In what the chairman of the Montana House Taxation Committee called a “firestorm” and perhaps a “record-breaking” amount of testimony, lawmakers heard a bill Tuesday that would revise Tax Increment Financing laws in the state.
Dozens of business leaders, taxpayers, elected officials and lobbyists from around Montana came to address their support for or concerns with the bill for a total of 82 different commenters.
Senate Bill 523, introduced by Sen. Greg Hertz, R-Polson, would remove school levies from the calculation of the tax increment, would limit TIF provisions to 30 years and would require the local governing body, like a city council, to approve all expenditures of TIF. There are many provisions in the bill, and it would be a significant overhaul of a system that’s used by many cities and towns in Montana to incentivize development in certain areas. The bill would prohibit the adoption of a TIF provision if the incremental taxable value of all urban renewal areas that have adopted TIF provisions exceeds 7% of the total taxable value of the taxing jurisdiction. It would also revise the definition of a blighted area and would only allow an urban renewal district to get approved for an extended time period after a public hearing is held.
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In Missoula, private developers are eligible for Tax Increment Financing assistance for the portions of projects that benefit the public if the project is inside a designated Urban Renewal District. The new property tax generated by the development is then directed to the Urban Renewal District to either help with future projects or pay off the TIF assistance given to the developers. The new property tax from the project does not go to other taxing jurisdictions, like the city’s general fund or the relevant school districts. Many other jurisdictions around the state, including Missoula County, use a form of TIF assistance.
“This is a very important bill for the people of Montana and taxpayers,” Hertz said. “Tax Increment Financing is quite frankly a complex issue that took me several sessions to understand. I think a lot of taxpayers are very confused and they’re not even aware what’s happening to them.”
Hertz said his bill would allow for 15% of voters in an Urban Renewal District to petition for an election to decide if a local government can purchase land using TIF and issue bonds to finance the deal. Essentially, Hertz believes that his bill would provide more tax revenue for schools and lessen the burden on property taxpayers.
Critics of the bill say that TIF is a tool that increases the overall tax base, providing more revenue for schools.
The bill is supported by the School Administrators of Montana, the Montana Association of School Business Officials and the Montana Rural Education Association.
"TIF can be good for long-term development but in the short-term it can be hard to explain to local taxpayers," explained Rob Watson, the executive director of the School Administrators.
The bill is opposed by Missoula mayor Jordan Hess and the Montana League of Cities and Towns.
Hess said TIF was the only tool the city had to redevelop a former polluted and abandoned lumber mill site in central Missoula into what is now the bustling, vibrant and tax revenue-providing Old Sawmill District. He also noted that a broad swath of downtown Missoula south of Broadway was once an Urban Renewal District. After the district expired, it had increased the amount of property tax revenue it sent to the city by 123%, compared with a 48% increase in the same time period for the portion of downtown north of Broadway not included in the district. That means, Hess said, that the public dollars were leveraged for a far greater return in private investment, which now means more money for the city and local schools.
Russ Nelson, who has been the mayor of Belgrade for 20 years, called the bill “changing the rules midstream or at halftime.”
“I’ve never seen such an attack on cities that follow the rules,” Nelson said. “TIF is the only significant tool for economic development in Montana.”
He said Belgrade worked with the local school before adopting its TIF district.
“This (bill) will limit the resources available to local governments to fund critical infrastructure for new housing and business,” Nelson said. “It limits the ability to use TIF to match state and federal grants. It makes me feel like you dislike cities that follow the rules.”
Nelson noted that state lawmakers don’t like it when the federal government “forces bad policy on the state,” and he said local governments feel the same way about bad policy being forced on them by the state.
“Twelve million people visit each year and use our roads and services, let them pay some,” he said. “Don’t make small towns the unintended consequences of larger towns.”
Many Missoula-based opponents of the bill noted that TIF has been instrumental in allowing developers to offset a portion of infrastructure and demolition costs when building affordable housing projects.
Jesse Ramos, a former Missoula City Council member who has long been a critic of TIF and who supports the bill, said the Legislature’s original intent when it passed a law decades ago allowing TIF districts was to “eliminate blight.”
“It doesn’t say anything about affordable housing,” Ramos said.
He argues cities have other tools to build affordable housing. Ramos believes that instead of hotels getting nearly $7 million (as was the case with a hotel redevelopment in downtown Missoula where the developer used TIF for sidewalks, street lighting, deconstruction and state prevailing wages for contract work), cities should have tighter purse strings with TIF assistance.
Sandra Vasecka, a Ward 6 City Council member in Missoula, said that TIF has been "misused and abused" in the community. She said that if the property tax from Westside Lanes was going to the city's general fund and the local schools rather than into Urban Renewal District II, that business' property taxes alone would pay for 5% of a proposed school levy that will be on the ballot this spring.
"Our constituents are assuming our tax dollars are going to fire departments, roads and police," she said. "But unfortunately, if you are in an Urban Renewal District those are going to corporate welfare."
'The Missoula show'
But Sara Hudson of the Snowy Mountain Development Corporation in Lewistown said that city’s blighted Main Street, with many vacant buildings, would suffer a bleak future without TIF assistance available.
“Rural Montana needs TIF,” she said. “We use it to help our small businesses. It stimulates Main Street businesses to develop their vacant upper floors into affordable housing for workers. Buildings in our TIF district are more than 100 years old, full of lead, asbestos and mercury. They can’t accommodate weight, they have faulty wiring, heat and ventilation and no handicap-accessible restrooms.”
She said developers need help for the cost of public improvements, like those to sidewalks, in order to make urban infill redevelopment projects pencil out. She noted that many developers would simply develop green lands and agricultural lands outside of cities rather than redevelop vacant, blighted buildings on Main Street because of the costs involved.
“(TIF) is hardly corporate welfare,” Hudson said.
Jeff Jessop, a developer in Corvallis, said a housing project he built in Hamilton used TIF to build a street and allowed him to reduce the price of each townhome by $15,000.
Because so many Missoula-based business owners and elected officials spoke both for and against the bill, one committee member called the hearing “the Missoula show.”
The committee chair, Rep. Paul Fielder (R-Thompson Falls), jokingly congratulated Hertz on “bringing people together” and said the 82 public commenters might be a record. The committee took no action on the bill, and Hertz said he would “fine tune” the bill with some amendments.