The Missoula Redevelopment Agency reluctantly agreed Tuesday to share tax revenue that had been collected to help blighted areas with the city, schools and county so they can avoid cuts to services or bigger tax increases.
At a special meeting, the board voted, 4-1, to approve Mayor John Engen's plan to pull $750,000 from the Urban Renewal Districts and put it in the city’s general fund.
Because the city is tapping $750,000 from the URDs, state law dictates that Missoula County will also automatically get about $518,000, Missoula County Public Schools would get over $1 million and other taxing jurisdictions would also get smaller amounts of money.
In total, about $2.73 million of property tax money collected within the Urban Renewal Districts will be used by the city, county and local schools.
Because the money will not be repaid, there will be $2.73 million less for future tax increment financing assistance requests for development projects in the districts, meaning private developers will have less incentive to build in blighted areas and improve public infrastructure.
It also means commercial property owners and residents who live in Missoula’s six URDs will see fewer public improvements in their neighborhoods because they are effectively subsidizing the rest of the city and county due to revenue shortfalls.
“I’m dismayed by this whole process,” said MRA board member Ruth Reineking, who cast the lone no vote to, as she put it, respectfully voice her opposition to the process. “It struck me that it’s not entirely fair to residents and businesses in the Urban Renewal Districts to be funding infrastructure in the county when we’re deferring improvements to infrastructure in the districts. It could still impact our ability to participate in infrastructure improvements and housing opportunities.”
Reineking said she hopes the request is a “one time” occurrence. However, both she and fellow board member Tasha Jones worried that it could happen every year now.
In Missoula’s six Urban Renewal Districts, any increases in property tax collections from improvements are set aside and diverted away from the school district, the city and county general funds. The money goes to the MRA, which can use it to offer TIF assistance to private developers to incentivize development and to pay for utility and infrastructure upgrades that benefit the public. The goal is to reduce blight in certain sections of the city and increase taxable value once the district “sunsets” and begins paying to the general fund and schools.
In the past few years, millions of dollars in development in Missoula has taken place within the Urban Renewal Districts.
Ellen Buchanan, the director of the MRA, said last week that she was “shocked” by the shortfall between what she and her staff anticipated in property tax revenue from the districts and what actually came in.
She told the board that she and city manager Dale Bickell “crunched the numbers” and determined that the main reason is that 784 property owners successfully protested their tax bills and the state Department of Revenue subsequently lowered them.
With the additional loss of the $2.73 million, she said, there will be that much less money to fund projects in the coming year.
“In a nutshell, the biggest impact this will have is unobligated funding for ‘walk in the door’ projects that we can’t anticipate,” she said.
Buchanan said that the combined property tax revenue generated from the new Mercantile Hotel project and the new ROAM student housing project, which were both aided by TIF funding in the Front Street URD, was almost completely offset by property tax appeals from other property owners in that district.
The URD was "a victim of protested taxes,” Buchanan said. “We had properties in the district that protested and the district absorbed those successful appeals. That’s really why we’re in the predicament that we’re in. People were pretty upset in the huge increase in the value of their land (last year), but we are at the end of the appraisal cycle and things should smooth out from here.”
Buchanan and MRA assistant director Chris Behan both noted that there are large development projects on the horizon, including a potential office building on West Broadway and redevelopment of a blighted building on Russell Street, that could be negatively affected by a lack of TIF funds.
Buchanan said she’s confident that the city's request won’t happen again next year because fewer people should be protesting their tax bills. That’s because, she said, the state changed the way it appraised property values last year. She also told the board that there was enough of a surplus that it didn’t decimate the MRA coffers.
“It’s fortunate for the city and other taxing jurisdictions that we have this tool to help bridge funding gaps to use it this one time,” she said. “The good news is there’s every possibility that this wouldn’t reoccur.”
Urban Renewal Districts have their critics in Missoula, including state legislator Adam Hertz, R-Missoula. On his public Facebook page, he said they place an "undue burden on property taxpayers in order to subsidize pet projects and corporate handouts."
City council member Julie Armstrong said she would prefer not to pull money away from future TIF requests.
“I would rather have this money available when developers come calling,” she said. “We are really in a 24-month cycle when we can attract businesses. It’s fine. The money is there. The districts are robust enough to support this.”
Council member John DiBari agreed, saying that Mayor John Engen doesn’t want to cut city services or drastically raise taxes to make up for the revenue shortfall.
“It’s an all-hands on deck situation,” he said. “The success of the TIF legislation has provided this opportunity for Missoula and Missoula has done very well using this mechanism. It’s why we have a downtown now.”
Board member Tasha Jones lamented the fact that the city doesn’t have a local-option sales tax that could offset property taxes by collecting money from out-of-town tourists.
“We’re having this discussion to save citizens from a tax increase that would be about $40 (on a median priced home),” she said. “Folks didn’t want to pay tax increases. There was an unwillingness to pay taxes levied against their property. I know it’s far more complex and many of the choices were made in Helena. Montana is heavily reliant on tourism, yet we choose not to have any of those folks participate in our tax base. This is one of the consequences of that choice, and it’s sad to me.”
Jones said that Missoula’s parks and rivers make it a great place, and the city is responsible for maintaining those areas.
“It’s been really exciting to be on this board and see how lively the economic measures are here and it dominoes,” she said. “I grew up in Great Falls, and that is the opposite of downtown Missoula, isn’t it? Things are getting better there, but Missoula is such a great place to live because it has such an active city government.”