Legislature reaches unprecedented stalemate on revenue estimate

A committee of state lawmakers found themselves in an unprecedented stalemate earlier this week.

The legislature’s Revenue and Transportation Interim Committee failed to pass an official revenue estimate in their last scheduled meeting before the legislative session begins in January. It’s the first time the committee has not passed a revenue estimate since the current process was put into place a couple decades ago.

The estimate failed on a party line vote as democrats are trying to get some change into the process.

The Montana Legislature’s revenue estimate is a big deal. Legislative services chief legal counsel Todd Everts says it’s the starting point lawmakers use to set their budget. Because by law, budget expenditures cannot exceed the revenue estimate. So you have to have a revenue estimate “and under law it’s the revenue and transportation interim committee that’s required to introduce that resolution,” Everts said.

And normally the Revenue and Transportation committee passes the resolution on their last meeting before the session. They are required to do so before the first business day in December.

This time it failed on a six to six party line vote. Democrats wanted to take the revenue estimate resolution and put it into a bill—specifically the general budget bill known as House Bill two.

The Governor’s office has thrown their support behind the idea.

“What we’re proposing to do is no different than what every family in Montana does with their checkbook. Make sure your expenses and your revenues are all kept in one place,” said the Governor’s Budget Director, Dan Villa. It’s also a strategy.

“It would require that all 150 Legislators for the first time in four sessions actually have the opportunity to vote not only on what the expenses look like but what the revenues look like,” Villa said.

During the last few sessions, both Democratic and Republican Speakers of the House have sort of held the revenue estimate hostage from the Senate. This happens by the Speaker keeping the revenue estimate in the House Taxation committee and it never gets debated by the full House or Senate. Lawmakers on both sides during the interim have been working on a way to address this situation. The idea of moving the revenue estimate into the larger budget bill was the Democrat’s way of going about this. But Legislative legal counsel Todd Everts says it would be in conflict of the state constitution.

“The Constitution requires that the general appropriation bill shall only contain appropriations,” Everts said.

The Governor’s office disagrees. But Senate Minority Leader, Butte Democrat Jon Sesso says they will accept the recommendations of legislative staff.

“OK, we don’t want to push for an alternative our own attorneys are advising us against, so we set that down,” Sesso said.

But the Democrats still didn’t approve the resolution. Sesso says the Revenue and Transportation committee should wait until the Rules committee meets on December 3rd to consider some rule changes and then convene a last minute impromptu meeting to pass the revenue estimate.

Sesso says he’s worried by passing the revenue estimate first the rules to change how it would be implemented would not have been passed by the rules committee “and as a result it would have been business as ususal and I thought that we had bipartisan support that business as usual was not acceptable anymore,” he said.

Sesso and Senate President, Billings Republican Jeff Essmann  both sit on the Revenue and Transporation Committee.

Essmann calls this irresponsible. He says the committee was talking about rule changes to how the revenue estimate is put to use. But he says passing those rules is the job of the rules committee. The revenue committee, he says, is supposed to pass the estimate.

“To attempt to use their effort to block the fulfillment of a statutory duty in an effort to force a rule change I think was counter productive,” Essmann said.

Especially when there is general consensus on the amount of the revenue estimate which is rare. He’s not so sure there will be an impromptu meeting on December 3rd.

“I expect the rules committee to meet to discuss the proposed rule changes and make a decision,” he said.

“And then you will all meet as Revenue and Transportation right afterward?” I asked.

“No, that meeting has not been called,” Essmann replied.

“Do you expect it to be called?” I asked.

“Not at this point.”

“So then what happens if there is not a meeting held on its last statutorily possible date to pass that revenue estimate?”

“I’ll be discussing that with the Speaker of the House,” Essmann said.

If the estimate is not passed as required by law, Legislative legal Counsel Todd Everts isn’t sure what is going to happen.

“I’m not sure what the remedy would be,” he said.

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Proposed corporate property tax cut could lead to $80 million tax hike

A group of corporations are protesting the way their property taxes are assessed in Montana. More than 80 corporations from Verizon Wireless to Conoco Philips say they are being taxed too much for what are known as their centrally-assessed properties.

The group is asking a committee of state lawmakers to lower those rates.

But, the State Department of Revenue warns this would result in a large tax shift for small businesses and homeowners.

“Now, if you accept the industry recommendations made to you in July, you will tear up 8 decades of precedent and practice,” Department of Revenue Director Dan Bucks told the Revenue and Transportation Interim Committee on Friday.

Bucks says centrally-assessed property owners are looking for huge and unjustified tax breaks. He says it ends up being more than $80 million in taxes a year shifting away from corporations, “to homeowners, small businesses, farmers and ranchers.”

That is, a tax shift like that would need to happen or $80 million in state services would be cut.

So what is a centrally assessed property?

Well, think about it like a system or a network. Like a railroad, a gas utility or an oil pipeline, a telecommunications company—even a ditch can be considered a centrally assessed property. The state does not just tax a piece of centrally assessed property on its own but as a part of the value of the network.

Let’s use AT&T as an example. AT&T’s property taxes don’t just tax the land and material value of a cell tower, but incorporates in what that cell tower means to the wider AT&T network, based on measures like cost, stock price and income.

Attorney Mike Green is representing the Montana Taxpayers Association, which is bringing the protest from the Centrally Assessed property owners. He calls this taxing method completely ludicrous.

“There is absolutely nothing in case law, the statutes or the state of Montana, appraisal theory or in any other regard which suggests my home should be compared to a power line,” Green said.

Kalispell Republican Senator Bruce Tutvedt sits on the Revenue and Transportation Committee. He says these networks like AT&T are the only ones taxed for their income in both their income taxes and property taxes. He says that is not fair, even if it means the burden shifts to other parts of the tax base.

“What we want is equitability,” Tutvedt said, “what we want is a fair tax system, we want each class of property to pay its fair amount.”

The 2011 Legislature ordered a study on centrally assessed property taxes be brought before the Revenue and Transportation committee. The study found Montana does tax these types of properties more than surrounding states.

Senator Tutvedt says he has heard complaints from these companies that the taxes are affecting their investment in the state.

“We are starting to see real impacts from these companies from being taxed at significantly different rates than other states,” Tutvedt said.

Representatives from the centrally assessed property owners say they are looking for a sponsor for a bill to address their tax rate during the 2013 Legislature.

State more certain of budget surplus of $412 million-plus

Montana is getting a more solid picture of the state’s budget surplus ahead of the 2013 Legislature.

$412 million is predicted to be left in the state’s bank account. That’s the latest estimate from the Legislative Fiscal Division of the state general fund balance at end of this budget cycle, which is at the end of next June.

Fiscal Analyst Terry Johnson told the State Revenue and Transportation Interim Committee it could be even higher.

“We think that this balance could be as high as $470 to $480 million. But I’m not saying that right now because we’re in the process of preparing revenue estimates for this committee in November,” Johnson said.

These predictions change based on many factors from taxes on natural resource development to lottery profits. It’s far from an exact science. The last legislature predicted the budget surplus to be about $120 million less than it’s looking now.

But, all those numbers are firming up as we get closer to the next legislative session. More than $400 million in the black

Since last legislature, Republicans and Democrats have basically been talking about the surplus like this:

Democrats have been saying the state needs to reinvest in state services that received cuts last time.

Republicans want to lower property taxes.

That debate will probably continue this session.

But right now, Revenue and Transportation Committee Chair, Brady Republican Roy Hollandsworth says the state does have a lot of responsibilities it needs to attend to with its extra money first. He points to trying to fix indebted state pension funds, replenishing the now exhausted fire suppression fund and raising state employee base pay, which has been frozen for years now.

“Property relief, if done right, is a very good thing,” he said. “But I have, myself a very hard time telling someone they’re gonna get something back until I see what our liabilities are on spending it.”

Committee Vice-Chair Helena Democratic Senator Christine Kaufmann is a staunch advocate for putting more money back into state services. Yet, she says right now there is agreement that some of the money should go back to property owners.

“Potentially we can arrive there,” she said. “It’s really middle class folks on the ground in this economy and we need to find ways to help them.”

The most important budget meeting for the Revenue and Transportation Committee is still to come. Members will vote in November on adopting a budget estimate to use during the 2013 Legislative Session.

Lawmakers look to revise how state approves revenue estimates

State fiscal analysts are again revising current revenue predictions upward. Officials now say Montana’s bank account will have nearly $170 million more than the Legislature was expecting. That’s $30 million more than the state’s last report released in February.

Partly because of this disparity, some lawmakers are looking to change how these estimates are approved by the legislature.

State lawmakers use a revenue estimate every Legislative session as a baseline. In other words, they say,’this is our best guess of how much money we’re going to have over the next two years.We’re going to use this figure to dictate how much we spend—on programs, infrastructure—whatever.’

The spending and the revenue estimates should be pretty close. But what we’re seeing this time is that the money coming in is much higher than they estimated. Higher by about $170 million.

How does that end up happening?

Well, the revenue estimate comes to the legislature from a committee of lawmakers that meets between sessions, the Revenue and Transportation Interim Committee. They talk with legislative analysts, analysts from the Governors office and other economists before they bring that best guess to the legislature as a Resolution.

“So they have that basis to make a decision, and when they make a decision they know there’s the potential that those numbers can be revised later,” Johnson said.

He says lawmakers seem pretty happy with that process until Revenue Estimate Resolution makes the legislature.

“The resolution doesn’t have to pass both the Senate and the House to make a change to the revenue estimates is what current statute says,” he said.

The bill does not have to go through the whole legislative process State Senator Jim Peterson (R-Buffalo) says that’s unique.

“It’s the only resolution in the entire legislature that can sit in the committee for 90 days and not be acted upon and yet,” he said. “By statute it becomes the baseline for passing (the budget.)”

This process was really relevant last session. Republicans and Democrats argued over the estimate. More information was coming in during the session, showing higher revenues than predicted. Democrats wanted to raise the estimate, so the legislature could increase spending. Republicans wanted to keep the estimate where it was, to keep spending lower. Since the Republicans were in power—they could sit on it and the estimate would automatically pass as the baseline.

Fiscal Analyst Terry Johnson says that happened in the House in 2011.

“Last session, the resolution never went to the Senate. So the Senate is arguing ‘We never even had the chance to review it or make changes,'” Johnson said.

Senator Jim Peterson suggests creating a subcommittee from both the House and the Senate to hold detailed hearings on the estimate during the session “to give it transparancy, to gather information, to educate legislators and to give the numbers some credibility.” He says at least that way both chambers would have input on the estimate before it automatically moves on.