A new state law and a reassessment of the taxable value of industrial business equipment has left School District 2 short this year.
As a result, the district will bump up its tax rate to make up the difference. With the increase, a property owner with a home having a market value of $200,000 will now pay $15.76 more a year in taxes to the school district.
It's the first time in recent memory the taxable value on centrally assessed property has dropped in the county.
"Our taxable value went down for the first time in years," said Leo Hudetz, chief financial officer for SD2.
"It just doesn't happen," said Max Lenington, Yellowstone County treasurer.
The drop in centrally assessed property value was due largely to AT&T and Verizon, which saw the value of much of the their equipment downgraded by the state.
Centrally assessed property deals mostly with industrial and utility equipment, like microwave towers and transmission gear, railroads and railroad cars, pipelines, airlines, telephone cooperatives and telecommunications.
The tax base in Yellowstone County is weighted heavily by the telecommunications companies and oil refineries located here, so the county's economy is tied closely to the taxable value of the centrally assessed property.
Also playing a role was last year's SB372, a state Senate bill turned law that cut the equipment and property tax for smaller businesses from 3 percent to 2 percent.
That drop translated to a loss of roughly $315,000 in tax revenue for SD2. Lawmakers, anticipating the lost revenue the tax cut would mean for school districts, included a block grant to backfill some of the money.
However, the grant is based on last year's numbers, so SD2 will see only $308,000.
"It doesn't fully make us whole," Hudetz said.
That shortage, along with the drop in centrally assessed property values pushed the district to increase its tax rates to fill the gap, he said.
"And they may have to request more protested taxes," Lenington said.
Companies operating in Montana have the option to protest their tax bill with the state if they think they're being taxed at too high a rate.
A protested tax is still paid but the county holds the money until the dispute is resolved, rather than paying it out to the public entities funded by tax dollars.
In a town like Laurel, where 50 percent of the tax base comes from the CHS refinery, a protested tax can leave a sizable hole in a school district budget.
CHS protested its taxes in 2009 and is still working with the state to resolve it, Lenington said.
In the Billings area, Conoco and Bresnan have protested their taxes, cutting into SD2's revenue. ExxonMobil has indicated that it may protest its taxes in November, Lenington said.
School districts have the option of petitioning for part or all of the protested taxes paid to the state — and many do. The risk is that when the case is settled, if the tax rate is ruled to be lower than what the company originally paid, the school district must pay back the difference.
It all makes for a frustrating funding system for school districts, Hudetz said. On top of the tax issues is the state's school funding model, which favors smaller districts, he said.
"The state's formula punishes double-A districts," Hudetz said.
SD2 is hopeful the next state Legislature will address some of the issues.