As the clock ticks toward a special session and lawmakers pack their bags for Helena, a deep divide still separates Republicans who hold a majority in the Legislature from Democrats and the governor’s office over ways to balance the state budget, leaving several unsure if a deal can be struck.
Committee hearings start at 10 a.m. Monday, with the full session scheduled to open Tuesday.
The Legislature is coming back to Helena to address a $227 million anticipated shortfall in the state budget. It’s not a matter of revenues tanking or any economic downward spiral. What happened is taxes and fees came in lower than the official estimate adopted by lawmakers, so legislators crafted a budget that spent more than what the state is now expected to bring in. Then the state experienced an extraordinary fire season, racking up $75 million in unanticipated firefighting costs.
The governor’s office has proposed plugging the $227 million hole by dividing it into thirds. About $76 million would come from cuts made by the governor to state agencies, another $75 million would come from proposed temporary tax increases and the remaining $76 million would come from a mix of transfers and delayed payments.
The governor’s office and Democrats feel they’ve put together a solid list of proposals that will offset the amount of cuts the governor needs to make to balance the budget.
Earlier this fall Gov. Steve Bullock, a Democrat, put out a proposal that would have balanced the budget solely through cuts, causing an outcry statewide. Then discussions about a special session to offset some of the cuts started, and last week the governor's office said it was close to working out a deal.
But Republicans, who hold a 59-41 majority in the House and 32-18 majority in the Senate, are saying not so fast.
Even as the temporary tax increases pitched by Bullock were crafted into bill drafts by legislative staff last week, many Republicans, including those in leadership, say there is a slim-to-none chance those proposals will have enough support to clear their caucus, where many campaigned on promises to never increases taxes.
Also complicating — or simplifying — the process, depending on what side of the aisle you're on, was a move by Republicans at the end of last week to expand the scope of the special session. The most prominent piece of that agenda-expansion includes a GOP push to accept roughly $30 million from the company that runs the private Crossroads Correctional Center prison in Shelby in exchange for extending the state's contract with the facility.
Culling the list
As late as two weeks ago, the governor and lawmakers from both sides of the aisle were working with a long list of two-year temporary tax increases, options that together totaled more than $290 million. By last Monday, it had been narrowed to three proposals that would generate $75 million: raising the tax charged on hotels, campgrounds and other lodgings by 4 percent; increasing the tax on rental cars by 6 percent; and charging a 3 percent management fee on some assets of Montana State Fund, the quasi-public workers’ compensation insurance entity.
Those skeptical of tax increases, no matter how temporary, included Republican Rep. Nancy Ballance of Hamilton, who helped craft the list.
Ballance helped whittle down the list of proposals by eliminating some tax increases that were killed in the regular session last winter, such as upping the rate charged on tobacco taxes or alcohol, the so-called sin taxes, or increasing the tax rate on the wealthy.
“As we looked at it, there were just some things that I knew our people were not going to go there (on because) it was so obvious during the (last) session they were just not willing to do it,” Ballance said.
Increasing the lodging and rental car taxes might find some support, she said, saying similar ideas found traction last session. A bill that cleared the House 56-44 would have increased the bed tax, albeit by less than what’s being proposed now, to pay for a new state heritage center. The effort died in the final days of the session because it was never taken up by the Senate.
“I thought that’s probably something at least a few people would be willing to vote for again, so it’s probably worth keeping on our list,” Ballance said.
The accommodations and rental car taxes were designed to hit out-of-state people harder than Montana residents, Minority Leader Jenny Eck, a Democrat from Helena who was part of the negotiations, said Friday.
"A significant amount of that tax would be paid by tourists and that's something we should try to do is capture those dollars as they come through."
Eck said the tax proposals on the final list are a "middle ground" she hopes both parties can get behind.
"It's not how we (Democrats) would probably choose to address the need for revenue. We would certainly have other preferences, such as making the capital gains tax more fair so that if you're making more than $1 million on capital gains you're not paying the same as someone who works for a living,'' she said. "We'd probably prefer to do an upper income tax bracket."
Both of those proposals died last session, which made them unlikely prospects this go-around.
But even with a negotiated list, Ballance was less than optimistic about any of the tax increases passing.
“If they are going to consider anything, maybe these will be ones they might,” she said of her caucus. “But I just don’t seem to find enough (support for) tax increases, even on a temporary basis. That’s just one of those things that separates our people really fast. It’s probably worth having the conversation, but I don’t know how we get there.”
Sen. Dee Brown, a Republican from Hungry Horse, collected the accommodations tax for 26 years at the RV park near Glacier National Park she owned with her husband. Like many in her caucus, she doesn’t support upping the bed tax, or any other tax.
“We all pay it. I would say it probably leans more heavily (on Montanans) if you look at the aggregate over a year. The bottom line is we’re getting taxed,” Brown said Thursday.
Small businesses such as family-owned hotels would not be able to absorb a bed tax increase and would have to pass on rates to their customers, most of whom are Montanans, Brown said. “It’s just one more increase they have to ask their guests for.”
It wasn’t lost on Brown or other lawmakers that as they traveled to Helena over the weekend, families around the state were driving to and from high school playoff games. She pointed out Montana businesses who send employees to training and conferences also pay the accommodations tax.
Senate President Scott Sales, a Republican from Bozeman, was skeptical any tax increases would get enough support.
“To tell the truth, I don’t know where (the governor’s) going to get his votes,” Sales said.
Sales points to the bellwether of the last regular session that ended in April, when nearly every tax increase the governor’s office proposed was shot down. Sales didn’t predict this time would be any better.
“I don’t think there’s a big appetite for it,” Sales said. “I can only speak for myself, and I’m not going to be supporting any new taxes.”
The fact that Democrats are outnumbered is front and center for Sen. Jill Cohenour, D-East Helena.
“We are the minority. We are not going to have a lot of control over what happens here," she said.
Last Thursday, the organization Carol’s List organized a call with a handful of Democratic women in the Legislature. The call included Cohenour, who fired shots at Republicans by saying they had a role in creating the problem but aren’t stepping up to the plate to fix it. In April, near the end of the session, the House Taxation Committee voted along party lines to increase state revenue estimates by $100 million based on an updated revenue estimate from the Legislative Fiscal Division that the governor's budget office was skeptical of at the time. Twelve Republicans voted for the increase and eight Democrats voted against it.
“The Republican majority in the Legislature, who doesn’t always listen to us, basically put in force a lie,” Cohenour said. “They based the budget on a lie. What that basically said was, ‘This is the stuff we need to pay for, and we’re going to lie about the amount of money we think we’re going to have coming in.' And then you set your budget in stone and then you hand that budget off for someone else to handle.
“When they put forward their proposal, their budget to the state of Montana through House Bill 2 (the bill that sets the state biennium budget), they didn’t want to actually make the cuts that might be necessary to make those decisions about what things should be funded and what things shouldn’t be funded. They basically lied to the people of Montana and said we have enough money to cover this and we don’t need to do anything.”
Expanding the scope
When the governor calls for a special session, it’s done through a document narrowly tailored to allow only for a few selected issues to be debated. The Legislature, however, can choose to expand that call, which Republicans accomplished Friday.
That could force the governor to have to consider $30 million offered from CoreCivic, the company that operates the privately run Crossroads Correctional Center prison in Shelby.
Since the state signed a contract with CoreCivic in 1999, it has been paying an additional $9.17 per prisoner per day on top of the regular rate into a fund that can be used to offset the cost of purchasing the facility, if the state chooses to go that route when the contract ends in 2019. In exchange for offering the cash now to help out the state's budget crunch, CoreCivic has asked its contract be extended.
Republicans say with that $30 million, they can offset the amount of taxes to be raised. And if the governor chooses to not negotiate with CoreCivic, GOP lawmakers say it's on Bullock to come up with the $30 million in additional cuts to state agencies.
Democrats generally oppose any deal with CoreCivic, saying the company is taking advantage of the state's financial crisis to blackmail Montana.
Bullock's office Friday did not directly answer if it would consider any offer from CoreCivic, saying in an emailed statement:
"What the governor proposed earlier this week is the result of weeks of discussions with Republican and Democratic legislators. ... The governor has put forth a reasonable solution that honors the 'a third, a third, a third' approach legislators on both sides of the aisle have said they are comfortable with. These proposals do not jeopardize our ability to negotiate the best terms for a long-term contract and get the best deal for Montana taxpayers."
Sales said Thursday the expanded call, which also includes charging the health insurance premium tax to Montana Health Co-op and PacificSouce and other insurance changes, is “just an opportunity for us to get more pieces on the board.”
“I’m confident that with more puzzle pieces on the table we’re going to be able to put together a better puzzle,” Sales said. “The more items that are out there for discussion and that are options, I think that we can probably resolve this without a tax increase.”
One of the pieces of the puzzle that’s most palatable to all sides is looking at various fund transfers or temporarily halting payments to some special state accounts such as a pension program for judges that is over-funded or a two-month holiday on state contributions to employee benefits. Both of those actions could be taken without affecting the solvency of those programs.
Lawmakers are fairly split on a proposal to charge Montana State Fund a 3 percent management fee on any investments it has with the state-run Board of Investment over $1 billion. State Fund is a quasi-public insurance company that provides workers' compensation coverage.
Critics feel the State Fund holds too much in reserves and that money should be tapped in a crisis, but fund president Laurence Hubbard earlier this week questioned the legality of charging the fee.
Ballance said the State Fund could be an option as long as the management fee comes from reserves and not ratepayers or from dividends.
“We believe that based on what the actuaries say, we are overfunded in reserves and we could put a fee on that,” Ballance said.
Sales said he’s confident the Legislature will “get something done," though it may not be what Democrats hope for.
“I’m confident the books will be balanced. It may not be to the governor’s liking.”