Gov. Steve Bullock summoned the Legislature to return to Helena for a special session Monday to plug holes in the state budget. But the governor’s proposals to fill those gaps are not without criticism from some key players.

For the past two months, the governor’s office and a Republican-dominated Legislature have volleyed over how to come up with $228 million to make up for a shortfall in revenues and the most expensive wildfire season in state history.

Bullock’s pitch to lawmakers splits the shortfall into thirds and calls for raising $75.1 million from temporary tax increases and another $76.5 million from fund transfers and other legislation. The final third of the potential solution would be Bullock-imposed cuts targeting most state agencies and totaling $76.6 million.

The session will convene Monday with committee hearings on the proposals, followed by the whole Legislature meeting Tuesday. Bullock’s office said it is hopeful the session could adjourn Wednesday or Thursday.

“I believe we are moving towards a reasonable and responsible compromise,” Bullock said in a press conference held in the governor’s reception room at a gathering of state employees, lobbyists and media. "I anticipate a quick and productive session. As with many compromises reached here in our state’s capitol, not everyone will get everything they want in this proposal.”

Speaker of the House Austin Knudsen, a Republican from Culbertson, was less optimistic.

“Let’s be clear here. The governor expects the Legislature to raise taxes on hardworking Montanans before any effort to reduce non-essential services has been made,” Knudsen said in a press release. “There is a distinct lack of leadership from the executive branch, but my caucus will do what needs to be done to address the budget head-on while doing what Montanans elected us to do … keeping in mind the taxpayers and those who utilize government services.”

Bullock on Monday released a list of cuts he would make to nearly every state agency to generate his third of the proposal. It was a severely pared-down version of reductions he proposed at the start of October that would have trimmed agencies by 10 percent of their general fund budget to make up the $228 million shortfall with cuts alone.

Monday’s list included $76.6 million of reductions and greatly lowered the burden on the three agencies that make up about 85 percent of general fund spending — the Department of Public Health and Human Services, the Department of Corrections and the state university system.

Cuts will reduce the DPHHS budget by 4.7 percent, or $49.2 million. That’s less than half of the $105 million in state general fund reductions that were proposed in October.

Programs that had been on the chopping block in the earlier cuts, such as early childhood intervention for children ages 0-3 who are behind in meeting developmental benchmarks, were spared. But a corresponding program for youth ages 3-21 will be eliminated.

Other cuts will include ending the funding for Second Chance homes, which provides housing for teen parents in Billings, Helena and Missoula.

Offices of Public Assistance will close in Chinook, Choteau, Columbus, Cut Bank, Deer Lodge, Dillon, Glendive, Malta, Red Lodge, Shelby, Sidney, Forsyth, Conrad, Big Timber, Plentywood, Fort Benton, Roundup, Thompson Falls and Livingston.

Other cuts will reduce the amount of money for targeted case management and some Medicaid reimbursements and services.

DPHHS Director Sheila Hogan said Monday the lower level of cuts will have the “least impact possible.”

“From a long list of painful choices, we do believe the governor's plan put forward today will have the least impact possible to the thousands of Montanans our agency serves as solutions are found to balance the budget,” Hogan said.

The new cuts do not touch the Office of the Public Defender, which under earlier proposals would have seen a $6.4 million reduction and the end of contract attorneys, who handle a large number of cases.

The Department of Corrections will see just a 1.1 percent cut, or about $4.4 million.

The Office of the Commissioner of Higher Education, which includes the state’s public higher education institutions, was mostly spared. Its budget would have been cut $44 million under the previous proposal but now it will see just $4.5 million in reductions. The Office of Public Instruction will be reduced by 2 percent, or a total of $1.6 million.

Smaller agencies and departments, like the Commissioner of Political Practices and Department of Commerce, will be cut the full 10 percent. But their budgets are just fractions of the larger divisions.

On the revenue-generating side, the largest proposed temporary tax would be a 3 percent management fee charged to certain State Fund accounts with over $1 billion in assets. State Fund is a quasi-government, quasi-private entity that runs the workers' compensation system in Montana. The fee would generate $29.7 million over the biennium.

Laurence Hubbard, president of Montana State Fund, said Monday he has "serious concerns" about the $29.7 million impact and the legality of the proposal.

State law says premiums and other money paid into the fund must be used only for operations and obligations of the fund. Money may not be transferred by the Legislature to other funds.

"That gives me the legal concern with the apparent management fee," Hubbard said. "It's got some very serious legal infirmities and I think that causes me the most concern."

About 25,000 businesses around the state pay into the State Fund to provide workers' compensation insurance to their employees. Hubbard said the 3 percent management fee would equate to a tax on those businesses. State Fund assets by law are managed by the Board of Investments.

"The policy holders that pay the premium are the ultimate owners of the assets of the company," he said.

Hubbard said the governor's office had not discussed the proposal with him before Monday's announcement. The State Fund has been tapped by the Legislature, creating issues with liabilities for claims from before 1990, something many have been critical of. In 2003, a law was passed restricting the fund's use, which Hubbard said some may not remember.

"That was a long time ago. We've had a lot of turnover. Memories can be short."

The governor's office said State Fund has nearly $1.5 billion in investments at the Board of Investments, and the fee would be charged on anything over $1 billion.

Assets have grown by $150 million since Bullock took office and more than $500 million since 2009.

"For the State of Montana, as the largest customer of the Montana State Fund, it only makes sense that when we run into difficult times, the taxpayers get some of their investment back," a spokesperson for the governor said.

Other temporary tax increases in the proposal would increase the tax charged on hotels, campgrounds and other accommodations by 3 percent and increase the tax on rental cars by 6 percent. The current tax on accommodations is 7 percent, with 3 percent going to the general fund; and 6 percent on rental cars.

Montana is trying to dig out of a budget hole after lagging revenues came in $75 million less than expected at the end of the last fiscal year in June. The governor’s budget director, Dan Villa, has predicted revenues to continue to come in lower than the projections on which the Legislature built the state budget, which would lead to an additional shortfall over the next two years.

That hole got even deeper during a fire season in which more than 1 million acres burned, leaving the state with an additional $75 million firefighting tab. The last special session was called by former Gov. Brian Schweitzer in September 2007 to pay for firefighting costs.

Absent from Bullock’s proposal was finding a way to pull roughly $32 million out of an account the state has paid into and is administered by CoreCivic, the company that operates Crossroads Correctional, a private prison in Shelby.

Since 1999, the state has paid $9.17 per prisoner per day into a fund under a contract that expires in August 2019. At the end of the contract, the money — now about $32 million — could be used toward the purchase of the facility if the state chooses to do so.

Republicans last week said CoreCivic had offered Bullock the money in the account as a way to help balance the budget if he would extend the contract

Several Republicans have said they would not work with Bullock on raising revenues or transferring funds if the prison was not a part of the pitch. Bullock's office said last week a formal offer had not been made.

A statement Monday from House Minority Leader Jenny Eck, a Democrat from Helena, criticized any prison deal.

"Now is not the time to try to negotiate multimillion dollar sweetheart deals; it is the time to focus on what is best for all Montanans," Eck said. "We hope that the Republican majority will put politics aside and help Democrats and the Governor find a fiscally responsible, bipartisan solution to the budget shortfall."

Independent Record reporter Erin Loranger contributed to this story.

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