The city of Billings is facing a potential $8.5 million shortfall in tax revenue due to recent property tax cuts approved by the Montana Legislature. These cuts, intended to provide relief to homeowners and business owners, could create significant budgetary challenges for the city. Billings’ city charter currently limits the property tax rate, a measure that the recent legislative changes have complicated.
Although the new laws grant the city the ability to adjust the tax rate for one year, the long-term discrepancy between the city charter and state law remains unresolved. “This legislation that passed does give us a path forward for one year to basically reset that cap in our charter,” said Andy Zoeller, the finance director for Billings. While individual homeowners may see reduced taxes, the state has shifted the tax burden towards larger industries and commercial entities.
There will also be tax increases on second homes and short-term rentals. Despite the lower rates for some, the total property tax revenue—which funds essential services like police, fire departments, parks, city administration, the library, and MET transit—might decrease significantly without a raised tax rate. According to Zoeller, the city must seriously consider the possible loss of up to 70 jobs if they can’t reconcile the revenue shortfall.
Tax revenue shortfall solutions
The fundamental issue lies in the inconsistency between the city charter and state law. The charter restricts the tax rate, while the state’s new laws imply a higher rate.
This situation is unique to Billings and Sunburst, a small city in western Montana, which may necessitate judicial intervention to resolve. “A court gets to decide that a charter is a contract instrument that says the mills are fixed,” said Rep. Llew Jones, R-Conrad.
“The Constitution says the state never cedes its right to be able to address this.”
Jones, the House Appropriations chair, noted that the Legislature has proposed measures to temporarily safeguard Billings and Sunburst from the financial impact. “There would be a 4-year hold harmless,” Jones said. “The state would backfill whatever amount was lost during this period, while we figure out a better, more permanent solution.”
The options available to Billings include adhering to the new state law, maintaining the current city charter, or holding a vote for a mill levy increase.
The city council is expected to provide guidance to the finance department in an upcoming meeting. The legislation still awaits the governor’s signature.