Mill levy dispute: “Bring it on”

Last Wednesday, Lake County Commissioners joined a growing revolt among county officials across Montana by voting to decrease the number of mills allocated to school funding from 95 to 77.9.

Flathead County Commissioners made the same move last Wednesday. On the same day, the Montana Association of Counties (MACo) addressed a letter to Gov. Greg Gianforte, urging him to “make do” with the state’s projected 20% revenue increase in Fiscal Year 2024 and give taxpayers a break by not levying the full 95 mills allowed by state law for school equalization funding.

The governor contends that levying a lesser amount is “foolish” and will harm public schools. The state initiated a lawsuit against the Missoula School District on Oct. 2 asking the judge to decide whether the state has the authority to require counties to collect 95 mills; and a state senator has filed a suit in Yellowstone County District Court arguing that the state should face the same limitations in levying mills that apply to local counties and municipalities.

The two school officials who attended Wednesday’s meeting in Polson voiced support for the commissioners’ position.

Speaking as a taxpayer, Polson School District Superintendent Mike Cutler told the commissioners, “you should absolutely go with the 77.9 mills.”

As a superintendent, his position was a little more nuanced. If the state didn’t have a projected budget surplus, he said decreasing the mills could negatively impact schools.

“I would be a little bit more reluctant if we were in a deficit year or if there was a balanced budget because I think history has shown they go right to the schools first to make ends meet,” he said.

“Gianforte himself is not a public-school fan – that's painfully obvious,” he added. “And there're a number of the legislators that are not too.”

According to Cutler, locals school districts could take advantage of higher property values to bring in more money via permissive levies.

“I don't know a district in Lake County that didn't lower their permissive mills to basically match what we did last year,” he said. “The state's not doing that.”

County School Superintendent Carolyn Hall lauded the commissioners for studying the complicated issue carefully before making their decision.

She agreed with Cutler that when money is tight at the state level, “it is the schools that usually make up the difference. That's historical.”

In the current economic climate however, “we know that our local taxes are going to meet the needs of our local districts,” she said. “It's what comes in from the state that we're not clear on. And we don't know what the repercussions will be.”

She noted that only two school districts in the county, Upper West Shore and Swan Lake/Salmon Prairie, don’t receive school equalization funds, although according to Hall, “they could really use the money.”

History of equalization

According to a synopsis published at legmt.gov, the current equalization formula dates back to 1989, when the Montana Supreme Court upheld a lower court ruling that the state’s school funding formula was unconstitutional because it relied too heavily on local levies. That meant that schools in poorer districts spent much less per student than those in wealthier districts.

The Legislature came up with a complicated formula for balancing out student spending that increased the county equalization mills from 45 mills to 55 mills and instituted a new 40-mill statewide equalization levy (hence, the 95 mills).

During that same period of time, the state quit earmarking funds specifically for schools. Instead, tax revenues previously allocated to the state equalization account began to flow directly into the general fund and were redistributed from there. At the time, legislators argued that this approach simplified state finances and allowed them to better “scrutinize, prioritize and monitor taxpayers’ money.”

The legislation doing away with earmarks made it clear that the purpose for revenues generated from sources like the 95 mills and the interest and income from the state school trust lands was still state equalization aid. However, “instead of being accounted for in a dedicated account, these dollars would flow through the state general fund.”

In 2001, Senate Bill 495 established the Guarantee Account, a dedicated revenue account that contains interest and income generated by the state school trust lands and is used as the first source of K-12 funding.

“I say bring it on”

Because of the huge jump in property values, estimated at 46% statewide, mills are worth a lot more this year. So, the 95 mills that generated more than $338 million in FY23 would generate approximately $437 million in FY2024 – an increase of nearly $100 million. And schools, whose budgets were set in August, won’t receive that windfall.

Still, if counties levy 77.9 mills, an estimated $20 million more still flows into state coffers this year, according to information from MACo.

In Lake County, the full 95 mills would generate over $10 million for FY24 (that’s $3 million more than last year) due to the higher property valuations. The 77.9 mills will raise $8.5 million, which is still an increase of $1.8 million over 2023.

On an individual level, the decrease in mills could represent a savings of around $80 for someone who owns a house valued at $354,000. The big winners are corporate entities, such as Northwestern Energy, which could reap tax savings in the millions of dollars.

Commissioners Gale Decker and Bill Barron acknowledged that corporations would benefit the most from lowering the mills.

“The more taxes you pay, the bigger break you will get – that's the nature of our tax system,” Barron said.

Still, commissioners were confident the move they took Wednesday would not hurt school districts in the coming year.

“I spent half my life in the school system, and I don't think this will have a financial impact to our school districts,” Decker said. “I think the money is there (in the state general fund) already.”

After listening to input from the commissioners and school officials, Polson resident Larry Ashcraft weighed in on the matter.

“I say bring it on,” he said. “Open this thing up so everybody gets an idea of what the heck is going on.”