The city of Missoula is scrambling to make last-minute changes to its annual budget — which could include an increase in property taxes — after the Montana Department of Revenue recalculated the tax burden for railroads, pipeline companies, air carriers and the telecommunication industry.
Missoula County also will need to make some tough choices, after the anticipated increase in the value of a mill, which is based on a property’s value, came in lower than expected.
Property taxes are calculated based on the value of a mill. The construction surge across Montana typically would increase the value of the property and subsequently of the mill. In Missoula County, for instance, the projected value of one mill for the fiscal year 2019 budget was $224,587. Last year, the value of a mill was $219,323.
Instead, DOR information released to cities and counties Monday put Missoula County’s mill value at $220,300. That presented a $693,657 shortfall in the county’s preliminary budget.
The saving grace for the county was that the Sheriff’s Retirement System voted last month to discontinue paying into Social Security. That reduced the amount of money the county paid for Social Security for those employees by $725,619.
County Commissioner Jean Curtiss called that move “fortuitous,” but added that the county and city are meeting with representatives from the DOR on Friday to discuss the matter. They also have about 100 budget increase requests that they’ll scrutinize more closely.
“It was a shock for us,” added Commissioner Cola Rowley.
Missoula’s City Council has been having budget presentations for most of the summer, but Mayor John Engen was prepared to present the overall city budget to the council on Wednesday. He canceled that portion of the meeting on Tuesday after city officials learned Monday that the value of the city mill was put at $121,730, slightly lower than last year’s valuation.
Dale Bickell, the city’s chief administrative officer, said they’re confused by the drop in value, especially since the number of building permits being issued has doubled in recent years. City staff are looking at the certified valuations of about 22,000 parcels within the city of Missoula, and are trying to figure out how the property values for some of those parcels decreased.
“We’re not challenging their evaluations; we’re not asking them to prove it, but trying to figure out why it changed,” Bickell said on Thursday. “There should be a reason why it happened — if the underlying owner protested the appraisal, if there was a demolition — there has to be some explanation. We are doing it at a macro level too, looking at why a particular category went down.”
In an email to his fellow council members, Jesse Ramos wrote that he doesn’t expect the value of the mills to change, “unless of course, the Department of Revenue caves in, which would concede that their appraisal methodology is lacking in credibility and validity.”
The bottom line is that both the city and the county are re-assessing requests for additional funding for each department, and will need to decide whether they can afford those changes. Bickell said the end result could be a higher tax bill for properties that didn’t see an increase in the taxable value if the city decides to levy more mills. He expects Engen will present the new budget next Wednesday.
The city's public hearing on the budget is at 7 p.m. Aug. 27; the county's is at 2 p.m. Aug. 23.
Not everyone is disturbed by the drop in the mill’s value. Ramos wrote in an email that the lower-than-anticipated mill value actually is a “huge win” for taxpayers and his constituents, if the city doesn’t increase the number of mills that are levied.
“As was mentioned by councilwoman (Gwen) Jones, she also has constituents who are being forced to move out of their homes” due to property tax increases, Ramos wrote. “If they were hit twice with a valuation and a mill levy increase, this would assuredly cause more of them to be taxed out of their homes. So to me this is a loss for government but a win for taxpayers.”
According to DOR, the railroad, telecommunications, airline and pipeline industries are listed as “centrally assessable,” which generally means that the business operates in a continuous fashion across county or state lines. The market value of these centrally accessible companies’ properties is determined by valuing each as one unit both in and outside of Montana, then allocating a portion of that unit’s value to Montana. In turn, the Montana value is allocated to each county where the company owns property.
“The most classic examples would be a railroad company, such as Montana Rail Link, or a public utility company, such as NorthWestern Energy,” Kory Hofland, the DOR Business Tax and Valuation Bureau chief, wrote in an email to the Missoulian.
Missoula County is one of the top six hit by the drop in the centrally assessable mill valuations, along with Richland, Rosebud, Phillips, Yellowstone and Toole counties.
The majority of railroad and telecommunications companies experienced a decrease in market value from the prior years, which resulted in a smaller tax burden for them, according to DOR officials.
Kristan Barbour, a taxpayer advocate at DOR, noted that in the telecommunications industry, more robust competition during the past few years due to increasing market saturation led to a “contraction in values” for the current tax year.
“For example, cell phone plans have gotten continuously cheaper over time or at least are offering more benefits for the same amount of money,” Barbour wrote in an email to the Missoulian. “This is great for consumers but is an indication of deteriorating margins for companies that operate in the industry. The sector is still strong, however, and will continue to be profitable, which should result in increasing market values in the future; it just may not be at the same level of growth we have experienced in the recent past.”
Some pipeline companies experienced a decrease in taxable value as the result of a 2018 Montana Supreme Court decision, which resulted in their property tax rates dropping from 12 percent to between 1.5 percent and 3 percent.
In addition, the airline industry was affected by a 2017 Supreme Court Decision resulting in certain air carriers that operate across county and state lines, but fly under a contract for another airline, no longer have to pay property taxes if they are permanently based in Montana. Instead, they pay a fee in lieu of property taxes.
Barbour said that new taxable values reflect properties as of the Jan. 1 assessment rate, and the value of new construction that occurs after that date will be reflected in the following year’s values.
“A significant portion of newly taxable value is typically attributable to increases in centrally assessed property values,” Barbour said. “When centrally assessed property values decrease or increase only slightly, newly taxable values will be noticeably lower.”