While state sits on massive budget surplus, Missoula faces budget imbalance; seeks tax reform
As the City of Missoula dives into its FY '23 budgeting process, a number of themes have begun to emerge including inflation, material costs, taxation, and a structural imbalance in the budget itself.
Five city departments this week are slated to detail their successes from last year and their needs going into the new fiscal year. The two departments that presented last week revealed the hurdles facing the city as it moves into the new fiscal year.
“Systematically, things aren't working well based on the last two or three decades of how property tax has been altered in Montana,” said City Council president Gwen Jones. “It's now exacerbated by inflation and rising costs.”
Inflationary costs, a disruption in the supply chain and material costs have put a pinch on everything from street maintenance to the wastewater plant. But Jones said employee pay will also represents a significant cost increase in the city's new budget.
“It's going to be a very interesting budget session this year, and we do have a structural deficit,” Jones said. “If we look at the revenue that comes and just look at our labor costs and labor contracts, even that right there is a tax increase.”
The city earlier this month made it known that a tax increase was likely – how much won't be known until August when the state releases its newest property assessments.
In his annual letter announcing his executive budget, Missoula Mayor John Engen said it hasn't been an easy budget year. Citing inflation and rising costs, including labor and materials, he said “a tax increase is likely to be more than we have seen in my tenure as mayor.”
But Engen also zeroed in on the state's heavy reliance on proper taxes to fund local governments. As cities and counties wrestle with rising costs and a maintenance backlog, the only way to make up the difference is to cut services or raise more revenue, which comes in the form of property taxes.
“We have ongoing expenses and a statewide tax system that doesn't provide local government the revenue it needs, so we're left to cut expenses, increase taxes, find new revenue and reform the system,” Engen wrote. “The state continues to push the responsibility we share for healthy, thriving communities down to local government while at the same time inhibiting our ability to raise money outside of property taxes to get the job done.”
The most recent limitation came last year when the Legislature nixed a voter-approved fuel tax of 2 cents per gallon in Missoula County. An earlier Legislature had granted cities and counties that right to self-govern, but the 2021 Legislature – which is keen on arguing self-governance – revoked the measure despite wide protest.
This year, the City of Missoula, aided by other municipalities facing the same frustrations, will try again to lobby the Legislature for new revenue streams in an effort to take the pressure off property owners.
“It's a tough road but it would be a huge benefit for our community,” said CAO Dale Bickell.
A handful of Republican lawmakers this year sought to place a constitutional initiative on the November ballot that, if approved, would have dramatically changed the state's tax system.
The measure attempted to cap residential property taxes at 1% of the assessed value and limit how fast values can appreciate. The measure wasn't widely received and didn't qualify for the ballot, but it may have rekindled the debate around tax reform in Montana.
The state is sitting on a $1.7 billion budget surplus while home values – and the taxes property owners pay – have skyrocketed across the state.
“Although CI-121 didn't get onto the ballot, it's going to be a major theme in the Legislature,” said Bickell. “Property tax reform – the mayor says it all the time – we need it desperately. We need to be at that table.”