The City of Missoula is set to pull millions of dollars from its special urban renewal fund for the second year in a row. But this time the cash grab is for the opposite reason, Mayor John Engen announced Wednesday.

Last year, the city pulled $2.7 million from the urban renewal funds, controlled by the Missoula Redevelopment Agency, to cover a budget shortfall. This year the city is pulling $2.8 million from the fund because there’s more than enough money available all around.

“This is a remarkably successful program and the growth there allows us to consider some options that we just haven't been able to in past years,” Engen told the city Budget Committee, which consists of all the council members.

The option the mayor has proposed is to build the city’s rainy day fund while the city and the urban renewal districts are having a particularly prosperous year. The city won’t see the whole $2.8 million though, as it must be split with the county, schools and other voter-approved bonds and levies. The city’s cut will be about $725,000.

The urban renewal funds are commonly known as TIF, or tax increment financing, money.

The city has set a rainy day fund goal of roughly $3.7 million, or 7% of the general fund budget. With the $725,000 deposit from the TIF grab, the fund is about $1.2 million shy of the goal, Missoula Chief Administrative Officer Dale Bickell said.

Property values grew dramatically across Missoula this year, meaning the city will have no problem funding the budget without raising its tax rate. The sharp increase in property values will in fact allow the city to lower its tax rate. However, only owners of the very rare property with nearly flat or decreased value will actually see a lower tax bill.

As the $2.8 million is split with the county and schools, those two entities have the opportunity to lower taxes by applying the unexpected money to fund their budgets, rather than setting it aside as the city is choosing to do.

But the places those property values grew the most significantly was in the city’s Urban Renewal Districts, also known as TIF districts. These districts, of which Missoula has six, were created to help fund infrastructure improvements and reduce blight. Normally, the city wouldn’t see the benefit of that growth until after the TIF district expires.

The creation of a TIF district means the city, county and school districts can only tax those properties based on the value at the time of the district’s creation. Any rise in property taxes, based on increases in property values, are funneled back into the district for infrastructure improvements and private development assistance to mitigate blight.

The taxable value of those areas grew by over 50% from last year, now $12.5 million more than when the districts were created. For scale, the city as a whole saw an 18% increase in taxable values.

The use of TIF funding is controversial both nationally and locally. Council member Jesse Ramos is the council’s strongest opponent of TIFs in general. He sees the use of TIF money for private development as a corporate handout at the expense of the taxpayer. Proponents of TIFs, which include the rest of the City Council and the mayor, say the development eventually leads to more tax money for the city, by spurring higher property values. However, Ramos did herald the decision to pull TIF money back into the city’s holding.

“I’m thrilled by this remittance,” Ramos said. “I think it’s a great decision, like Mayor Engen said it will help reduce property taxes for the county and schools.”

Recent uses of TIF funding include $3.2 million for the Marriott hotel at the old Mercantile site downtown, $1.8 million for another Marriott hotel around the corner from that, $6.9 million for roads and infrastructure around Southgate Mall, $5 million for the Reserve Street pedestrian bridge and $1.5 million for the new Stockman’s Bank building downtown.

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