Editor’s note: This is the second of a four-part series by the IR State Bureau examining the major issues facing the 2013 Legislature, which convenes Jan. 7.
When the 2013 Legislature begins Jan. 7, incoming Democratic Gov. Steve Bullock and the Republican legislative majorities aren’t likely to engage in heated battles over projected tax revenues and budget surpluses.
That will be a major contrast from the bitter disputes that outgoing Gov. Brian Schweitzer, also a Democrat, had with the GOP legislative majorities the past two sessions. Schweitzer argued that legislative staff estimates greatly underestimated revenues, and he was proved right.
Instead, Bullock and the GOP-controlled House and Senate most likely will be fighting over how to spend some of the excess cash in the state treasury.
Schweitzer’s revised budget, released in mid-December, estimated an ending fund balance of $433.4 million in mid-2013 and $413.7 million in mid-2015, assuming his spending proposals are approved.
As incoming governor, Bullock will be modifying the Schweitzer budget to reflect his priorities and presenting it to the Legislature.
Unlike in recent years, there is a tiny difference — 0.05 percent — between the legislative and executive branches’ projected general fund revenue estimates for the current fiscal year and the two upcoming ones. For fiscal 2013, 2014 and 2015, the legislative estimate of $6.157 billion in November was just $3.25 million more executive’s estimate.
With plenty of money in the bank, at least for now, Bullock and legislators have said they are looking to give at least part of it back to individuals and businesses, but differ in their approaches.
Some of the major financial questions looming are:
Will the Legislature approve Bullock’s one-time, $400-per-household property tax rebate, costing nearly $100 million? Or will lawmakers instead approve a Republican plan to use oil and gas revenue to lower local property taxes, while boosting state funding for state schools at an as- yet-unspecified cost?
Will the Legislature go along with Bullock’s plan to raise the threshold so that businesses whose aggregate property is valued at less $100,000 no longer will pay the business equipment tax, at a cost of $9.1 million annually to the state? Or will lawmakers favor a GOP plan to raise the exemption for the business equipment tax and lowering the tax rate to give businesses, regardless of the value of their equipment, a reduction?
Will the Legislature approve a bonding bill similar to the one that was rejected in 2011 to authorize the state to borrow nearly $100 million to pay at least part of the construction of new university system buildings and a new Montana Historical Society museum?
Will legislators approve the matching 5 percent raises in base pay for state employees over two years that Schweitzer negotiated with public employee unions at a cost of $138 million from all sources, including $71 million from the general fund? The 2011 Legislature rejected smaller proposed raises,.
And will the Legislature and then Bullock go along with Republican plans to reduce income tax rates and flatten that tax structure?
“Our caucus would like to preserve as much money, as possible, for tax relief,” said incoming House Majority Leader Gordy Vance, R-Bozeman. He said some Republicans want permanent income tax cuts, while others want permanent income tax cuts, although any future Legislature can change what a previous one has enacted.
Incoming Senate President Jeff Essmann, R-Billings, want to cut income tax rates for individuals, noting that states without individual income taxes are growing at a faster and better pace than those with them.
“If we’re going to attract high-paying jobs in this state, we have to attract capital to this state,” he said. “Anything we can do to reduce marginal (income tax) rates, I think can attract people with capital and people with business skills to this state, and that will help grow our economy.”
Senate Taxation Chairman Bruce Tutvedt, R-Kalispell, said Montana has one of the more complicated income tax systems in the country.
“We’ll make it revenue-neutral and simpler,” he said. “We should follow the Colorado model. It’s flat with fewer exemptions and get rid of married (couples) filing jointly.
Incoming House Speaker Mark Blasdel, R-Somers, said the state has some major financial obligations to pay.
“With that ending-fund balance, we do have some unpaid bills to pay,” he said.
Blasdel cited a school funding lawsuit that will cost up to $35 million, firefighting costs of up to $30 million, the governor’s emergency fund that saw $16 million drained, to say nothing of pensions that face potential debts topping $4 billion.
Incoming Sen. Dick Barrett, D-Missoula, said he expects Republicans to again try to eliminate some income-tax credits and use the money to reduce the business equipment tax.
“But the credit that will always be sacrosanct for Republicans is capital gains,” he said.
He added, “Base-broadening (and) rate reduction is not a bad principle. The problem is the devil is in the details as to what deductions, exemptions, credits you get rid of.”
For his part, Barrett intends to push for a property-tax circuit breaker that will limit a person’s property taxes to a certain percent of that person’s income.
House Taxation chairman Mike Miller said he disagrees with Bullock’s $400-per-homeowner rebate because it’s not permanent and renters wouldn’t get anything.
Miller said he’s hopeful the Legislature can adjust the revenue to the spending needs by lowering taxes.
“I would be supportive of doing one-time infrastructure spending in Eastern Montana,” he said. “Cities are kind of left to dry. Counties are spending all of their money on road maintenance.”
Finally, there is the bonding bill, which in 2011 drew diverse support from unions, contractors and others, but ultimately couldn’t muster the final two-thirds majority in the House after s Senate change.
Rep. Galen Hollenbaugh, D-Helena, is again sponsoring the bill and seeing what Bullock wants. The version he dropped in for Schweitzer would authorize $87.9 million for projects, but require them to raise nearly the same amount in matching funds.
“We have a little bit of private match in it which means everybody’s got a little skin in the game,” Hollenbaugh said.”I think that’s appropriate.”
“I’m still looking to see what we need to do to reach across the aisle to make sure this is palatable for both parties,” he added.
Coming tomorrow: The third segment of the series looks at health care proposals, including the possible expansion of Medicaid.