Committee discusses solutions for state tax department’s billion-dollar appraisal backlog

Staff at Montana’s Department of Revenue told a legislative committee Tuesday that an audit report finding that the department has failed to add an estimated $1.2 billion of new residential construction to the state’s property tax rolls in recent years is accurate.

But, they said, fixing the problem may require the Legislature to authorize new funding, either for aerial imagery that could help state appraisers track development without time-intensive fieldwork, or to help the department get a handle on high turnover among appraisal staff.

“That is a real number. It is a real big number,” Robin Rude, deputy director of the department’s Property Assessment Division, said about the $1.2 billion figure.

The audit study estimates the revenue department is missing about 14% of new residential construction each year, or about $300 million annually.

Auditors said Tuesday that the $1.2 billion total tax roll gap translates into about $8 million in missed property tax revenue. They estimate that between $3 million and $6 million is shifted onto other taxpayers.

While those property tax figures are less than 1% of the annual amount collected statewide on residential properties, department staff said missed construction could potentially have an outsized effect on tax bills in particular jurisdictions, small ones especially.

Montana, along with Maryland, is one of two states that keeps the tax rolls used to track and value property for property tax purposes at the state level, instead of doing that work through county assessors’ offices. To keep the tax rolls accurate, state revenue staff must track when properties are developed or renovated.

That work is done by department staff at field offices located around the state, but the department has acknowledged that it’s struggling to keep up with that responsibility amid staff turnover and other duties, like processing property tax appeals.

“The resources we do have are busy — they’re busy folks,” Rude said, adding that experienced appraisers often have their efficiency hampered by the need to train new staff. She noted that low pay is driving staff turnover, particularly in high-cost-of-living communities like Bozeman — places that are also typically the parts of the state with the most construction to track.

Scott Mendenhall, the revenue department’s deputy director, said the department is trying to increase professional development opportunities and improve onboarding for new employees. However, he pointed to pay as a major obstacle, recalling that during a visit at the department’s Bozeman office an appraiser there showed him a job posting for a groundskeeper position with the city of Bozeman that offered a wage $3 an hour higher.

“Those are hard obstacles to overcome,” Mendenhall said.

Angus Maciver, the lead legislative auditor, told the committee he typically recommends agencies try to address retention issues before asking lawmakers for money to hire additional staffers.

“For any government agency that is struggling with workload and struggling with these questions about how to allocate resources — and normally your most significant resource is going to be people — you have to address that retention thing first,” Maciver said. 

Compounding the staffing situation, auditors found, is that the department is trying to track development primarily via a combination of reviewing building permits filed with other public agencies and time-intensive inspection visits. 

The auditors note that state law doesn’t require that building permits be reported to the revenue department in a consistent format. Rude said a few local government permitting offices also resist sharing information with the department because they don’t want the fear of a higher tax bill to discourage residents from applying for permits.

Auditors and department staff said Tuesday that the Legislature could pass a law mandating that local planning offices report permits to the revenue department so that data is transmitted more consistently. They also suggested the revenue department could do a better job of coordinating with the state Department of Labor and Industry, which issues a limited array of building permits in parts of the state without local permitting programs.

Auditors and department staff also said Tuesday that purchasing high-quality aerial imagery would help let it more efficiently track development, especially given how sparsely populated much of the state is. That imagery would need to be more detailed than what is publicly available through services like Google Maps and potentially photographed at an angle, as opposed to from directly overhead, so it can be used to estimate building height.

Department staff said Tuesday that an effort to solicit proposals that would put an explicit price tag on that imagery is pending on a timeframe that could allow lawmakers to incorporate it into the budget they pass during next year’s legislative session.

“We do know there is keen interest on the part of the governor’s office for implementing this,” Mendenhall said.

Mendenhall appeared at Tuesday’s meeting on behalf of revenue department Director Brendan Beatty, who, Mendenhall said, was occupied conducting cattle pregnancy checks on his ranch.