Missoula, MT – Montana’s Department of Revenue is grappling with a significant oversight in its property tax assessments, with an audit revealing that the state has failed to add an estimated $1.2 billion in new residential construction to its tax rolls in recent years. The audit, presented to a legislative committee on Tuesday, highlights a systemic issue that has led to millions of dollars in missed property tax revenue—funds that ultimately fall on other taxpayers.
The audit estimates that the state misses about 14% of new residential construction annually, or approximately $300 million in value each year. This oversight translates into an estimated $8 million in missed property tax revenue, with $3 million to $6 million being shifted onto other property owners. The issue stems from the department’s reliance on a combination of building permits and time-intensive field inspections to track new development.
Robin Rude, deputy director of the department’s Property Assessment Division, acknowledged the problem during the meeting, calling the $1.2 billion figure a “real number” with significant implications. “It is a real big number,” Rude told lawmakers, emphasizing the scale of the gap.
The department’s current method of tracking new construction primarily involves reviewing building permits filed with local agencies. However, auditors noted that this system is flawed. Local permitting offices do not always report information to the Department of Revenue in a consistent manner, and some local governments are hesitant to share permit data due to concerns that it may discourage residents from applying for permits, fearing higher tax bills as a result.
Further complicating matters, the department struggles with high turnover rates among its appraisal staff. The issue is particularly pronounced in high-growth areas like Bozeman, where the cost of living has surged, making it difficult for the state to retain experienced appraisers. Deputy Director Scott Mendenhall highlighted this challenge during the meeting, pointing to a job posting for a groundskeeper in Bozeman that offered a higher wage than the state’s appraisers earn. “Those are hard obstacles to overcome,” Mendenhall said.
In response to the audit’s findings, department officials proposed two primary solutions: better technology and addressing staffing shortages.
One suggestion is the use of high-quality aerial imagery to track new development more efficiently, particularly in sparsely populated rural areas. The department has noted that current satellite imagery, such as what is available through Google Maps, lacks the detail necessary for accurate property assessments. To address this, the department is exploring the possibility of acquiring more detailed imagery, which could include angled photographs to estimate building heights. This initiative, however, would require additional funding, and the department is working to include it in the state’s upcoming budget cycle.
Improving staffing retention was another recommendation. Mendenhall explained that the department is focused on increasing professional development opportunities and improving the onboarding process for new employees. However, he acknowledged that low pay remains a significant barrier, especially in high-cost areas. The department’s efforts to boost retention, Mendenhall noted, must take precedence before requesting additional funding for new staff.
The audit also raised the possibility of legislative action to address some of the systemic issues. One potential fix could involve requiring local governments to consistently report building permit data to the Department of Revenue, ensuring that new construction is captured more accurately. Additionally, better coordination with the state’s Department of Labor and Industry, which handles permits in some areas, could improve the accuracy of property assessments.
The department’s proposed changes will be a key topic of discussion in the upcoming legislative session, with lawmakers expected to consider both funding for aerial imagery and potential reforms to the permit reporting process. Governor’s office officials have expressed support for implementing the aerial imagery solution, which may influence legislative discussions on the matter.
For now, the Department of Revenue continues to grapple with the challenge of keeping up with Montana’s rapidly expanding housing market while managing a complex and underfunded system for property assessments. The coming legislative session will likely play a pivotal role in determining how the department addresses these issues moving forward.
