Missoula City Council approves 3.4% tax increase in upcoming budget

The Missoula City Council on Monday unanimously passed a fiscal year 2026 budget that increases taxes by 3.4% over last year, a smaller increase than the previous three years.

City officials emphasized that most residential property tax payers will see a decrease in their bill mailed this fall because of legislative changes to tax rates. The finance department did not present the cost of the increase per assessed value because the changes made it difficult to calculate, said Dale Bickell, the city’s chief administrative officer. 

Council members largely supported the budget, with all 11 present voting in favor. Council Member Kristen Jordan was absent. Many council members thanked Mayor Andrea Davis and city staff for their work in preparing a “lean” budget. 

“While we’ve dealt with inflation as a nation, keeping the taxes at the 3.5% increase, I appreciate that,” Council Member Amber Sherrill said. “This budget, I know it was hard. There were lots of wants and lots of needs, and many of the wants did not get funded and some needs, too.” 

Council Member Sandra Vasecka, who voted against last year’s budget, said she was initially unsure of how she would vote Monday. 

“On one hand, the city property tax payers are struggling, and the majority of those taxpayers do not get cost-of-living increases every year,” she said. “But I do not want to punish city employees for ‘equity.’ So this is a year where I will be in support of the budget even though I’m not entirely happy doing so because that means increasing property taxes for all of our citizens.” 

The city’s 3.4% increase will raise about $2.4 million, 79% of which will cover wage increases. That’s less than the $4.4 million the city originally estimated because legislative changes to tax rates lowered the value of newly taxable property, and it incorrectly included new construction, which is not typically considered as part of the annual increase, Bickell said. 

The city’s operating budget of $198 million, which includes the general fund, road and park districts, utilities, the Missoula Redevelopment Agency and the parking commission, is about 3.4% bigger than last year’s, according to numbers provided by the finance department. Inflation accounts for most of that jump, along with wage increases and other personnel costs, Bickell said. 

The budget includes $3 million from the Missoula Redevelopment Agency, $1 million of which is a direct contribution to the city, according to the MRA. The remaining funding comes from a tax remittance. If approved, the agency, which receives tax increment financing from Missoula’s urban renewal districts, will send a total of $6.75 million in proportionate amounts back to the city and other taxing districts. 

Council Member Bob Campbell said the city’s reliance on the remittance to balance the budget is not sustainable and depletes the MRA money available for redevelopment projects. 

Bickell said the remittance is a “significant investment” for the MRA, and it will likely take more than a year to recoup the $6.75 million. The size of the remittance is largely driven by the budget deficit, he said. 

“This helps us maintain our general fund budget. If we don’t balance that, we’re going to have to take it from a different pot,” he said. “It is uncommitted [funds], but it is lost opportunity, it is lost investment in the MRA, and we take that seriously. … The more we can create that financial sustainability in the general fund, the less we will be required to have from the MRA; that is absolutely the goal.” 

The city council also approved fee increases, including 3% for parks, 4% for business licensing and 3% for most public works utility fees. Building, planning, engineering and fire prevention fees were increased based on recommendations from a recent study that found most fees do not cover the costs to provide related services. Overall, the changes to those fees boost cost recovery from 41% to 51%, Eric Hallstrom, the city’s chief operations officer, told council last week. The increase will bring in an estimated additional $171,420 to the general fund, $355,630 to the building fund and $313,415 to the road district. 

Vasecka voted against the fee increases, citing her belief that developers would build more affordable housing if costs were lower and concerns about average families’ ability to afford park rentals or other fees.

Along with the fee increases, the city also expects to bring in higher annual revenue from short-term rental registrations and renewals, following a fee increase in 2023 and new registration rules implemented in December. In 2025, the city made about $201,000 in new registration and renewal fees, Maggie McCarthy, the city’s permit and business licensing manager, told Montana Free Press. While it’s not expecting that kind of influx this year because, ideally, most rentals have now been registered, the city is anticipating about $131,000 in fee revenue, up from $40,000 in 2024, McCarthy said. 

Savings in the 2026 budget include the cost to run the Johnson Street temporary homeless shelter, which is set to close after Labor Day weekend. The city and Missoula County split the $1.8 million bill. The city is also saving money from contract negotiations and increasing its property insurance deductible, Davis said when she first presented the budget in late July. 

This budget includes fewer new requests compared to past years. Of the $15 million in new requests, $8.4 million were funded, according to city budget documents. That includes wage increases and other costs that are not new but are not part of the base budget, like the $100,000 Affordable Housing Trust Fund allocation. Last year, $15.2 million of the $19.5 million in new requests were funded. 

Davis highlighted the budget’s inclusion of two new street maintenance positions and funding for two houseless program staff previously paid for by grants. The street maintenance positions will be paid for by existing state gas tax revenue that typically went toward capital improvement projects. 

In 2026, the houseless operations specialist and property engagement specialist will be funded by the city’s remaining ARPA money, some grant funding and cash. As the city implements the recently adopted houslessness strategy, it will consider future funding for those positions, Bickell told MTFP. 

The budget includes $1.8 million to upgrade South Avenue, $6.2 million from the fire levy for a new fire station and two projects rolled over from last year — $8.6 million for improvements to the compost facility and $2.9 million for renovations to the John Engen Local Government Building. 

The city council did not pass any proposed additions or cuts to the budget considered earlier this month. Davis added Council Member Bob Campbell’s proposal to spend $6,800 on a police evidence tool to her budget, not necessitating a budget amendment. 

For 2025, the city is projected to spend $2.4 million less than originally budgeted, mostly due to savings from vacant positions, Bickell said. While the city does budget for vacancies, there were more than expected in the police department and municipal court, he said. During a city council budget discussion Aug. 4, Police Chief Mike Colyer said the department is close to being fully staffed and is hoping to not have as many vacancies next year. 

The city also saw stronger-than-expected revenue from property taxes, water utility tax revenue previously held up in litigation, vehicle licensing and short-term rental registrations, Bickell said. This means the city will end the year with $3.1 million in cash reserves, about $1 million more than expected. The city is $1.9 million short of its cash reserve, equaling 7% of its budget, or $5.1 million, a goal outlined in its financial policy. The city is on track to end fiscal year 2026 with $3.2 million in cash reserves. 

Bickell told MTFP the savings fund is for emergency surprises and to help manage cash flow. Missoula lost track of its savings goal after the pandemic because of high inflation and emergency costs like the Johnson Street shelter, he said. The city is trying to find the right balance between saving enough money and spending on current costs, Bickell said.  

The city is also working to close the gap between its revenues and expenditures, Bickell said. This year, the gap will drop from $3 million to $2.5 million. The decreasing inflation rate, rebounding construction and changes in the state tax law should help improve the structural deficit, Bickell said. 

Council Member Gwen Jones said the increase in the reserve fund and reducing the structural deficit are significant steps in the right direction. 

“A lot of times I hear people say, ‘Well, we just gotta find the money, or we gotta be smarter about the budget, or if it’s that big of a budget you can always find the money,’ and I really think that doesn’t equate to reality,” she said. “I’ve seen over the years how our revenue does not keep pace with the demand for services. So the creativity, the ingenuity that goes into how we can stretch those dollars to try and keep those service levels intact and keep departments at a good functioning level so they are not gutted, that’s just a ton of work.”   

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