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HELENA -- With Montana's projected general-fund surplus nearing a record $550 million, Democratic Gov. Brian Schweitzer and Republican lawmakers are practically tripping over each other to find ways to give some of it back to taxpayers.

In late June, the projected ending fund balance for mid-2007 was an astronomical $547 million -- far more than anyone anticipated. The general fund makes up nearly 40 percent of total state spending and largely comes from income taxes on individuals and businesses.

Both sides are proposing ideas to put to use the one-time money that's part of the surplus. They will play central roles in the campaigns for control of the Montana House and Senate, which will ultimately decide on the budgets, subject to a final review by the governor.

As they make commitments, the size of the projected surplus will drop.

Last week, Schweitzer proposed spending $20 million to refund the so-called water tax to certain water users. In late June, Schweitzer called for using $100 million to return across-the-board $400 rebate checks to Montana households owned by Montana residents.

"There is a distinction between the one-time (and ongoing) monies,'' said Schweitzer's budget director, David Ewer. "The property tax rebate we can afford to do one time.''

Schweitzer and Ewer also are adamant about maintaining a $100 million general-fund ending balance as of mid-2009.

In addition, Ewer said the governor wants to set aside about $100 million to help reduce the deficit in the Teachers Retirement System.

All of these proposals are subject to the approval of the 2007 Legislature, which convenes in January.

If approved, these four items alone cost $320 million, lowering the projected surplus to $227 million.

"At the center of the monopoly table is a stack of money, and it will get smaller,'' Schweitzer predicted.

Ewer said the administration is "still kicking around'' a number of ideas to use one-time revenue for information technology and for building maintenance and the cash portion of a long-range building program.

Republicans, meanwhile, have their own plans for finding ways to return some of the surplus to taxpayers. They want to completely eliminate the water tax and refund it to water users at a cost of $31 million.

In their "Handshake with Montana,'' campaign plan, Republicans have pledged to cut property taxes by 8 percent, although the plan hasn't been finalized yet. They also have said if the state collects more than $220 million in excess revenue, they would return it to the taxpayers.

"As soon as you start to go five or six years of an ongoing revenue surge, it's not fair to classify that as one-time money,'' said Senate Minority Whip Corey Stapleton, R-Billings, chairman of the Republican Legislative Campaign Committee. "I'd like to use some of it for tax reform.''

Republicans want to find a way to lower property taxes permanently, not just for one session, he said.

The critical question, Ewer said, is figuring out just how much of the state's ending fund balance is continuing money that Montana can count on in the future and how much is so-called one-time money.

"We have a bubble,'' Ewer said. "There is a lot of money coming in that at some point will cease coming in. We don't know what percentage is one-time and which is ongoing. That is the central question.''

Schweitzer also has made some commitments that fall into the category of ongoing spending that wouldn't come from the portion of the surplus deemed one-time.

One is his endorsement of full-day kindergarten, which would cost $15 million a year -- $30 million for the two-year budget period with the costs continuing yearly, if it's approved by the Legislature.

Ewer also has said the governor's budget may include $40 million to $50 million in supplementals or cost overruns to tide certain agencies through the current two-year budget period, which ended June 30, 2006. The Corrections Department will have a supplement because of the fast-growing demands on the prison system because of the use of methamphetamine.

There may be supplementals for human service programs, Ewer said, depending on how much money Congress appropriates for Medicaid, the federal-state health care program for the poor and elderly, and whether the state has to make up the difference.

The Schweitzer administration is just beginning pay negotiations with public employee unions, so it's too early to speculate what the final contract will look like.

Eric Feaver, president of the MEA-MFT, the state's largest union, which represents state and local government employees and school districts, said he's hoping for "a robust'' pay hike for state workers.

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"I hope it's at least as good as the last one, if not better, with the ending balance as strong as it is,'' the union leader said.

In 2005, the Schweitzer administration and Legislature approved a plan with pay hikes of 3.5 percent for state employees the first year, followed by 4 percent the second year, with some extra pay for the lowest-paid workers.

If the unions and administration agreed to a similar plan for the next two years, it would cost nearly $43 million in additional money. These would be continuing obligations and build into future pay plans and should be paid for with ongoing, not one-time sources of money, Ewer said.

Schweitzer also has not yet announced how much he wants to put into the schedules for K-12 education, the university system and human service programs.

As for K-12, Feaver said the MEA supports a doubling of the educator entitlement portion of the school funding formula, from $2,000 per full-time educator to $4,000. That would cost $50 million more annually. He believes it would be a significant step toward resolving the school funding controversy.

Feaver also said he would like to see "an infusion'' to increase the state's commitment to higher education and prevent the large tuition increases students have faced in recent years.

"If we got that, plus what we got in 2004, not in your lifetime or mine has the Legislature been so responsive to K-12 education in two legislative sessions,'' Feaver said.

Ewer said his office is still working with Schweitzer on the requests for increased ongoing expenditures in these areas.

"How much can you put in the schedules for pay, K-12, higher education, Medicaid, in ongoing money?'' Ewer asked.

He said the administration has a lot more work to do in these budget areas.

"Regardless of money or not having money, the requests are generally more than what you have money for,'' said Ewer, a former legislator. "That's not a bad thing. People have a lot of ideas. There are a lot of needs.''

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