tax rate should be for the next biennium. 1.1. Uh, no, actually it was I actually, I can't remember, off the top of my head. But at that point in time, I asked what the aggregate of the two years would be, and if we wanted to go back and be revenue neutral based off of 2022 figures, it should be 0.76%. So significant reductions And as Josh referenced, we're not talking about reducing city, county or school budgets when we talk about that. What we're really talking about is the percentage of the burden that residential property taxpayers should bear. The governor's proposal says, let's just solve it all within class four, because essentially they don't want to push any of that burden back to centrally assessed or any businesses or ag properties or forest lands, whatever the.

Dave Strohmaier: [00:23:02] Administration does not want to because.

Mark Thane: [00:23:04] Well, the task force and the administration, because I bet some.

Dave Strohmaier: [00:23:07] Of those property owners whose doors you knocked on would not.

Mark Thane: [00:23:11] Mind that.

Josh Slotnick: [00:23:12] This is this is a shifting. If I understand the homestead exemption correctly, this is a shifting of the burden up within class.

Juanita Vero: [00:23:19] Class four as opposed.

Josh Slotnick: [00:23:20] To horizontally between the other 16.

Mark Thane: [00:23:22] Classes. That's essentially correct. So if you own a median priced home or actually a home that's up to four times median price based on the recommendation and.

Juanita Vero: [00:23:31] Median price right now is.

Mark Thane: [00:23:33] Well, in Missoula County, it's 560,000 60,000 or whatever.

Josh Slotnick: [00:23:36] How do we do a median price for the state when.

Mark Thane: [00:23:39] They do calculate a median price in a whole nother discussion? But yeah, I mean, if.

Josh Slotnick: [00:23:44] If you were to look at a traditional three bedroom, two bath house, the median first sale price, now I don't know how much they actually sell for is over six.

Mark Thane: [00:23:53] Well, you know, I could take my house in Missoula and I don't know what I could get on the open market right now, but I guarantee you, if I moved it to Wibaux, Montana and put it on the market, I wouldn't get the same amount of money. So there's an obvious disparity there. But again, the concern I have with the governor's task force proposal is really twofold. Number one, it doesn't rebalance the tax burden among the 16 classes of property. That's first and foremost. And second, if you try and do the rebalance solely within class for one of the dynamic, well, actually a couple dynamics occur. Number one, you get a tax break on your primary residence unless you live in a McMansion. But if you're one of those farmers or ranchers that has a second home in town, you're going to pay a much higher tax rate on that second property than you do currently. So I talked to somebody in eastern Montana who said, yeah, I'll probably get about a $600 tax break on my primary residence, but I believe the condominium I own in town will go up by about $800. So it's a net loss to him. If you're a family that has been fortunate enough to have a second property in the state, maybe a recreation property on Flathead Lake or whatever that's been handed down instead of 1.35%. You could be paying over 1.9% property tax on that. So essentially, they make up the lost revenue by taxing second homes out of state owners, etc..

Mark Thane: [00:25:08] And about 21% of Montana's tax bill's property tax bills are mailed to out of state owners. The difference in the proposal that's coming from the Democratic Party, and really ours is a three pronged approach, is, number one, we're looking at what I would consider to be a true homestead exemption. So what we would do is propose that we actually take somewhere in the neighborhood of $75,000 of your assessed value off the tax rolls. What that does is essentially shift some of the burden back to other classes of property, because it reduces the total value of residential properties in the state, and therefore the other 15 classes of property would assume that burden. The second thing we do is similar to the governor's task force is based on the value of the home. We would have a scaled or a tiered property tax system. So we would start at. After we exempt a chunk of the value of your home, we'd start at 1.1% for your primary residence. If the value of the home absent the land. So just the improvement is above 1.5 million, we would bump it up to the next tier, etc. and we would continue. I think our property tax proposal from the Democratic Party is more nuanced. I think it's more targeted, and I think it does a better job of rebalancing the tax burden. So we're working, but does it have.

Dave Strohmaier: [00:26:21] Any chance of gaining.

Mark Thane: [00:26:22] Traction? That's an excellent question. Uh, I believe and I tend to be an optimist, that we have room to negotiate. And again, I was vice chair of revenue interim committee, and I heard repeatedly through the interim that there's not interest on the part of some Republican colleagues to push any of that burden back to other classes of property. But I would argue that it's basically just a reset or a rebalance back to the approximate balance we had in 2020. I also acknowledge, and they'll argue, that we've lost business and industry. We've seen mill closures, etc. so that may account for some of the shift toward residential. But the shift has been much more significant because it's based on the reappraisals. That's just a paper gain unless you're willing to sell your house. So I don't care if my house went up $300,000, I don't have $300,000 in my pocket as a result of that assessment. It doesn't mean I can pay any more of tax burden based on it. It's simply a paper gain until I sell my house.

Josh Slotnick: [00:27:20] So thanks for those are great descriptions. If I remember right, there were also some recommendations coming out of the Governor's Property Tax Task Force on increasing the threshold for voted in levies or bonds. What do you think about that?

Mark Thane: [00:27:34] I think it's ironic that we elect senators and Representatives with 50% plus one vote, and sometimes even less than that if you've got three candidates. But we're going to tell governmental or taxing entities that they need to have a 60% majority. I would not support it. I don't think it's good policy. I don't know how much traction it'll get, but it's something I would certainly resist. Glad to hear that. You know, I would also say, just with regard to any proposed levies, given the shift that we've seen to residential property taxpayers, I think the likelihood of passing additional levies diminishes right now just simply because of the burden. So we need to fix the balance of property tax liability, and hopefully then voters will have a little bit of capacity to support levies that they feel are important to them personally.

Josh Slotnick: [00:28:22] So I'm sure you've heard of former director of the Department of Revenue, Dan Bucks, because we live in the same town. Talk about this thing called the intangible exclusion, which is a way it's a very legal way for the industries that are in the centrally assessed category. So we've got pipelines, railroads, northwestern energy, telecoms, I say airlines or airplanes. It's a way that these folks can decrease their value. And you described very well the very complicated system that's used, complicated equation that's used to determine their value. Well, according to Mr. Bux, the intangible exclusion says that these entities can exclude from their value things that are intangible and why this may seem unfair to folks who learn about it is because, as you pointed out, if your house was to go to Wibaux, Montana, it's worth a whole lot less. Even though Wibaux is a perfectly wonderful place, is that the demand for housing in Wibaux is less than here, and location is intangible. You can't grab it and hold on to it. So does it seem right that a class four residential property tax payers account for the entirety of their value, even that which is intangible in the assessment of their properties and the centrally assessed industries are allowed to exclude from their valuations things that are intangible, like licensure with the FCC, like access to satellites, like having a national, if not international market base. Any thoughts there?

Mark Thane: [00:29:40] Yes. There's been a lot of talk about the intangible property exclusion. As you referenced. You might have a telecom that has access to a nationwide network. They might have an extensive customer base. Those are intangible in terms of assets that might be valued for tax purposes. But if you were to go out and sell that, there is definite value to it if you were to sell that company. So the question is whether or not they should have that as an exemption. And there have been a number of efforts to overturn the statute and eliminate it, and it will come up again to eliminate the intangible asset exemption. I don't have much hope that it'll pass, quite honestly, but I think it's important to continue to educate about it. So it's important to run the bills and see if we can build some consensus behind it.

Juanita Vero: [00:30:26] And you don't think it will pass because why.

Mark Thane: [00:30:28] Because again, and I don't mean to be dismissive, but the governor's slogan has been Montana is open for business, and anything that is considered to be detrimental toward business, I think, is not going to curry favor with the governor. I imagine even if it passed the legislature, I could imagine a veto.

Josh Slotnick: [00:30:44] I imagine folks would say something like, well, if you increase taxes on Verizon, Verizon is just going to pass those added costs on onto the customers and their bills. So either way, you're going to pay. And if we tell Verizon you got to pay 2% more. What if they say we're just going to leave? And if they're the only provider in a portion of our very rural state, then that whole portion of the state is without telecom providers. So really we just need to suck it up and get out of the way and allow job creators, innovators, providers of essential services like Verizon to to do their thing.

Dave Strohmaier: [00:31:16] That could have some power if it was actually a true statement of what would eventuate in reality. Mark, any thoughts on AI?

Mark Thane: [00:31:25] Yeah. First of all, I don't think any of those companies are going to leave. There's a return on investment that they recognize and that's why they're there. I would also say that any of us can open our power bill every month, and we can see that we pay those taxes directly on our power bill, and it's actually itemized there. I would argue that, yes, if we shift some of that back, we may see an increase in the amount of tax we're paying on our bill every month. But I also think the shareholders of those companies will likely bear some of that burden. It'll be reflected in what they earn on their shares. And I don't necessarily think that's a bad thing. One of the challenges I think we face is you pay your property taxes twice a year, and if you don't have a mortgage anymore, you're going to your own bank account to write that check. And it's a challenge for people to come up with 2 or $3000 if you're on a fixed income or if you're a living paycheck to paycheck. We did pass legislation last session to allow people to pay over a seven month period. It's kind of odd to think of seven months, but the way it works is your first payment is due in December, essentially November. But you would start with the first payment in November and you would pay November through May, which is a seven month period in May is when the second tax payment is normally due. So you could spread that burden out over seven months and maybe lessen the impact. But I don't know if it really has a significant positive effect for the taxpayers. Do you think.

Josh Slotnick: [00:32:47] That the free market could solve some of the problems I outlined when I was putting my inner majority hat on there, isn't it? Well, if Montana is now taxing Verizon at a higher rate, I might decide. And Verizon passed that cost on to me. I might decide just to go to AT&T or sprint or T-Mobile or one of the other smaller entities on the internet. And one of these companies is going to be excited for my business. And there will be, if I remember from economics classes 35, 40 years ago, this thing called price discovery, that these entities will compete and I'll eventually make a choice. And the choice I make is based in part on a price that I've discovered by shopping around. Do you think that could help with.

Mark Thane: [00:33:24] This at all? It could help in some sectors. If you talk about utilities. I think we're all pretty well locked into a single utility, and there's not going to be much opportunity to shop around. Maybe put some solar panels on your house?

Josh Slotnick: [00:33:35] Sure, sure. On the shop around. But aren't they regulated by the PSC?

Mark Thane: [00:33:39] They are.

Josh Slotnick: [00:33:40] But they can't just do whatever they like.

Mark Thane: [00:33:42] Sure. I know you've experienced what the school districts have experienced, with nearly 30% increase in your utilities over the course of the last couple of years. The PSC does regulate it, but quite honestly, we've got a public service commission that's looked very favorably on virtually every rate increase that's been requested by the utilities. Yeah, thanks.

Dave Strohmaier: [00:34:03] And we've been talking primarily property taxes. But there's this other thing called income tax that the state of Montana largely lives off of. You mentioned earlier that there could be some proposals for taking a look at property taxes. And of course, this hits home to us when we hear about the thumb screws getting applied to local government and were largely funded by property taxes. Yet there's purportedly quite the surplus at the state level in income tax. So fill us in.

Mark Thane: [00:34:35] We anticipate the surplus this year will be at about $1.025 billion. That's with a B. Again, with regard to income tax, again, I knocked over 3000 doors in this last election cycle. I had numerous people talk about property tax. Not a single person ever raised the issue of income tax. Yet the governor's budget includes a proposal to lower the top income tax rate from 5.9% to 4.9%, at a cost of about $250 million annually in terms of revenue.

Josh Slotnick: [00:35:04] Is he lowering the other brackets or just the top?

Mark Thane: [00:35:07] We're only at a couple of brackets right now, so the majority of the benefit would be reaped by the highest wage earners in the state of Montana.

Josh Slotnick: [00:35:14] Is he going from the philosophy that if kind of like I was saying before, if we get out of the way of these folks, let them have more money, they're going to reinvest that in R&D.

Mark Thane: [00:35:22] Trickle down economics did not work well for.

Josh Slotnick: [00:35:25] Sam Brownback in Kansas, and Liz Truss in the UK.

Mark Thane: [00:35:28] Takes us back to econ class again. The bottom line is, right now, we're in a period of time where we've done pretty well in terms of revenue. That's again, partially due to the fact that we had a lot of Covid relief dollars that flowed to the state. We were able to do some things that essentially offset some state responsibilities. So we've been in a great fiscal position. Montana is in a growth mode right now, which is also benefited us. My concern is long term, and that is we have seen repeated cycles where revenue from income tax is highly volatile. If we get an economic downturn and we've lowered the top income tax rate. My fear is that social services, education, those things that are maybe a little more discretionary will suffer in the long run. You know, everybody talks about the proverbial three legged stools. And in most states the third leg is a state sales tax. We don't have that. We've got property tax and income tax basically. And the volatility of income tax concerns me. I think there are risks out there. And we actually had a presentation at the last revenue interim committee meeting asking us to be thoughtful and intentional about the long term risks that exist out there. I see Montana being in a property tax crisis right now. I don't see dedicating $250 million a year to income tax relief as being a solution to the property tax crisis, and finding the appropriate balance is going to be the challenge.

Josh Slotnick: [00:36:51] So you mentioned sales tax. So I was.

Mark Thane: [00:36:53] On I figured you might grab on to that. I've been holding my tongue.

Josh Slotnick: [00:36:57] So to get your thoughts on something, I was on this committee that Mako put together just to consider tax solutions. And it was super great discussions.

Juanita Vero: [00:37:05] And Mako is.

Josh Slotnick: [00:37:06] Montana. Thank you Montana Association of Counties, a good organization of which we are a part. One of the concerns that came out of our committee discussion, just loud and clear, crossing party boundaries, was that if there was a statewide sales tax, the state would collect the money, get rid of a certain amount of property taxes. Maybe they'd say, we're not going to do property taxes for local government anymore, just the schools. And then the state would use that statewide sales collection to fund local governments. And basically they'd put Missoula County on an allowance. They'd say, well, Missoula County, you got 120,000 people. This is how much money you get. You don't have to worry about taxing anybody, which. Well, that could be fine, right? Well, the concern that came out of Mako was that allowance would come with serious strings attached budgetary strings saying, here's your money, Missoula County, but you can only spend it on roads and public safety. You can't do anything about housing, nothing on community mental health, because we at the state don't believe that's important, even though your constituents might believe it's important. So there was pretty much zero support among the committee I was involved with at Mako. Again, I would say bipartisan. Only one Democrat, all Republicans, that if there was a statewide sales tax, this would just be a vehicle for the state to exercise budget, budgetary control over local government. Do you feel like that fear is unfounded?

Mark Thane: [00:38:15] I don't know that I would say wholly unfounded. I would again resist that. I think the best decisions are made at the local level, so you have to establish your budget. I could reflect back on the conversation we had previously about school funding. A lot of that money flows from the state. Certainly there are some strings attached, but they help establish a base budget. And then local school districts have the authority to look to local revenue to augment that. And I would assume that some models similar to that would be the most likely scenario. I would say this, of course, we just had a gubernatorial campaign and everybody came out both candidates in opposition to sales tax. I don't expect to see a sales tax proposal this time. I wouldn't be surprised to see it in two years, though, quite honestly. And I think really for two reasons. Number one, regardless of the solution, we may craft a property tax. People are still going to feel some level of pain, and that may cause them to consider whether or not a sales tax is a viable consideration to reduce property tax burden. And what.

Juanita Vero: [00:39:10] Are folks saying about local option.

Mark Thane: [00:39:12] Taxes? I'll tell you that in just a second. I think. Then the second thing I think is two years from now, we'll have a governor who's in his last legislative session, who will be termed out and might be more likely to consider that as an option. Local option tax is something that I really like. If you look at Whitefish's experience, they're probably the model right now. It's limited based on the size of the community. And there's also a threshold with regard to how much of your economy is based on tourism. But their experience has been that they have been able to provide some property tax relief. They've been able to use that money for roads and emergency services and open space and parks, things that would normally have cost the local taxpayers. So it essentially reduces the property tax burden that way. The last time it was up for reauthorization, which I think was like four years ago, I think the favorable vote was about 90%. They love it because they see the benefit. I would like to see that statute changed, eliminate the population, population and maybe even reduce or eliminate the requirement for a certain percentage to be based on tourism.

Mark Thane: [00:40:18] And if your local community believes that you can put together a good program and you can sell it to them, you should be able to do so. And I think, again, the corresponding reduction in property tax that Whitefish has experienced is, I think, indicative of what could be done in a lot of other communities in the state. I know, Josh, you've talked extensively about that, and I think one of the concerns we hear is that there are areas of the state where they don't see much tourism, and those communities would be concerned that they're just taxing themselves and then rebating to themselves, essentially. And I know you've talked previously about a distribution formula. Again, I don't know what the nuances would be and how much play that would get at the state level, but I think it's important to have those conversations and the messaging around it, because that's the primary way you're going to educate people. Once they're educated, they're more likely to consider it.

Josh Slotnick: [00:41:08] No, I'm really glad to hear you hear you say that, Mark. Thanks.

Mark Thane: [00:41:11] Are we ready.

Dave Strohmaier: [00:41:12] For our final zinger?

Juanita Vero: [00:41:13] Well, before the zinger is like what? Any other? Yeah. Predictions, solutions that we've missed or you haven't had a chance to share.

Mark Thane: [00:41:20] We could have a whole nother session and talk about Tiff and Ted. Oh yes, and.

Juanita Vero: [00:41:25] We'll have you.

Mark Thane: [00:41:27] Tax increment financing and targeted economic development.

Juanita Vero: [00:41:30] District.

Mark Thane: [00:41:31] Yeah, TIFF's the gal.

Josh Slotnick: [00:41:32] Ted's the boy. They're they're twins.

Mark Thane: [00:41:33] They're twins. Yeah, they are very similar. At any rate, I have seen already a number of bill draft requests dropped in. And as you are well aware, we spend a lot of time working through that issue last session and trying to preserve local authority to do some good things. We're just in a position now where we've got the opportunity to really make an impact on housing via tax increment financing and targeted economic districts. And so I think we need to be cautious about how we move there. But I know that will be subject to discussion. So that's on the horizon.

Josh Slotnick: [00:42:02] Any anything else about tourists? Because I'm just bringing this up because.

Mark Thane: [00:42:07] You know, I think we ought to have a local option gas tax, but that's a whole nother discussion too. We did.

Josh Slotnick: [00:42:11] That.

Mark Thane: [00:42:12] That sounds.

Dave Strohmaier: [00:42:12] Familiar.

Mark Thane: [00:42:13] Yeah, it sounds awfully familiar.

Josh Slotnick: [00:42:15] I mean, in 2022. I don't know what the current numbers are. 2022 we had 2.5 million tourists, right? We have 120,000 residents. Those 120,000 residents are paying for services for our guests. Average length of stay six and a half days. Who don't pay. And it's not that those folks are bad. They just don't have the opportunity. And one of the ways we could reduce local property tax burden for residential folks, actually for everybody, every class is if our guests paid a little.

Dave Strohmaier: [00:42:40] Coin operated restrooms at gas stations. I don't know.

Josh Slotnick: [00:42:44] How about tolls?

Mark Thane: [00:42:45] Yeah. There you go. I actually did a tally of how many hearings we did in House taxation last session, and I forgot the number, but it was in the hundreds. Wow. And we'll do that again this session. The number of bills that are coming up are it's just overwhelming.

Josh Slotnick: [00:42:58] So just what do you think is going to get more play property taxes or Medicaid expansion.

Mark Thane: [00:43:04] I think property tax will I think there's a strong likelihood we'll pass Medicaid expansion. And we're actually not talking expansion because that implies that we're going to increase it. What we're talking about is just eliminating the sunset to continue our current Medicaid program.

Josh Slotnick: [00:43:19] The last thing was called Medicaid, right?

Mark Thane: [00:43:21] That's exactly right. We have a bill that will be carried by a Republican. It will have full Democratic support. I think we'll have moderate Republicans supporting it. It'll get through the House, I think fairly easily. The Senate's going to be the big challenge on Medicaid.

Juanita Vero: [00:43:33] So while we're talking about Medicaid, what's a more accurate description.

Mark Thane: [00:43:37] Of what just reauthorization of the.

Juanita Vero: [00:43:39] Medicaid.

Mark Thane: [00:43:40] Reauthorization? And I would just say, for the listeners out there, you know, a lot of people have misperceptions about Medicaid, just like they do about property taxes. 80% of the people that are on Montana's expanded Medicaid currently are either employed or are students. It's not people who are taking advantage of a handout. It really is a hand up. And I think talking to small business owners in the community, you would find that they support continuing the program because it is the lifeline that provides health insurance benefit to their employees.

Josh Slotnick: [00:44:10] If you were to subtract, if we were to subtract from the health care market. The folks who use Medicaid, there wouldn't be enough market left to warrant the existence of a small rural hospital.

Mark Thane: [00:44:20] You bet. Rural hospitals would be vulnerable. Over 200,000 Montanans take advantage of the Medicaid programs. It would have significant economic impact if we lost it. And right now, the federal government pays 90% of the cost of our expanded Medicaid, and the state pays only 10%. So it sounds like a bit of a bargain for us. Yeah.

Juanita Vero: [00:44:38] Okay, let's share with us a good book or nugget of wisdom. Podcast play poem.

Mark Thane: [00:44:44] Well, right now I'm probably late to the game, but I'm reading Ivan Doig's Last Bus to Wisdom. Oh. So beautiful. Just about finished with that one. You know, Montana themes. And it's it's really enjoyable. Do you have a is.

Juanita Vero: [00:44:57] There a favorite line or passage or image out of that?

Mark Thane: [00:45:00] Boy, that's tough to say. You know, the familiarity with the state of Montana. And as they travel and you hear about the places and you could so easily picture it and visualize exactly what they're doing. That's that's great. So my challenge is starting in about three weeks. Recreational reading will get set aside, I hope hundreds of bills to read at night instead.

Josh Slotnick: [00:45:22] Yeah, yeah. What I want to reiterate here is just our thanks to you for not just for coming to chat with us, but for going to the legislature, doing this hard work, immersing yourself, and becoming an expert in this really complicated stuff. If we didn't have you, we'd have to invent you.

Juanita Vero: [00:45:36] Wow.

Mark Thane: [00:45:36] Thanks, I appreciate that, and I do appreciate the opportunity to talk tax. Uh, absolutely. Like you say, it's a little bit nerdy and geeky sometimes, but it's really important. And I think it obviously touches the vast majority of Montanans. And we need to do a better job of establishing a fair and equitable tax system in the state and really be conscious not only of our constituents, but of the taxing jurisdictions that depend on good policy in order to be able to collect the revenue that funds the important work they do. Well, we'd.

Dave Strohmaier: [00:46:04] Love to have you back after the session to.

Josh Slotnick: [00:46:07] Debrief that. Let's do that.

Dave Strohmaier: [00:46:09] We'll do it. Thanks, Mark.

Juanita Vero: [00:46:10] Thanks. Thanks. District 89. Thank you. Thank you. Thank you.

Josh Slotnick: [00:46:14] Thanks for listening to the agenda. If you enjoy these conversations, it would mean a lot if you would rate and review the show on whichever podcast app you use.

Juanita Vero: [00:46:22] And if you know a friend who would like to keep up with what's happening in local government, be sure to recommend this podcast to them.

Dave Strohmaier: [00:46:27] The agenda with the Missoula County Commissioners is made possible with support from Missoula Community Access Television, better known as MCAT, and our staff in the Missoula County Communications Division.

Josh Slotnick: [00:46:40] If you have a question or a topic you'd like us to discuss on a future episode, email it to communications@missoulacounty.us.

Juanita Vero: [00:46:47] To find out other ways to stay up to date with what's happening in Missoula County, go to Missoula.co/countyupdates.

Dave Strohmaier: [00:46:55] Thanks for listening.