Frequently Asked Questions
Local option is a funding mechanism for communities to pay for their community infrastructure projects. At its core, local option is about allowing communities to invest in themselves through essential economic development necessary for growth. Local option gives citizens the ability and the choice to improve their communities as they see fit. Let’s give Montanans the tools to take their communities from good to great!
Passing the local option is a two-step process. 1) The state legislature must approve local option authority legislation that gives communities the right to enact local option in their cities. This requires passage through both houses of congress and a signature, or deferment, from the Governor’s office. 2) Communities then decide on which projects to fund and construct, the rate of the local option infrastructure tax, property tax relief, and the duration. If the community chooses to take advantage of the local option, they can approve the local option infrastructure tax – it is up to the local voters to decide.
The cost to the taxpayer depends on the rate the voters approve. For example, if the local option infrastructure tax rate is approved by the voters at 1%, the total amount of tax on a $100 purchase of taxable goods would be $1.00. So, instead of the total bill coming to $100, it will be $101. If the voters approved the maximum of a 4% tax rate, a $100 purchase would cost $104.
The local option would be limited according to what a community needs. Voters would tie the duration of the local option infrastructure tax to a set number of years, a bond repayment schedule, or until voter-approved projects are constructed and paid for. Once the local option ends, voters may reauthorize another tax, for additional economic development, if they choose to do so.
Among many reasons, two of the most important are economic development and allowing cities to implement community-tailored solutions.
Economic development is essential as globalization creates a larger field of competition between states, regions, and nations. Montana needs new funding sources to pay for vital infrastructure and critical projects. If Montana’s cities cannot pay for necessities and attract more Millennials, the largest workforce demographic in the US, the Montana economy will continue to lose out to its regional competitors. This state is blessed with incredible natural amenities, but without strategic community improvements, attracting talented young workers and new business to our state will prove very difficult.
Montana cities and towns need the authority and ability to address their problems with solutions at the local level. Our communities know what is best for themselves and it is time to unshackle them from solving community issues. Moreover, political polarization at both the state and federal level decrease the chance that identified solutions are implemented. Why wait on Helena and DC to improve your communities?
At minimum, a community will designate 10% of local option infrastructure tax revenue to property tax relief. The specific amount of relief and the method of providing relief will be left to that community. Under no circumstance can the relief negatively impact existing voter-approved property taxes that would affect schools or other recipients. As an example: Let’s say a community chooses to use 20% of the local option tax collected as property tax relief. Once the tax is collected, 20% of gross would be distributed proportionately as a rebate to homeowners annually. This would provide complete protection, assuring property tax revenues and their distribution are not interrupted.
Besides the direct relief property owners could receive as a component of enacting the local option, there is inherent and indirect property tax relief via the substitution of funding mechanisms. By utilizing the local option, the frequency of bonding against property taxes is likely to decrease, providing relief to property owners.
Yes, counties will be able to use the local option. This allows local flexibility to our state’s numerous rural areas that need to include and give a voice to their rural constituents. However, a city and county would be wise to collaborate on their priorities because 4% is the maximum rate countywide. Meaning, a county cannot enact a 4% Local Option after a city has enacted the local option, or vice versa. The maximum is 4%, for which a city and county could share the local option at 2% apiece, or any other combination that leads to a 4% maximum. Ideally, this leads to cooperation and planning for the future at both the city and county level.
There are many people who benefit from having the authority to enact a local option. Communities that decide to take control of their future with local option benefit their citizens by upgrading infrastructure and driving economic development. Property owners benefit because of the reduced need to increase property tax levies or bond against property taxes. Local option benefits businesses that can find more qualified employees necessary for growth and expansion. And the workforce will see salaries increase as more talented workers enter the labor market.
More important than economic development, reducing the burden on property tax payers, and business expansion, is that your voice matters. A community that wishes to implement a local option infrastructure tax must pass it through a majority vote of local voters. Local option is about giving authority back to the people and out of the hands of politicians. We hope you want your voice heard.
While 4% would be the maximum rate cities and towns could enact, citizens may choose to set it lower. However, even at the maximum of 4%, our tax rate would be far lower than the average state and local sales tax rates of our regional neighbors. For reference, those averages are listed below:
S. Dakota: 5.84%
North Dakota: 6.82%
It sounds great because it is! In fact, areas that have local option often overwhelmingly re-enact it because citizens quickly see how effective and affordable local option is for transforming communities. However, at present our cities and counties cannot even ask voters whether they want a local option. Before that vote can take place, the Montana State Legislature must pass a law granting cities the authority to give their citizens the option. To be clear, legislators are not being asked to enact a new tax, they are simply giving communities the authority to ask their voters what they want and allowing them to pay for it without continuing to burden property owners.
Government can be inefficient—no argument there. Local option provisions help to manage those inefficiencies and ensure that voters get what voters ask for. First, local option must be passed by registered voters. This means projects selected to be funded by the local option infrastructure tax must be seen as beneficial to a majority of the community, otherwise it won’t pass. Essentially the people will be deciding what is best, not the politicians. Second, voters select the duration of the tax. This also helps to ensure the projects chosen are appropriate for the community. Additionally, if a city planned on attempting to pass another local option infrastructure tax in the future, it would have to demonstrate to the voters it can diligently and efficiently manage their money.
While it is possible that some industries could potentially relocate outside of city limits, most require the services provided by the city. Water and sewer are two key needs of business to remain within city limits. If a business chooses to move outside of the boundary, there is a good chance that area will be annexed eventually. Moving to another city in Montana would be a difficult decision considering every city would have the potential to enact a local option. And finally, a business choosing to relocate outside of Montana, will likely be subjected to an even heftier tax in that state. Businesses that do their due diligence are unlikely to relocate because a community voted to enact local option.
The local option only targets goods being sold as final sales to consumers. A local option infrastructure tax would not apply to items intended for resale or business-to-business purchases of supplies and raw materials. Some concern has been brought up about this “tax pyramiding,” a legitimate concern when discussing gross receipt taxes. Rest assured, these are two different taxes. Our local option structure ensures that only finished goods, sold to the consumer, are taxed – not items for resale, avoiding the problem of “tax pyramiding.”
Supporters of local option come from all different backgrounds. From chambers of commerce to technology firms, small business startups to college presidents, and from young innovators to professionals nearing retirement, local option is supported by a broad swath of Montanans. For a listing of businesses and people in support of local option, please check out our Supporters page.
We need lots of people to help voice their support for local option. With your permission, we will list you on our Supporters page. You can also sign up to receive our newsletter and stay informed with our latest efforts to pass local option. At the very least, we ask that you start a conversation about what your community needs. What do you want? Will your town be a place your children will want to live? After you identify your community wants and needs, ask how you will pay for them, and whether local option can be used to transform your community.