Ignorance isn’t bliss — it’s a tax strategy for Montana’s largest city

As the re-election campaigns spool up in Montana, a series of letters and newspapers columns have volleyed back and forth arguing about who is to blame for property taxes or businesses that have felt an increased burden.

For all the debate centering on the extent that the 2025 Legislature “fixed” residential property taxes, virtually no one is talking about the one remaining problem that could cause the whole deal to implode. No one has proposed a permanent solution. And lawmakers have recently shown more of an appetite to talk about a sales tax than revisit the nagging, multi-million dollar problem presented by Billings, the state’s largest city.

Even with a compromise that lowered many residential property taxes, Billings, still has a gaping hole in its budget that will take more than $1 million to fix.

The problem: The Billings’ City Charter and a provision that ties the city’s hands when it comes to raising taxes.  The Billings charter cap limits the amount of money it can raise as a matter of law. That nearly caused the collapse of the eventual deal that brokered property tax relief for Montana residents in 2025. In fact, the problem — and the solution — was so tenuous that in order to get the Legislature to pass the property tax relief, including Yellowstone County’s large delegation, was a compromise that said if the city gets sued for violating its charter, the state will pay for the legal defense.

But just offering state funding for attorneys is only part of the solution. City leaders quietly admit if the city was sued for violating its charter, it could undo the entire property tax relief deal, which, more than anything probably explains why a lawsuit hasn’t been filed yet. About the only thing politicians could agree on in 2025 was that residential property taxes were too high.

On the other hand, city leaders also know as the state begins to look forward to 2027, the problem hasn’t changed — and needs a solution.

…and Sunburst, too

Billings is nearly unique in the state — nearly because only the city of Sunburst, with 333 residents near the Canadian border in Toole County, has a similar provision in its city charter.

In Montana, cities can be chartered, which is a form of government that gives cities the ability to control issues that are not otherwise regulated by the state government. Meanwhile, Montana cities that do not have charters are limited to using only the powers the state has specifically given to them.

However, Billings’ charter sets a cap on how much the city can raise, expressed in mills, a unit of measurement based on the taxable value of a property. At its most basic, a mill is equivalent to one one-thousandth of a dollar.

In Billings, the cap says the city cannot collect revenue in excess of what the charter specifies. The only way Billings has to raise more money is by growth in the actual number of properties built, or an increase in property values.

When lawmakers were contemplating their property tax proposals last year, they struggled to get around what seemed like an impossible scenario: They could rejigger the balance of property taxes to put more of the burden on second homes and businesses, but even when doing that, they didn’t get around the charter problem — and left a hole in the Billings budget.

To get residential property tax rates lower, lawmakers lowered the mill value — that means that by changing the value of each taxable unit to result in smaller tax bills across the state. While that was popular with residents, it created a double-whammy for the City of Billings: Not only couldn’t it raise the amount of revenue that nearly every other city was allowed, the rejiggering of the mill rate meant even less money on top of that.

That’s when most of the Yellowstone County lawmakers balked, threatening to swamp an already tense-but-fragile resolution for lowering residential property taxes across the state.

What resulted was both a simple but possibly illegal solution: Ignore the charter.

Through the legislative process, lawmakers wrote the tax laws, which mandated Billings levy the amount set by the Legislature, even though it violated the charter.

The solution is still not without problems, though — even disregarding the possibility of a lawsuit.

In an interview this week, Billings City Administrator Chris Kukulski explained that the original legislation, as it was written, would have left a gaping hole in the city budget, forcing huge budget cuts in excess of $10 million from the general fund — the only funding source for police, fire and even parks.

“We supported the idea (of disregarding the charter) because it took Billings from being an eight-figure problem to one that’s a seven-figure issue,” Kukulski said.

Kukulski explained even now, the city is facing an unexpected estimated $1.2 million hole because when the state lowered the mill value, it essentially held the city’s revenue budget flat — something difficult during times where inflation is still creeping up and public safety sectors, like police and firefighters, have contractually mandated increases in the 5% range.

“You can’t take eight figures from a city and not affect the public safety of this community,” Kukulski said, explaining why he believes the city ultimately agreed to not challenge the Legislature’s plan to simply ignore the charter. “We’re a vibrant, growing city, and it requires infrastructure and safety.”

The city is considering ways to make up the shortfall, but the options are limited and not very popular, he admits. For example, the city is looking at fees collected from courts and tickets, which generate around $1 million annually. The city is also considering adjusting some of the fees for activities in parks and recreation.

To give an idea of the magnitude of the problem, Kukulski said that without the ability to ignore the charter, the city could have eliminated all funding for the Billings Parks and Recreation Department, and it would not have resulted in enough savings.

“You’re not going to bake sale your way out this,” Kukulski said.

Kukulski said that those passing through Billings may think that the city’s tax base is as expansive as the city’s size — 45 square miles. After all, the area boasts three oil refineries and its largest employment sector is healthcare. Yet that doesn’t translate to tax revenue. All three of the refineries are outside the city limits. Even as cranes reach up to “the big sky” for hospital construction that is estimated at more than a billion dollars, the sprawling hospital corridor in the center of the town, as well as growing complexes on the west-end, are all nonprofits, off the tax rolls.

And that still doesn’t even address “the charter problem” — whether a city can simply ignore its foundational document. Billings leaders said they’re concerned because while the problem may have been solved, it is more a case of delaying a decision than actually fixing it permanently.

“Our charter is a constitution. That’s how I view it,” Kukulski said.

Fixing the charter problem

Kukulski said that one of the ironies of Billings’ situation is that state lawmakers, especially conservatives, love the city’s charter. He said many wish other cities would adopt a similar provision — limiting how much a municipality can spend, even as state leaders often say that out-of-control spending at the city or county is harming residents.

“As a city, I want to be under the same tax structure as everybody else,” Kukulski said.

The solution, which seems practical and obvious, isn’t so easy though.

Kukulski confirmed Billings could indeed change its city charter, and eliminate the revenue cap provision, but that would seem unlikely for the conservative-leaning city. Eliminating that provision would mean that city could leaders could spend money without voter approval.

Another solution would be a repeat of what happened in 2025: The Legislature could mandate that Billings tax its residents more than what is permissible than its own charter. Doing so eliminates one of the possible corners of opposition — the conservative Montana Legislature, which would in other cases likely challenge a local government spending beyond its authority.

That leaves Billings residents, along with the rest of Montana, with property tax relief for now — and no permanent solution.

In a white board in Kukulski’s office, under the heading of “big issues” and written in red, are the numbers 231 and 542 — the bill numbers of the 2025 property tax relief. Big issues — still —  because neither House Bill 231 nor Senate Bill 542 answered the question: Can a city legally violate its own charter?

“To answer that,” Kukulski said. “We’re going to need a bunch of lawyers.”