City officials pan proposal addressing redevelopment districts

Kalispell’s city manager was among a parade of city officials, developers and others who testified at the Montana Capitol on Wednesday against a bill they said threatens urban-renewal projects throughout the state.

House Bill 359 would substantially limit taxes that local governments can collect for tax-increment finance districts, which are established by those governments to finance urban renewal projects and incentivize downtown development.

Rep. Tom Burnett, R-Bozeman, is sponsoring the measure.

He told the House Taxation Committee that it would protect taxpayers outside the district from paying a disproportionate amount of taxes to the county, school districts and other taxing jurisdictions. Because TIF districts are designed to collect the increases in taxable value within the district, he argued that those taxpayers’ obligations to schools and other entities become static, while leaving the rest of the taxpayers to cover an increasing share of the total revenues coming into those other tax jurisdictions.

“If we focus on a key study and look at Bozeman, Bozeman’s TIF districts are primarily designed to take dollars from county-wide taxpayers to subsidize commercial and industrial properties in the district,” Burnett said. He added that the payments to those two districts last year totaled $2.4 million, which would otherwise be available to the county and other tax districts outside the city.

Two people testified in favor for the bill, while about two dozen opponents spoke against it, including representatives of the Montana Chamber of Commerce, the Montana League of Cities and Counties and statewide associations representing Realtors, planners, architects and bankers.

Kalispell City Manager Doug Russell took to the lectern to argue against the characterization of the special districts as taking tax revenues from other public entities.

“What happens with tax-increment financing is urban renewal creates value that eventually goes back to all those taxing jurisdictions,” Russell said. Referring to the South Kalispell renewal district, he added, “We started with a base evaluation of $450,000. In 20 years that base valuation has tripled.”

Under a more natural growth rate of 1.5 percent per year, Russell said the value would have only grown by $167,000 over the same 20-year period. After the hearing, he also noted that once the TIF district expires, that incremental growth in taxable value becomes available for other tax jurisdictions, which see revenues beyond what would have been realized without the added investments.

Russell added that Kalispell’s west-side TIF district has generated $7 million in private investment “that specifically references the urban-renewal plan,” and noted it was a major component leading the city to secure a $10 million federal transportation grant to redevelop the rail district. If House Bill 359 passes, he said, the city would only be able to leverage $1.5 million in bonds for the district, for which bonds totaling $6 million have already been planned.

“We’re really looking at a lot of damage with this bill, and I really think it’s misplaced, in terms of what tax-increment finance districts can do not only in this municipality, but across the state.”

Russell’s concerns were echoed by several other speakers representing cities and urban-renewal groups in Great Falls, Missoula, Shelby, Billings and Bozeman.

Robin O’Day, a spokeswoman for Farran Realty Partner in Missoula, said her company had been involved in three major projects in downtown Missoula that wouldn’t have been possible without funding from the city’s TIF district, including the proposed $150 million Riverfront Triangle Project.

“This land had been marketed by the city for over three decades,” O’Day said. “With the help of tax-increment financing, we were able to move forward.”

Recognizing that the bill would effectively shut off much of the revenue flowing into local TIF districts, Burnett’s bill also calls for a $500,000 appropriation for the state to loan money to those districts that need to repay outstanding bonds.

Burnett said that the Department of Revenue’s fiscal analysis of the bill, however, estimated that the true cost to the state at about $5 million — owing mainly to the state’s obligation to “backfill” those local tax entities to keep them from defaulting.

Burnett objected to the estimate, but demurred on a later question from Sen. Tom Jacobson, D-Great Falls, who asked how that total would square with the House Appropriations Committee in a tight budget cycle.

The committee did not vote on the bill following the hearing.

Reporter Sam Wilson can be reached at 758-4407 or by email at swilson@dailyinterlake.com.