Jones: Good use of debt drives capital improvements needed for Missoula’s growth
A recent guest editorial in the Missoula Current correctly stated that the City of Missoula’s debt increased from $49.8 million in 2006 to $216.4 million at the end of fiscal year 2020. But no other detail was provided to explain what that debt was for and how it affects our residents. The City’s increase in debt is not the result of irresponsible spending but, instead, it represents sound investments in the future.
Good municipal money management means periodically having good debt. The City of Missoula has done well to use debt in a prudent and judicious manner to help the City grow while also ensuring its future. Purchasing our water utility and upgrading our wastewater plant are two excellent examples of how good money management contributes to our quality of life and plans for the next generations of Missoulians.
Debt is an important tool for local governments, particularly related to capital investment. All of Missoula’s outstanding debt was issued to pay for capital improvements. Paying cash for capital improvements is not always feasible because the time frame to save enough cash is too long and does not account for inflation. Additionally, good municipal debt allows for the beneficiaries of the investment to pay for it over time instead of taxpayers paying for a future investment from which they will never benefit.
Debt paid through property taxes is called “Governmental Activities" in the City’s Comprehensive Annual Financial Reports, which are available on the City’s website. In 2006, Debt from Governmental Activities totaled $31.5 million. In 2020, this amount is $26.9 million. The City's property- tax- supported debt has decreased $4.6 million since 2006 and funds important assets, such as the new police facility on Catlin Street and the replacement Fire Department ladder truck purchased four years ago.
Debt has increased substantially in the City’s utilities, primarily driven by the acquisition of Mountain Water Company. In 2020, the City had $107.5 million in water utility debt that was used to acquire the utility and provide for some immediate capital improvements.
The City has been able to pay for the water utility, all of the legal costs of both the City and the defendants in the condemnation and tripled the rate of capital improvements, only with water rates that are lower today than when the system was owned by Mountain Water. If this debt was not outstanding, based on the prior private owner’s projections, water customers would be paying more in rates for less investment in the system.
Secondly, the wastewater utility has $35.2 million in debt in 2020 versus $17.1 million in 2006. This is largely due to the significant plant upgrades to increase capacity like the headworks project that occurred around 2010. Missoula’s wastewater operation treats wastewater efficiently, protects water quality in the Clark Fork River and has room for growth in numbers of residents and visitors. Note that Missoula, by far, has the lowest sewer rates among its peer Montana cities. In sum, of the City of Missoula’s $166.6 million increase in debt since 2006, $125.7 million has occurred in the utilities.
Missoula’s “component unit” debt has also increased. Component unit debt is from two places: the Missoula Parking Commission and the Missoula Redevelopment Agency. In 2006, Parking had $1.2 million in debt versus $7.2 million in 2020 from capital improvements such as the Park Place parking structure, which was an important need in the Downtown Master Plan. This debt is only payable from parking revenues.
MRA had no debt in 2006 and has $34.3 million in 2020 that have funded such projects as the Mary Avenue connection, MRL Park and much of the infrastructure in the Old Sawmill District, including Silver Park. Payments on MRA debt is solely from the increment (the increased tax revenue brought in by development) generated in the district, and no general property taxes are (or can be) used to pay this debt.
So while the City of Missoula’s debt has increased since 2006, debt supported from property taxes has actually decreased, and the City continues to maintain strong credit ratings. Financially responsible use of debt has allowed the City to invest in the capital necessary to support a growing community.
Gwen Jones is vice president of the Missoula City Council and chair of the Council’s Administration & Finance Committee.