City approves budget, intent to raise taxes
City Commissioners voted 4-0 to adopt the new budget during their July 18 meeting.
There was no public comment on that specific action.
Mayor Bob Kelly was absent from the meeting.
Commissioners also voted 4-0 on their intent to increase property taxes.
Commissioners will finalize property taxes, and other assessments, in August after the city receives its certified taxable values from the Montana Department of Revenue.
City officials have been discussing the budget for months and began the formal public budget presentations in June.
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 fiscal year began July 1 and runs through June 30, 2024.
The new budget includes all available tax increases, which are the inflationary factor and permissive medical levy.
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.
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.
This year, the city is using the full allowable tax increase and $998,064 of CARES to balance the budget, according to city staff.
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 during a July work session that he’d love to use CARES funds for public safety but that the general fund isn’t healthy enough to do that right now.
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.
The city is also 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 will raise about $804,171 in additional revenue for the city.
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; $31.53 on a $300,000 home and $63.06 on a $600,000 home, according to the city finance department.
Those figures don’t include the library levy approved by voters on June 6 or special assessments, which commissioners will consider during their Aug. 15 meeting.
During the July 18 commission meeting, Commissioner Rick Tryon said that when he first took office in January 2020, he thought the city needed to rein in spending.
But after several budget cycles, he said he believed the city has the most fiscally conservative city staff in the state who had kept the city budget lower than other cities statewide over the last decade.
Tryon said the city has a legal responsibility to pass a balanced budget.
“If you want to cut things out, you gotta understand you’re going to also be cutting services so you gotta tell me what services you wanna cut,” Tryon said.
A handful of people have attended commission meetings in recent weeks to object to any increase in taxes.
To some who criticized the city during the July 18 meeting, Tryon said it was easy to sit back and criticize, “but when you get into the numbers and actually have to dig in and do the work involved” to balance budget “it’s not quite so easy.”
The increase in the city’s entitlement share from the state is about $311,446 and the city is estimating about $9.73 million total, which captures revenues from gambling and alcohol.
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. Doyon said during a July work session that staff is expecting some tax protests due to the state’s reappraisals.
City officials have said several times in recent weeks that the significant increase in values for many property owners in the state’s reappraisal won’t likely translate to a similar hike in taxes.
Melissa Kinzler, city finance director, said during a July 5 commission meeting that as property values increase, the mill value often increases, meaning the city doesn’t have to levy as many mills to generate the same amount of money, thereby keeping taxes relatively stable for most property owners, excluding voter approved levies such as the new library levy.
Doyon said the city needs to maintain fund balance in the general fund for unexpected occurrences or expenses.
Kinzler said earlier in July that the city had recently received its first marijuana tax payment 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 budget are $30.8 million.
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.
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.
Of a property owner’s tax bill, only about 26 percent goes to the city, with a large chunk going to schools, the county and state.
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.”