Despite building boom, Missoula’s taxable values remain “anemic”

Construction crews continue work Wednesday on the new AMC dine-in theater at Southgate Mall. Despite the record pace of issued building permits in Missoula, tax values from newly taxable property continue to lag. (Martin Kidston/Missoula Current)

Driven by the construction boom, the taxable value of new property in Missoula is projected to increase to roughly $2.1 million in the next fiscal year, though that continues to lag well behind the $4 million annual average recorded from 2006 to 2012.

Understanding why is difficult to interpret, though Chief Administrative Officer Dale Bickell said the city is taking a conservative approach when budgeting to maintain city services in Fiscal Year 2018 and beyond.

Driven by construction, taxable values is one of the only tools cities in Montana have in raising revenue. The projection also holds sway over each year’s municipal budget.

“When we’re getting those high levels of taxable value, you can maintain our level of services, pay for union contract increases and cover inflationary increases without raising mills,” said Bickell. “But that changed in the years we’re in right now.”

Next month, the City Council is set to adopt the FY ’18 budget. As presented by Mayor John Engen, the budget seeks a 3.8 percent increase, one Bickell called conservative. Still, he said, it’s enough to cover basic city services.

“In order to maintain our level of service, the 3.8 percent tax increase that’s proposed is able to do that,” he said. “There’s not a lot of new items in this budget. It’s really trying to maintain our level of service.”

After 2012, the taxable value of new construction dropped substantially, hitting a low of less than $1 million in 2015. The values rebounded slightly starting in 2016, though they remain at half of where they were.

Despite robust growth and record-setting figures in new building permits, which reached $245 million last year, the benefits of new growth have yet to be realized.

That has prompted city leaders to take what they say is a conservative approach to budgeting for basic services, leaving little room for enchantments.

“Our total taxable value growth has been pretty stagnant over the past five years,” said Bickell. “We’re not projecting a large number of newly taxable property, but we’re hopeful that with all the development we’re seeing that we’ll actually get more revenue than we’re projecting. We’re trying to be conservative.”

Understanding why new tax values continue to lag despite Missoula’s robust growth is difficult to dissect. Among the speculations, Bickell said, new properties don’t generally enter the tax base until 24 months after a permit is issued, meaning all the new projects coming online won’t be counted for months.

Decisions by the Montana Department of Revenue on centrally assessed properties may also factor into the equation. Last year, NorthWestern Energy protested the original valuation of its property to the DOR, which granted the company a $220 million reduction in its taxable value.

That forced the city to shave $140,000 from its budget while Missoula County found itself facing a $389,000 loss. A similar protest by Charter Communications in 2015 resulted in a similar outcome and may account for that year’s poor showing.

“The DOR – really with the stroke of a pen on centrally assessed – if they’re cutting a deal with a telecom that says it’s not a telecom and they’re in essence settling based on value, that value hits us,” Engen said. “We can be growing all day long, but that centrally assessed value will turn us upside down, just like that, overnight.”

Bickell suggested the type of construction may also play a factor in the anemic growth of Missoula’s taxable values. Prior to the recession, he said, Missoula was awash with single-family residential construction.

That dried up in 2008 and is only now beginning to return.

“That was the biggest driver before the recession,” Bickell said. “There’s a lot more commercial construction happening now than before, but the residential is coming back and a lot of multi-family. Hopefully that’s what we’ll see today and in the future.”

Contact reporter Martin Kidston at info@missoulacurrent.com