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The Montana Capitol.

THOM BRIDGE, Independent Record

Facing a dire financial situation and after the governor's budget director called on a group of lawmakers to play ball in finding a solution, a committee that deals with revenue voted Thursday only to acknowledge the problem but not to take action.

Some lawmakers were gun-shy about appearing to support calling lawmakers back to Helena for a special legislative session to explore increasing taxes, which could help the state dig out out of a financial hole caused by tax collections coming in far below estimates the Legislature used to build its budget.

The governor's budget director, Dan Villa, said if nothing happens to increase revenues, the state will experience a cash flow problem in late October or early November and make severe cuts of up to 10 percent for most agencies. The decreases are steep enough to even put the state prison in a situation where it can't replace security cameras.

Last week, state agencies were required to submit plans to make up to 10 percent in mid-year budget cuts. The cuts are necessary because of lower-than-expected state revenues due to low income tax collections, which are down about $70 million from what was projected so far. There has also been a reduction in tax revenue from natural resource extraction. Updated estimates show tax collections will likely be lower than expected over the next two years.

On top of that, the state is experiencing high expenses fighting wildfires that have torched more than 1 million acres so far this summer, with several major fires still burning.

Montana’s Constitution does not allow the state to operate in the red and gives the governor authority to make mid-year reductions. The state has to have an ending fund balance, or cash in the bank, of $143 million at the end of fiscal year 2019.

The proposed cuts would eliminate hundreds of jobs and significantly reduce programs and services. The Department of Public Health and Human Services has been asked to cut $105 million from its budget, and the Department of Corrections will make $40 million in reductions under the 10 percent plan.

While Democratic Gov. Steve Bullock has the final say on how to make the cuts, the Transportation and Revenue Committee is one of two committees given the opportunity to make a recommendation to the governor. In the last Legislative session, the governor saw most of the tax increases he proposed shot down by a Republican-dominated House and Senate. It’s unclear if Republicans would have a different appetite for tax increases if a special session were called this fall.

“We have to act, and we have to act now,” Villa said, imploring the revenue committee to take action.

More than a dozen people testified in front of the committee on Thursday, also urging them to act. Most called for the committee to consider revenue enhancements, like a tax on tobacco and beer and wine, efforts that didn’t pass during the 2017 session.

Joel Peden, operations officer at the Montana Independent Living Project, said the services they offer to people with disabilities are not luxuries. He reminded the committee of the privileges they have, such as not needing assistance brushing their teeth or taking a bath.

“Without some compromise, people are going to die without the services they need,” he said.

Several people testifying asked the committee not to follow the recommendations made by Sen. Llew Jones, R-Conrad, in an opinion article published Thursday. Jones, who is considered a more moderate Republican, said now is not the time to raise taxes.

“I advise you not to draw that line in the sand,” Travis Hoffman said. “We can’t balance this budget solely on the programs people with disabilities rely on.” 

The committee heard a presentation from the Legislative Fiscal Division, which crafted the revenue estimate adopted by the Legislature to create the state budget. Staff mostly pointed the finger for its flawed revenue estimate at people delaying certain types of non-paycheck income like money made off investments in the hopes a Republican-controlled federal government will lower tax rates for that kind of income in coming years.

Villa also gave a report, explaining how the revenue stream has changed in the last 10 years. In 2007, the state was collecting $460 million more in revenue than it is today. Villa said the largest industry in the state was timber in 2007, but has since been replaced by health care.

“Timber mills paid property taxes,” he said. “Hospitals do not.”

Villa disagreed with some assumptions made by LFD, such as people waiting to file taxes because they think there will be changes in federal tax policy.

“Why are we not processing fewer forms than we were last year if the people were waiting for some federal action?” Villa asked.

When it came time to make a recommendation, the committee debated over a drafted memo to be sent to the governor. Members agreed to acknowledge the revenue projections may result in an ending fund balance, but didn't recommend any action.

“The committee acknowledges the importance of responding as soon as possible to this development, but also recognizes that estimating revenue early in the biennium introduces uncertainty into the estimates,” the memo says.

Chair Tom Jacobson, D-Great Falls, proposed language that said the committee encourages the governor to work with the Legislature to “consider all means necessary” to maintain the integrity of the state.

Sen. Dick Barrett, D-Missoula, approved of the language. He said the governor’s only option is to make cuts while the Legislature could provide more flexibility. In addition to raising taxes, he said the body has the power to change the law specifying the amount of the state’s ending fund balance.

But Republicans said that language sounded like an invitation for a special session, and those who spoke either said it wasn’t necessary or it was too soon to tell.

The committee eventually agreed on language that asked the governor to continue to inform the committee of changes in revenue.

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