State adjustments leave Missoula eyeing 3.8 percent tax increase for FY 19

The Missoula City Council faced a challenging headwind Wednesday as it dove back into the fiscal year 2019 budget, one that comes with no new revenue to maintain inflationary increases surrounding basic city services.

Adjustments to this year’s taxable values by the Montana Department of Revenue has forced city leaders to propose a 3.85 percent tax increase despite Missoula’s robust growth.

For a median-priced home of $268,000, the increase amounts to $39.40 a year. Faced with a similar challenge, the county is also considering a tax increase.

“There’s a windy essay to be written about the structural imbalance of our state tax system and what can be done to make the system more equitable,” Mayor John Engen told members of the City Council. “But we’re left to play the hand we’re dealt and in this case, that hand requires me to propose a modest increase in taxes to provide fundamental service to a growing community.”

Engen and the City Council opted to wait this year for the state to release its new taxable values before diving into the budget. Those numbers came last week, showing a smaller increase than expected.

Missoula netted $1.9 million in newly taxable property this cycle, though transferring Mountain Water to public ownership wiped $600,000 from the tax rolls. Adjustments from the Montana Department of Labor served the biggest blow, consuming another $1.3 million.

“Essentially, we start with no new revenue,” Engen said. “Until the Montana Legislature gets serious about helping its partners in local government diversify revenues and find new money, we’ll be cobbling together budgets like this one for the foreseeable future.”

A statistically valid community survey completed earlier this year reflected where most citizens want the city to invest revenue. That included better streets, more police officers and general city maintenance.

In presenting his budget proposal Wednesday, Engen eliminated his initial request for a technician to maintain the city’s network of traffic signals. The proposal also culled an additional prosecutor from the City Attorney’s Office. The city’s clean energy initiatives will be placed on hold, as well as an administrative assistance in municipal court.

However, Engen will request two additional police officers in this year’s budget. He’s also seeking to bring a part-time employee to full time in the street division, and he looks to add $50,000 to the parks budget to help with maintenance.

Funding for other programs include $8 million for streets and sidewalks, $2.5 million for parks, $7 million for improvements to the water system, $2.5 million for wastewater improvements, and $3.2 million to replace equipment.

“Given the state of revenues, many legitimate and appropriate requests from staff to fund personnel and programs that enhance our services are not funded,” Engen said. “But the recommendations do maintain the current level of service and give city employees the resources needed to do their jobs.”

The city will also take other hits as it honors the last year of its union contracts – an amount estimated at $1.1 million moving forward. It will also raise the premium and deductible of its health plan by $472,000 to pay for claims and costs.

“Unusual expenses are driving this budget, at the same time unusual revenues are limiting our ability to pay for much of what we’d like to do to improve services,” Engen said.

The mayor also defended the city’s use of urban renewal districts and the use of tax increment financing to drive development. Engen said the districts are behind Missoula’s recent economic and social revival, bringing infrastructure where it wasn’t, creating jobs and economic activity, and netting tens of millions of dollars in private sector investment.

“I continue to believe that our investment through urban renewal districts pays dividends that far outweigh the short-term effects on our general fund,” Engen said. “Investment in URDs is a long-term strategy for growing the tax base and causing development that may not otherwise occur without that tool.”

To help offset the impacts of this year’s revenue figures and to help pay for inflationary cost increases, the city will collect a one-time distribution from select Urban Renewal Districts.

While that will leave the districts with less money to reinvest in development, which in turn widens the tax base, Engen said it will help dampen this year’s budgetary shortfall.

Missoula County Public Schools will receive about $1 million in tax increment from the districts while the county will collect $500,000 and the city $750,000.

“In each case, the taxing jurisdictions won’t need to increase taxes at the level they’d need to otherwise to maintain levels of service,” Engen said.