City: Budgetary challenges punctuate state’s overreliance on residential property taxes

Martin Kidston

(Missoula Current) The City of Missoula saw a slight increase in newly taxable value this year, though it's not enough to overcome the state's growing reliance on residential property taxes to pay for basic services, officials said Wednesday.

City CAO Dale Bickell said the figures released this week by the Montana Department Revenue include a $5.7 million increase in newly taxable value for Missoula in the new fiscal year. That's up from $4.2 million in 2024 and $4 million in 2023.

The figure represents a revenue increase resulting from things like new construction and annexation, and it will influence where the city's final FY 25 budget lands in the coming weeks.

“Even in the high-growth times we've had in Missoula, it's quite a low portion we're getting each year. It's not really adding a lot to the tax base,” Bickell said of the new values. “By definition, we're largely not able to keep pace with our ongoing expenses.”

In each of the past several years, the city has started its budgeting season with a structural imbalance. And while newly taxable properties help boost revenue to fund basic services, they're not enough to offset growing expenses, inflationary costs and new programs or positions added by the city.

That has forced Missoula and other Montana cities to rely more heavily on property taxes of all classes. But in recent years, the Legislature has shifted that tax burden to residential properties and away from commercial and industrial properties.

“Our residents are feeling that property taxes are increasing faster than they historically have, and that's true. There hasn't been much re-balancing between the (tax) classes,” Bickell said. “That shift is continuing. Taxpayers are paying a much larger burden of the tax base than they have in past years.”

According to the city, residential properties in Missoula in 1999 represented only 43% percent of the tax base while commercial properties represented 37%. The same year, taxes paid on business equipment represented 8% of the overall tax base and centrally assessed properties – things like telecom and railroads – represented 11%.

But those figures have shifted sharply since then. Residential properties in Missoula now represent more than 64% of the tax base while all other classes have fallen. Commercial properties now only represent 28% of the overall tax base while business equipment has been cut to nearly 1% and centrally assessed properties to 6%.

“We're talking over a 20% increase in that period of time that all of us (residents) are paying,” said council member Gwen Jones. “Commercial has gone down. Business equipment taxes have gone down. Centrally assessed properties have gone down. That percentage is a big dollar amount. That's a really big deal right there when you look at the actual dollar amount.”

Montana's political leaders, regardless of party, agree that soaring residential property taxes are an issue. But the agreement seems to end there and the approach to solving the problem varies widely. Some say local governments have a “spending problem” while local governments contend that the state's tax system is fundamentally broken.

Regardless, the City of Missoula has passed on tax increases to local residents in each of the last several years. In 2023, the City Council adopted a tax increase of roughly 9.7%, which included $6.7 million new revenue. The year before, it adopted a budget with a tax increase of nearly 12%.

This year, Missoula Mayor Andrea Davis has proposed a 5.9% tax increase – an increase that doesn't include the voter-approved fire levy. When that's added in, the tax increase stands at around 11% and doesn't include any increases planned by the county, public schools or the state.

Broken down, Public Works represents the largest portion of the city budget at 26%, followed by fire at 15% and police at 13%. Overall, Bickell said nearly 47% of the budget goes to wages.

On Wednesday, as the City Council continues to craft the new budget, city officials said Missoula isn't alone in the challenges of funding local services. When comparing taxes and assessments to other cities across the state, per capita, a Missoula resident pays around $903 while a resident in Helena pays $930.

A resident in Bozeman pays $1,010.

“It's a structural problem across Montana,” said Jones. “Missoula is not an outlier.”