Missoula’s six Tax Increment Finance Districts could be the main culprit behind the drop in the mill value for the city.
During a meeting among city and county officials and the Montana Department of Revenue Friday morning, everyone struggled to explain why the taxable valuation in the city of Missoula dropped and why it stayed flat in Missoula County, despite an apparent construction boom that should have boosted values.
While the city saw a large jump in the number of building permits being issued, most of those projects are located within the boundaries of the six TIF, or Urban Renewal Districts, in Missoula. That means those improvements aren’t included in the taxable values, through which the value of a mill is calculated.
Ed Caplis, director of the Montana Department of Revenue’s Tax Policy and Research bureau, said the TIF districts work like this:
“Look at Missoula, and say you have one TIF district. Let’s say the taxable value of the city overall increased by $100, but $20 of that growth was inside the TIF area. So the city would only see an $80 increase in their taxable value because the increment is for outside the TIF only. The city will get that back when the TIF expires; that’s when you receive that value,” Caplis said on Friday.
“If the growth is in the TIF district, that growth is deducted from the total.”
TIF districts usually are “blighted” areas where cities want to direct improvements. The base value of a TIF district is noted, and any increases in property values and subsequent taxes collected don’t go into the general fund; instead, the tax dollars go into a separate pot for investment back into the district until the district expires.
What happened in Missoula is the taxable value for the growth inside of the TIF districts totaled $523,000, while the taxable value outside of those districts grew by only $508,000, leading to a negative growth in property valuations, Leslie Snyder, the DOR’s Missoula area manager, told city and county officials Friday morning.
Those projects include the downtown Marriott hotel, Lucky’s Market at Southgate Mall, and the Stockman Bank.
Not only were those excluded, but other projects were as well. Snyder ticked off a list of construction projects that couldn’t be included in the taxable values, which include various schools. In addition, those construction projects outside the TIF districts were only valued based upon how much construction was complete at the start of the year.
Adding to the lower mill levy was the purchase of the Missoula Water utility by the city, which took that business off of the tax rolls; the purchase of parkland and open space, although that’s in TIF districts; and successful tax appeals, including on property near the library. In addition, the valuations of certain “centrally assessed” businesses that operate across state or county lines —railroads, telecommunications, air carriers and pipeline industries — also decreased this year.
But Dale Bickell, Missoula’s chief administrative officer, said the Department of Revenue also notified the city that its certified values of newly taxable properties was $1.9 million. The drop in the taxable value of Missoula Water this year — because it’s now owned by the city — ate into about $626,000 of that, and he’s scratching his head trying to figure out where the rest of the decrease occurred.
“It’s not adding up,” Bickell said on Friday afternoon, shortly after he got off the phone with the Revenue Department's Caplis. “Ed Caplis has been doing this for 20 years and I have been in government finance for 18 years and we are still talking ourselves in circles. It’s a very complex system.”
Council member Jesse Ramos has openly opposed the TIF districts because they take money that should go into the general fund and instead invest it only in the districts. He believes that raises the tax burden for those outside the district to pay for standard services, and the lower mill levy was caused in large part by the TIF districts.
“TIF districts rob the schools, the police, the fire, and the infrastructure to pay for corporate handouts,” Ramos said. “TIF is the reverse Robin Hood for cities across the U.S. and Missoula. Robbing from the poor to pay the rich. It’s not right and I am very glad this is happening so that folks can start to be aware of the negative impacts of TIF.”
The six TIF districts encompass large swaths of downtown, the Brooks Street and Front Street corridors, the Riverfront Triangle, the Hellgate area and North Reserve/Scott Street area. Ramos said the earliest expires in 2024.
Ramos said he warned his fellow council members and the mayor that this would happen.
“They shouldn’t have been surprised,” Ramos said.
Regardless of the cause, Mayor John Engen and the city’s budget team is going back over the document they planned to present to the council last Wednesday and now is slated to be revealed in full next Wednesday during the Committee of the Whole meeting. A public hearing on the budget is slated for 7 p.m. Aug. 27 in the City Council chambers.
When the value of a mill drops, cities and counties either need to cut their budgets or levy more mills to pay for services, which increases property taxes.
“We are basing the budget on the certified value (of the mill), but we need to tell the story — is it due to the increments, adjustments, changes in the centrally assessed properties? I don’t know,” Bickell said. “Their number is what we are basing our budget on, but we need to be able to explain it.”
The drop in the mill levy also is affecting Missoula County, prompting a $693,000 shortfall in its 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.
The county’s budget hearing is at 2 p.m. Aug. 23 in Room 151 of the courthouse annex.