MISSOULA — The Missoula City Council was presented the application for the annexation of the property owned by Roseburg Forest Products on Monday evening.
But due to the potential for future state legislation that would impact funding sources, both the city council and Roseburg put the annexation on pause.
The legislation is Senate Bill 2, which would revise the law around tax increment financing (TIF). Tax increment financing is a tool that cities use to raise funding for infrastructure in various districts, typically urban renewal districts.
It works by first designating an area as a TIF district and the base values of the properties within the district are established and property taxes are collected on that base value.
As the value of the properties in the district increases, the incremental increase in property tax revenue is collected into a special fund. That revenue within the fund is then used to pay for improvements within the district, typically infrastructure.
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TIF districts usually last for 30-plus years, after which the properties are then added as newly taxable which means the city can collect the full amount of revenue generated from the properties instead of that base value initially set.
As an example, say a TIF district had a base of $1,000,000 in revenue and within five years that revenue grew to $1.2 million. The city would collect that base one million but $200,000 would be set in that special fund to develop the district. Once the district sunsets, say the revenue increased to $3 million instead of $2 million.
There is a cap to how much a locality can increase in property taxes in Montana, so if the TIF district comes in as newly taxable, there is no need to decrease the amount of taxes collected.
That would change with Senate Bill 2 however, as when a TIF district sunsets, it would not come in as newly taxable, it would come in as part of the overall property tax base. So, based on that initial base value, taxes may have to be lowered to comply with the tax increase amount state law.
“What this bill does is it says, when the district sunsets, all that value comes in, not as newly taxable, it comes in as, it just raises the whole base up, it becomes part of your overall property taxes," explained Missoula Redevelopment Agency director Ellen Buchanan. "And if you hit that cap, then you have to lower your mills to lower the taxes."
"So it basically just disincentivizes localities from using this tool. And it's the only real economic development tool we have available to us as cities and counties in the state of Montana,” Buchanan continued.
Buchanan says that this bill puts tax increment financing as a viable tool for development at risk, pointing to Roseburg Forest Product’s property as an example.
“Without that incentive of us expanding the urban renewal district, there's no incentive for Roseburg to annex into the city,” said Buchanan.
The sponsor of Senate Bill 2, Montana State Senator Greg Hertz (R-Polson), stated in a committee hearing that the bill is focused on property tax relief and making sure that tax increment financing is still a viable tool.
“We want to keep TIFs continuing to work and help their communities. We want to continue to help economic developments in their communities. TIF is a very good tool to do that. But we also — number one priority again, is property tax relief. So we want to also focus on the taxpayers and provide property tax relief,” said Hertz.
Hertz acknowledged during a committee hearing for the bill, that cities value tax increment financing as they see a larger revenue base. But he pushed back on opponents, stating that the bill would not hurt tax increment financing as a tool.
“I think you can see through the opponents here about just saying well if you don't give me this at the end I'm going to take my toys and go home and I'm not going to play with you any more businesses," Hertz said.
"I'm not concerned about my community anymore I'm not concerned about property tax relief at the end even though these taxpayers have been subsidizing TIFs for, you know, years," Hetz said. "Once again, I mean if that's your mindset, you probably shouldn't be in local government, you probably should go somewhere else."
Hertz went on to explain to the committee chair that TIF districts would remain a viable tool and that city councils would still be able to use them.
“There’s nothing in this bill that's going to stop TIFs, that's going to be a choice of city council members,” stated Hertz.
In a statement to MTN, Senator Hertz stated, “SB2 is a property tax [relief] bill. TIFs are indirectly subsidized by taxpayers outside the TIF district over the 25 to 40 year life of a TIF. What this bill does is at the sunset of a TIF district the taxes paid by taxpayers within the TIF district are then used to reduce taxes for existing taxpayers within the city. Think of it as a reward to those taxpayers who subsidized the economic development over the life of a TIF”
The annexation of Roseburg Forest Product’s property has been sent back to a Missoula City Council committee as legislation is debated in Helena.
