The backers of a constitutional initiative that would cap property tax increases on Montana homeowners have been cleared by Montana’s secretary of state to start gathering the signatures they need to have the initiative placed on the 2022 ballot.

However, a lawsuit filed Wednesday by the Montana Federation of Public Employees, Montana Farmers Union and other plaintiffs argues that efforts by Secretary of State Christi Jacobsen and Attorney General Austin Knudsen to review the initiative failed to meet the letter of a new law requiring that ballot initiatives be screened for their potential impact on Montana businesses.

In a statement, the plaintiffs argued that the tax cap initiative, CI-121, could have unforeseen consequences for Montana, such as shifting the burden for property taxes that fund schools and local government services from residential properties to farms and ranches.

“The Attorney General and Secretary of State have a legal duty to review and inform the public of the risks involved and to protect Montana businesses, but they failed to do so,” MFPE President Amanda Curtis said in a statement.

The lawsuit, filed in Lewis and Clark County District Court, asks a judge to halt signature gathering for the initiative, order a new round of review and perhaps strike the issue from this year’s ballot altogether.

The initiative is backed by former Republican legislator and attorney Matt Monforton and State Auditor Troy Downing. It would limit the growth of the assessed residential property values used to calculate property taxes to 2% annually except when homes are sold or remodeled, and also cap total property taxes to no more than 1% of the assessed value.

Amendments to Montana’s Constitution can be proposed either by petition or by a two-thirds vote of the Montana Legislature. They take effect if they win a majority vote in a statewide election.

Efforts to place constitutional amendments on the ballot by petition are reviewed by state officials and must then obtain signatures from 10% of Montana voters, including at least 10% of voters in 40 of the state’s 100 House districts. That requirement equates to 60,359 signatures for the 2022 cycle.

Monforton said in an interview Thursday that the tax cap initiative is an effort to keep Montanans from being priced out of their homes by rising property taxes.

“The fact that the Helena establishment is filing a frivolous lawsuit against CI-121 shows how desperate they are to prevent Montana homeowners from getting real property tax relief,” he said.

Monforton also said the initiative is modeled on California’s Prop 13, which passed in 1978, and Florida’s Amendment 10, which passed in the 1990s.

Both measures remain controversial, with critics arguing that they can distort tax systems and result in situations where owners of similar properties pay wildly different amounts of taxes.

Curtis, who leads the union that represents most Montana public employees, including teachers, called Prop 13 a “spectacular failure” in her statement Thursday.

Monforton disputes the notion that CI-121 could starve schools and cities for funding, saying the initiative would cap the rate of tax collection growth, not serve as an absolute cap on the funding available for education and other services in growing communities.

“A competent school district will be able to plan accordingly under CI-121,” he said.

fiscal analysis prepared by the governor’s budget office indicates the initiative would, in the short run, reduce local government collections by roughly $150 million a year.

MFPE and the Farmers Union are bringing the lawsuit along with Melville rancher Dennis McDonald, Teton County farmer and rancher Ron Ostberg, and Jeff Barber, a Helena-based realtor. The plaintiffs are represented by Robert Farris-Olsen, a sitting Democratic lawmaker from Helena, former state auditor John Morrison and former Montana Commissioner of Political Practices Jon Motl.

The thrust of the plaintiffs’ legal arguments cite House Bill 651, a Republican-backed measure that passed the 2021 Legislature and was signed into law by Gov. Greg Gianforte in May. That law requires that proposed ballot initiatives be reviewed by the attorney general to determine whether they would result in a “regulatory taking” or “cause significant material harm to one or more business interests in Montana.” Petition forms for initiatives classified as harmful would then be required to include a warning label as backers try to gather signatures.

The new law also requires the secretary of state to refer proposed ballot initiatives to legislative interim committees for review. The attorney general had already been required to conduct a “legal sufficiency” review of proposed initiatives before they’re approved for signature gathering.

Attorney General Knudsen’s review of the proposal that would become CI-121 notes that several significant labor and industry groups, including MFPE, the Montana Farm Bureau Federation, the Montana Association of Realtors and the Montana Chamber of Commerce, had requested he conclude that the initiative would harm business interests. His office declined to weigh in on the issue, saying it thought the new law applied only to non-constitutional ballot initiatives, not constitutional initiatives.

“The Attorney General’s Office fulfilled its legal obligation to review the measure. Attorney General Knudsen is committed to the rule of law and is not going to exceed the authority that the legislature delegated,” spokesman Kyler Nerison said in an email.