The discussion about TIF — tax increment financing, a portion of property taxes set aside for economic development — has become common among Missoula municipal candidates and at public meetings, as the city advances redevelopment projects paid for by that funding.
City leaders tout Missoula’s TIF program as one of the most successful in the state, saying it has helped revitalize areas lacking new development and created amenities for the community. Critics argue that development in the growing city would happen without TIF, and some city council members and candidates contend that the program needs more oversight and should be scaled back to lessen the burden on taxpayers, schools and other public services.
Rules for TIF districts vary throughout the country, with some states being more restrictive than others in terms of where the districts can be created and what the money can be spent on.
Montana law allows cities and counties to create urban renewal programs that use TIF to address blight or areas with deficient infrastructure. A municipality may assign urban renewal powers to a department or create an agency governed by an administrative board appointed by the mayor and approved by the city council, the Montana Free Press reports..
Urban renewal districts — also called TIF districts — divert some local property taxes from the district to a fund reserved for economic development. When a district is created, taxing authorities take note of the property values at that time and then use those baseline valuations to calculate the amount of tax revenue properties pay each year for city, county, and school district operations for the life of the district.
If property values rise, as they typically do after property owners invest in revitalization or development, the properties still pay taxes on the new value, but that “increment” is instead diverted to the economic development fund that pays for infrastructure like streets, sidewalks and water lines in the district. Then, when the district expires, the increment is merged back into the community’s general tax base.
Developers can apply for TIF funds to help cover eligible costs for projects located within the districts.
TIF districts are authorized for 15 years and can be extended to as long as 40 years if the revenue is used to repay bonds borrowed for projects. Targeted economic development districts, like Missoula County’s in Bonner, the Wye, off north Reserve Street and near the airport, are limited to 30 years.
The city’s Missoula Redevelopment Agency was established in 1978, with its first urban renewal district encompassing downtown and the Hip Strip. At the time, the downtown had a lot of empty storefronts, dive bars and dirt alleyways, said Ellen Buchanan, MRA’s longtime director.
In the 27 years that the original district was in effect, the city reinvested more than $2 million in tax increment funds into the area before the district sunsetted in 2005, Buchanan said. At the same time, $20 million in private investment and grants was spent on parks, trails and new buildings, she said.
“That’s the power of the tool,” Buchanan said. “It’s not new taxes. It’s taking taxes generated by development and investment and plugging money back into the area to incentivize private development.”
The city currently has six urban renewal districts — URD II, URD III, Front Street, Riverfront Triangle, North Reserve Scott Street and Hellgate. The districts are “radically different” from each other, with some bringing in a fair amount of revenue, while others are on a shoestring budget, Buchanan said.
Midtown’s URD III around the Southgate Mall, adopted in 2000 and sunsetting in 2040, brings in the highest amount of tax increment revenue among the city’s current renewal districts. The MRA’s most recent budget report estimates the district will receive about $7.9 million in tax increment revenue and spend $9.4 million in fiscal year 2026. The district’s financial capacity has increased because the amount of investment made has driven up property values, Buchanan said. That revenue allowed the city to buy property and initiate redevelopment projects, including the MRL Triangle and the Midtown Commons, she said.
The Hellgate District, located around Broadway east of Van Buren Street, is the newest and most underperforming district, Buchanan said. City officials thought the Missoula College building, opened in 2017, would be a catalyst for development, but that hasn’t happened, she said. The MRA has not received any developer applications for projects in the district. The budget report estimates the district will bring in about $597,400 in tax increment revenue in fiscal year 2026.
Buchanan said it can take 10 to 12 years for a renewal district to see enough new development for its increment to grow to the point where it generates appreciable revenue. She still believes the district is valuable, however. Sunsetting the Hellgate URD early would leave the city with “no tools” if a development opportunity comes along, and the tax revenue currently going to the district’s fund would not “make or break” the city’s budget if returned to the general fund, she said.
The city can’t sunset a district until its debt is paid off, Buchanan said. The MRA can borrow money to help fund TIF projects and has outstanding bonds in every district except Hellgate, which is set to sunset at the 15-year mark in 2030.
URD II, which includes parts of the Riverfront and River Road neighborhoods, is set to sunset in 2031. The city created an exit plan for the district, prioritizing projects that likely won’t happen without TIF, Buchanan said. That includes lighting the Bitterroot Trail, completing the trail network on the north side of the river and converting the railroad trestle over the Clark Fork River into a pedestrian bridge, she said.
Over the years, the city has increased TIF revenue spending and shifted emphasis to different types of projects, Buchanan said.
“When I got here in 2005, a lot of what MRA had been able to do was small projects, mostly focused on downtown,” she said. “We’ve moved from that to doing sizable economic development projects, because that’s what needs to be done and we have the capacity and knowledge base.”
Changes in state law in 2021 and 2023 allowed TIF funding to be spent on workforce housing for households making 60% to 140% of the area median income. Prior to 2023, the MRA was investing in public infrastructure, building deconstruction and site preparation on housing projects, according to its website. The agency created the first workforce housing program in the state in 2023, which has funded two projects — the Scott Street-Ravara development and Opportunity Place apartment and art center.
Starting in fall 2023, all projects that receive $100,000 or more in Missoula TIF funding must contribute 10% of that amount to the city’s Affordable Housing Trust Fund. No eligible projects have been completed yet or made a contribution, said Ashley Warren, MRA’s communications specialist.
Council Members Daniel Carlino and Kristen Jordan have argued that more TIF funding should be allocated to affordable housing projects rather than hotels, banks and luxury apartments. In early September, Carlino proposed a requirement for residential developments that receive TIF funds to include affordable units, arguing that taxpayer dollars should go toward “truly affordable homes” rather than market-rate projects.
City staff and several other council members voiced concerns that the proposal would discourage developers from building housing in urban renewal districts because most income-qualified units require more money and capacity to operate. The council tabled Carlino’s proposal.
Buchanan said that large commercial developments in URDs are often what raise the tax increment revenue that the city can then use for sidewalks, parks and affordable housing projects.
“Often affordable housing projects are not on the tax rolls,” she said. “Parks and trails don’t pay taxes. They can help people decide to make an investment in that area, but it’s those big private investments that really have the horsepower to build things that make Missoula a place where everyone wants to live.”
Some council members have expressed a desire for increased oversight of MRA’s spending decisions. Last fall, Council Members Carlino, Jordan, Bob Campbell and Sandra Vasecka sponsored a proposal requiring the council to approve MRA expenditures of $50,000 or more. They stated that the MRA should have the same oversight and process as the rest of the city’s budget.
Buchanan said during the meeting that the proposal would bring almost every MRA project to the council. The MRA board’s expertise and longevity allow it to review often complex projects in a thoughtful way, she said. The agency and board follow the city’s goals and plans as adopted by the council, and the council approves any new URDs, district plans, land acquisitions and easements, Buchanan said.
Other council members said the change wouldn’t be efficient and would make the process less predictable for developers. The proposal failed in a 7-4 vote.
During a council discussion in February, Campbell stated that TIF has a role in local government but has exceeded what he believes is its intended purpose. Police and fire departments and schools are being shortchanged because they provide services to growing areas within TIF districts without receiving the related increase in property tax revenue, he said.
Buchanan told MTFP that to help offset property taxes not allocated to the city’s general fund for police and fire departments, the MRA uses TIF money to pay the debt service on public safety equipment, based on the percentage of emergency calls in urban renewal districts.
For Missoula County Public Schools, the TIF districts don’t necessarily decrease the budget, but they increase the burden on local taxpayers, said Denise Williams, the MCPS executive director of business and operations.
The school district’s taxable value determines how many mills it needs to assess to raise taxes needed to fund the budget, Williams said. For example, the MCPS high school district, which includes all of the city’s and county’s TIF districts, needs to assess 71 mills to raise $22 million, she said. Without the TIF districts, she said, the school could raise that money with about six fewer mills. That would be enough to reduce the annual property tax bill on a $400,000 house by about $17 a year.
The long life of TIF districts is also “troublesome,” as school districts can’t take advantage of the new taxable value for decades, she said.
Missoula County’s smaller school districts — Hellgate, DeSmet and Bonner — have argued against the county’s creation of new targeted economic development districts due to the impact on their budgets.
Mayoral candidate Shawn Knopp said during a debate Oct. 14 that the MRA has done some great projects but that URDs should be scaled back because they are taking away too much from the city’s general fund. The TIF money should be focused on improving existing sidewalks and streets, he said.
“I think we need to cut that back so that we don’t have to raise taxes as much,” Knopp said.
Missoula’s urban renewal districts make up about 9% of the city’s tax base, Buchanan told MTFP.
In recent years, the mayor and city council have requested a tax remittance from the MRA to fill budget gaps. Along with the city’s request, the agency must return proportionate amounts of TIF back to all other taxing districts. The MRA has issued $25.5 million in remittances in the past eight fiscal years, according to the agency.
In fiscal years 2019 and 2020, the remittances totaled about $2.7 million each year. The agency did not issue remittances from 2021 through 2023. For fiscal year 2024, the remittance was about $8 million, followed by $5.3 million for 2025 and $6.7 million for 2026. When MRA sends money to the city’s general fund, those funds are no longer available for projects within the districts.
“The remittances hurt, no question about that,” Buchanan said. “We’re proud that Missoula has built enough capacity to help fund the general fund to the level where we can provide the services our citizens expect. … Is it sustainable? No. I think everybody recognizes that.”
It will likely take longer than a year for the MRA to recoup the $6.7 million in uncommitted funds used for the remittance this year, said Dale Bickell, the city’s chief administrative officer, during budget discussions in August. The remittance is a lost opportunity and investment in MRA, he said.
TIF critics sometimes question whether development in the area would happen without the incentive, or if they relocate economic activity that would have occurred elsewhere. Buchanan said in Missoula, “That’s not the case nine times out of 10.”
For example, from 2013 to 2022, the downtown area south of Broadway in the Front Street URD saw a 78% increase in taxable value compared to a 36% increase in the area north of Broadway, not included in the district, Buchanan said.
Buchanan acknowledged the risk of gentrification in URDs and said the MRA staff and board strive to make investments without displacing residents. That’s one reason the MRA committed to building sidewalks in URDs II and III at no additional cost to property owners, she said. The city typically assesses property owners for sidewalks, and that cost could force people out of their homes, Buchanan said.
“There’s only so much you can do, and Missoula has become very challenging for middle-income people to live in now,” she said. “That’s not because of TIF, URDs or what the city has done other than help make it so desirable that prices go up. Our working class is being forced out. It’s not the use of TIF that’s done that.”
This story was originally published by Montana Free Press at montanafreepress.org.
