John Cuddy rolls his eyes as he looks at the property tax bills for his cozy, 73-year-old Dearborn Street cottage in Missoula’s University District.
A decade ago, his total tax bill was $1,682 for the 959 square feet of living space. In 2018, it had jumped — by 80 percent — to $3,029. Meanwhile, the taxable value of his home (see related story), constructed in 1945, increased by only 40 percent, from $2,165 to about $3,000.
“The one that really gets me is going from $32 to $112 for Mountain Line busing,” said Cuddy, sitting at his kitchen table while he looked over the changes in his taxes during the past decade. He ran his finger down the list, and laughed as he shook his head. “The thing is, these little $16 increases start adding up. My ultimate question, and I think a lot of people feel the same, is where does it go?”
The people responsible for Missoula and Missoula County's budget know the answer to that question, and both post their budget tomes online for people to peruse. They also agree that Montana residents in general are overtaxed, and are calling for reform.
When talking about tax bills, Dale Bickell, the city's chief administrative officer, pulls out a chart he created that shows how in 2008, about 55 percent of Missoula’s tax base came from residential property taxes. A decade later, that burden has increased to about 72 percent. In the meantime, the tax burden on commercial property dropped from 33 percent to 25 percent.
“It’s a combination of tax policy and how things are developing,” Bickell said. “It’s a larger burden and we’re relying more on the residential tax base than ever before.”
As Tyler Gernant, the Missoula County Clerk and Treasurer, sends out 47,312 property tax bills this week, he knows that’s a question on a lot of people's minds. Gernant’s office prepares the property tax bills that include line items for the city, the county and the schools.
It’s fairly easy to look at a tax bill and see over time where the changes took place at the county level. Line by line, on Cuddy’s tax bill, the county lists how much he pays for about 30 categories, including weed control, mental health and aging services, and the jail bond debt service.
School assessments take up 22 lines on Cuddy’s tax bill, showing how much he pays for the Missoula Elementary tuition or the high school building reserve and the state vo-tech millage.
The city of Missoula is more difficult to figure out. Unlike the county and schools, only one item is listed for the city under the General Tax Detail, and that’s the city’s general fund. Under a second heading on Cuddy’s bill, known as Special Assessments, are seven breakouts. Some of these special assessments are paid for by “fees” instead of taxes, which covers street lights and city park districts. Others are taxes for voter-approved bonds for open space and Fort Missoula.
The dearth of information on Cuddy’s tax bill about city taxes is because it’s a different form of government than the county, according to Bickell.
“By law, counties have segregated mills for specific purposes; like the library has a specific number of mills allocated for it, and those mills can’t be allocated to parks in the county,” Bickell said. “In the city, we have a general fund levy on there, which pays for police, fire, a lot of parks, the administration of the city. All those things are in our general fund. That’s the biggest category related to tax bills.”
Gernant said this year their software vendor came up with a new tool that might allow for more itemization.
“That’s something we would like to see,” Gernant said.
Taxes on city properties
As Missoula city, county and schools wrapped up their budgeting process, and the tax bills for Fiscal Year 2019 head out to property owners, the Missoulian looked at the impacts of financial decisions during the past decade and what they meant for area taxpayers. Using the online Montana Cadastral parcel database, the Missoulian chose five properties at random that hadn’t received significant upgrades in the past 10 years and were of similar value, then did a side-by-side comparison of their taxes.
As expected, all of the properties’ taxable values increased, some more than others. Not surprisingly, the amount of the tax bills also increased, but not necessarily in a correlating amount.
For example, the taxable value on an 870-square-foot Cooper Street home built in 1910 in the Northside District was $1,943 in Fiscal Year 2009, and increased to $2,207 in 2018. While that’s a 14 percent increase in taxable value, the tax bill was up by 46 percent — or $715 — within the decade, rising from $1,536 to $2,251.
Both Cuddy’s and the Cooper Street homes within the city limits will see a slight uptick of about 1.6 percent on the Fiscal Year 2019 tax bill. But overall, most properties within the city limits will see an increase of 3.67 percent because that’s the increase in the number of mills levied. (See accompanying story for more information on mills.)
Unlike the county, the city didn’t provide a breakdown of where the taxes increased for those two homes. Instead, the city provided general information for overall changes in city taxes.
For example, in the past decade the combined City Council and mayor’s budget went from $778,010 to $981,344, an increase of almost $82,500. Court costs nearly doubled, from $830,000 in FY 2009 to $1.6 million this year. During that same time the public safety budget for police and fire gained an extra $10.7 million, topping out at $34 million this year. That’s an increase of about 45 percent.
The amount of money going to housing and community development more than doubled, from $10.8 million to almost $24.7 million, and the city’s debt service tripled, from $4.2 million to $15.8 million. The amount spent on culture and recreation in the city got a $3.1 million boost during that decade, bouncing from $5.4 million to $8.6 million.
Yet in Missoula, taxes and assessment make up only about 28 percent of what this year is a $121 million budget, up from $71 million a decade ago. Charges for services accounts for nearly 26 percent of the budget; transfers among accounts and other financing tools, like the health insurance levy that comes from taxpayers, make up another 22 percent. The rest of the budget comes from state entitlement programs, licenses and permits, and other miscellaneous accounts.
Bickell notes that a lot has changed in the past decade in Missoula, which has grown by an average of 1,500 people per year in that time span. For example, the city created its own developmental services department and it dove into the water utility business. The city also provided raises for employees, paid for increases in health insurance premiums and created four new Tax Increment Financing (TIF) districts.
The city has increased its budget by an average of 7 percent annually during that decade.
“The biggest driver was the water revenue, which increased by $19 million. But that’s not really a new cost because people were paying for water in the private sector,” Bickell said. “Same with the debt service. The biggest driver is water and the MRA (Montana Redevelopment Authority), which has been more active with the debt program.”
The MRA oversees the TIF districts, in which loans or grants are made to improve properties within the district, with the idea that those improvements will result in an uptick in tax revenues in the future.
Ginny Merriam, a spokesperson for the city, adds that road and park districts were created in 2011; this year, money for those districts was pulled out of the general fund and put into that line item. In Fiscal Year 2009, Public Works included the engineering department, but that's now part of Development Services.
During that decade, the Central Services department was created, and they also shuffled around some of the General Fund dollars.
Taxes outside the city
Outside the city limits, property taxes on the three properties examined by the Missoulian will decrease by a small percentage on this year’s bill after seeing double-digit tax increases. Taxable values remained flat for two of the three homes.
Overall, property taxes in Missoula County are expected to increase by an average of 1.8 percent for Fiscal Year 2019.
What that translates to is $235 in additional taxes in the past decade on a 12-year-old, 1,860-square-foot home on Deer Park Drive in Seeley Lake. The home’s taxable value increased by 3.7 percent during the decade, rising from $3,035 to $3,147, while the property taxes increased 12.5 percent.
The owner of a 1,400-square-foot Lake Side Drive home in Lolo, with a taxable value of $2,755 that increased 8.5 percent to $2,989, experienced a tax hike of $387 during the 10-year period. That’s a 16 percent increase.
And in Frenchtown, a 55-year-old, 1,200-square-foot home on Mullan Road saw a 19.4 percent increase in taxable value and a 50.7 percent increase in taxes — a difference of almost $700, from $1,376 to $2,073.
The increases come for a variety of reasons similar to those in Missoula. Cost-of-living raises for employees. Rising health insurance premiums. Increased costs for fuel, asphalt, electricity. Those factors that affect taxpayers’ personal lives also make running a government more expensive.
Then there’s the loss of industries. Chris Lounsbury, the county’s chief operating officer, notes that taxpayers in Frenchtown took a huge hit after Smurfit-Stone Container closed permanently in 2010, only a few years after the community passed an $18.9 million bond to expand the high school and build a junior high.
“All those taxes had to shift to residential because of the debt service to those bonds,” Lounsbury said. “The entirety of the community made the commitment, and when one taxpayer leaves, the burden shifts.”
History of taxes
Montana’s reliance on property taxes goes back to the state’s inception, notes Heather Harp, a Missoula City Council member who also sits on the Property Tax Working Group with other community members looking into the tax situation. Under the 1889 Constitution, properties were taxed at different rates based on their use. At that time, industrial uses like railroads were the most profitable, and as such were taxed at a higher rate.
Today, the state has about 15 different tax classifications.
“As time went by, starting in the '50s and '60s, major corporations started flexing their muscles and started to successfully lobby the Legislature for lower tax rates on those different classifications,” Harp said. “Now, many of those are known as 'centrally assessed' taxes, which used to be a big part of the pie, but that’s no longer the case.”
Today, those centrally assessed properties include about 20 companies, including electric utilities and cooperatives, telecommunication and telephone companies, gas utilities and gas and oil pipelines, ditches, and airlines. They’re centrally assessed because they’re businesses that cross county lines, and in some cases state lines, so Montana’s Department of Revenue assesses them as a whole and parcels out the taxes they pay to the various taxing entities.
Harp said that of Montana’s 56 counties, only six are considered urban, including Missoula. In the rural counties, about 75 percent of the tax base comes from the centrally assessed properties, with the remaining 25 percent coming from commercial and residential properties.
“In urban counties, those percentages are flipped,” Harp said. “Missoula had a number of [paper] mills and timber and extraction industries that no longer are here. So to make up that difference, the burden shifted to residential and commercial properties.”
Speaking of mills, it’s also a technical term for a tax rate. Generally, the use of a mill is meant to equitably distribute the tax burden. Its value is determined by the Montana Department of Revenue, typically increasing as development grows in a city or county.
When the value of the mill dropped in Missoula this year, that meant the city had to increase the number it levied, which raised taxes by 3.67 percent.
“The reality is we have had to raise rates because we have this portion or our economy — the centrally assessed properties — that has been able to negotiate lower tax dollars, which gets passed onto the individual taxpayer,” Harp said. “So we can either put up with it for the great quality of life — people move here all the time — but the idiom that we’re doing more and more with less is true. Local governments can’t do their job effectively and at the same time ask residential taxpayers to pay the majority of it.
“We need new tax justice reform.”
Tax reform options
Both Missoula County and city officials say this method of funding government services mainly on the back of residential and commercial property taxes is not sustainable. One of the changes they’ve sought in recent legislative sessions is a new local option tax, also known as a resort tax. It would institute a sales tax on “luxury” items and alcohol, among others.
While Montanans generally shy away from these types of sales taxes, Lounsbury notes that by statute it would have to offset property taxes and would have to be approved by voters.
Vickie Zeier, Missoula County’s chief administrative officer, noted that they don’t have a lot of other options out there, but something's got to give.
“As long as people keep approving bonds and levies, and we have increased costs — whether it’s a wage increase or performing services or needing materials — this is the only way county governments can be funded,” she said. “Unfortunately, property taxes are becoming a hindrance for some people to stay in their homes.”
Lounsbury adds that they could add more fees to pay for specific needs, such as road or lighting districts, but at the end of the day those still end up on property owners’ tax bills.
“It’s a balancing act,” he said.