City officials continued their budget discussion during the July 5 commission work session.

The budget process begins every year with a commission meeting to determine priorities and from there, city departments develop their requested budgets, which the city manager and finance office use to develop the proposed budget.

The proposed budget includes all available tax increases, which are the inflationary factor and permissive medical levy.

Commissioners are scheduled to hold public hearings on the budget and proposed tax increases during their July 18 meeting.

[VIEW PROPOSED BUDGET DOCUMENTS]

The city is still recovering from COVID and did not take any tax increases during fiscal years 2021 and 2022, using $552,502 and $1,300,466, respectively, of fund balance.

City Commission continue budget discussion July 5

The city used the full tax increases during the fiscal year that ended June 30, but did not recoup all the lost tax revenue from the previous two years and used $1,205,000 of CARES Act funds to balance the budget.

For the proposed budget, the city is using the full allowable tax increase and $998,064 of CARES to balance the budget, according to city staff.

City officials look at proposed budget, includes tax increases

City Manager Greg Doyon said that the commissioners knew the city was anticipating a revenue shortfall after COVID and had to use CARES funds to offset those deficits.

He said it will probably take a few years to come out of that deficit and the city was underfunded in the baseline budget.

Doyon said he’d love to use CARES funds for public safety but that the general fund isn’t healthy enough to do that right now.

City officials begin budget discussion

Doyon said the city has had a deficit since fiscal year 2021, when the city didn’t increase any taxes that year or the next, and is anticipating another deficit for fiscal year 2025.

He said the city hasn’t recovered revenues from not raising taxes during the COVID years, but that it was the right thing to do during that time.

State law limits annual tax increases to the inflationary factor, which is one-half the average rate of inflation over the prior three years.

This year, that is set by the Montana Department of Administration at 2.46 percent and equates to $451,129 of new tax revenue for the city.

City beginning budget process

Staff is also recommending using a 1.92 percent increase in the permissive medical levy, which will add $353,042 in new revenue for the city. The permissive medical levy is only used to cover city employee health insurance premium costs and is calculated under state law.

Health insurance premiums increased 8 percent for the city for the new fiscal year, which began July 1.

Those two options would raise about $804,171 in additional revenue for the city.

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For comparison, a new firefighter costs the city about $100,000 and a new police officer costs about $110,000, according to the figures in the proposed public safety levy.

The total proposed allowable property tax levy increase is 4.38 percent.

The proposed tax increases would equate to an additional $10.51 annually on a $100,000 home and $21.02 on a $200,000 home, according to the city finance department.

The increase in the city’s entitlement share from the state is about $311,446 and the city is estimating about $9.73 million and that captures revenues from gambling and alcohol.

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The city is also anticipating about $400,000 from newly taxable property, but that figure won’t be known until the city receives its certified taxable values from the Montana Department of Revenue, usually in August.

Other factors, such as nonprofits, tax abatements, tax protests and tax increment financing districts, among other things, impact the city’s general fund revenues. He said they’re expecting some tax protests due to the state’s reappraisals.

Doyon said the city needs to maintain fund balance in the general fund for unexpected occurrences or expenses.

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Melissa Kinzler, city finance director, said that the city received its first marijuana tax payment in the last week and it was $27,704.98.

She said the countywide total from marijuana local tax revenue for February through April was $62,000, less than officials had been expecting based on last year’s sales figures.

She said the city also received $65,000 from an opioid settlement and the city is projecting to get about $39,000 annually for 18 years. Kinzler said that amount is about half the cost of a police car.

Kirsten Wavra, deputy finance director said that the projected citywide total for taxes in the proposed budget is $30.17 million, or 10.6 percent over last year, largely due to the library levy.

For comparison, the public safety expenses in the proposed budget are $30.8 million.

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Total projected citywide revenues are $144.3 million, or 14.2 percent over last year, but citywide expenses are $162.45 million, or 9.16 percent over last year, according to city figures.

Property tax revenue only makes up about 20 percent of the total city revenues. The largest revenue source is fees for services which is projected at $53,524,601, or 37.09 of the total revenues. Those funds largely support the self-sustaining enterprise funds for water and sewer and other funds, some of which still receive general fund support.

Kinzler said stall is looking at increasing some fees for funds that are not currently self-sustaining to reduce their reliance on the general fund. Some of those funds have been stabilized in recent years with CARES funds but are still struggling to cover costs.

Those fee changes will require separate commission action.

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Utility increases are proposed at 10 percent for next spring, according to city staff.

Among the city’s significant increased costs are electricity, chemicals and landfill rates.

The city is budgeting for $12 million of American Rescue Plan Act projects, as well as public works capital improvement projects.

Some of the city’s debt will end this year, including about $140,000 annually for the soccer field and some water debt.

The golf course fund had a significant debt to the general fund that was $1.2 million in fiscal year 2020 and is now projected to be down to $215,931 by the end of the current fiscal year.

Commissioner Rick Tryon said that as a commissioner, “I am convinced you guys run a tight operation. There’s no fat.”

But he said citizens don’t understand that most city revenue doesn’t come from taxes and that the city only gets about 26 percent of a property owners full tax payment, with a large chunk going to schools, the county and state.

He said with new revenues, why is the city raising taxes?

Doyon said that primarily because the city didn’t raise taxes for two years and costs have continued to rise and they’ve been negotiating new collective bargaining agreements. Kinzler said they already factored new revenues into the budget and were still projecting a 998,064 deficit that staff is recommending using CARES funds to offset.

Government functions through some sort of taxation, Doyon said, and this is “what it takes to operate the city at what I would characterize as expected levels.”

Kinzler said, “we did every cost savings thing we could do.”