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MT Legislature’s final budget: Small increases, tax cuts, fed windfall

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Posted at 7:05 AM, Apr 29, 2021
and last updated 2021-04-29 11:40:37-04

HELENA — As Montana lawmakers approach the finish line at the 2021 session, they’re wrapping up a $12 billion, two-year state budget with a modest increase, more than $100 million in tax cuts – and a huge windfall of federal money.

Rep. Llew Jones, R-Conrad, who chairs the House Appropriations Committee, told MTN News the state budget will increase between 2.5 percent and 3 percent over two years – the lowest increase in several biennia.

“Given that that’s below the rate of inflation, it’s a fairly impressive budget,” he said. “We will leave Montana, as we’ve done in the past, a very solid fiscal position and a very frugal budget.”

The state Senate approved the session’s main budget bill, House Bill 2, Wednesday evening and the House is expected to do the same on Thursday – likely the final day of the 2021 regular legislative session.

The Senate also approved House Bill 632, which contains upwards of $2 billion in federal funds from the American Rescue Plan, the Covid-19 relief bill passed by Democrats in Congress in early March.

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Rep. Llew Jones, R-Conrad, who chairs the House Appropriations Committee.

Lawmakers working on the budget say the surge of federal money won’t pay for ongoing programs – but it will underwrite scores of projects and spending needs that help shore up the state’s regular budget for the coming two years, and more.

“Because Montana was in such good fiscal condition going into (the Covid-19 pandemic) and remained in pretty stable fiscal condition, this money did not have to all be spent to mitigate emergency situations,” Jones said. “So this money will be put toward long-term investments … for our education and our business economy going forward.”

The bill contains as much as $1 billion for infrastructure projects, including expanded high-speed Internet, water and sewer upgrades and capital construction and maintenance for government buildings, all across the state.

The money has drawn praise from Democrats and Republicans alike, as a boost to the state’s economy and bottom line.

“The budget in Montana looks better because of this bill,” Rep. Jim Keane, D-Butte, said Wednesday, before voting it out of committee. “This bill actually covers the next four years (for infrastructure). … I think this is unique in the history of Montana.”

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State Rep. Jim Keane, D-Butte, before voting to approve House Bill 632 on Wednesday.

Jones said lawmakers took care not to use the federal money for ongoing programs. Still the federal money can’t help but underpin portions of the regular budget.

For example, majority Republicans did not provide an increase in state funding for the state university system to freeze student tuition – a step Democratic governors and prior legislatures had done for years.

But the university system has received at least $42 million in federal money for need-based student aid, Jones pointed out, and will get more federal funds to help offset costs due to the pandemic.

Republicans also made room in the state budget for tax cuts, which will cost the state treasury anywhere from $50 million to $60 million a year.

Those cuts include a reduction of the state’s top income-tax rate from 6.9 percent to 6.75 percent this year, an expansion of the property-tax credit for elderly, low-income homeowners, an expansion of the amount of business equipment exempt from property taxes, and a reduction in local property taxes that support schools.

The effect of the latter cut will vary from school district to school district, but Jones said property owners in districts with lower property values should benefit the most.

“We hope that this encourages not just workers to move to Montana … but those entities that hire those workers, to locate and pay their taxes, in Montana,” Jones said.

But the federal act could play a role in this area of the budget as well.

The American Rescue Plan forbids the use of federal money to underwrite state tax cuts. Republican attorneys general are seeking clarification on this point and Montana Republicans have argued that they were planning and budgeting to cut taxes before the plan was passed by Congress.

Still, lawmakers inserted language into the tax-cut bills that give the state budget director authority to pull some of those cuts back, if they are found to violate the federal act. Otherwise, Montana would risk losing its ARPA funds.

Montana lawmakers also set up an administrative structure to guide the spending of the federal money, in the months to come.

HB632 creates four commissions that will solicit and evaluate applications for projects and grants: For high-speed Internet infrastructure expansion, water and sewer projects, health and human services, and what’s called “economic transformation and stability.”

The commissions, composed of legislators and members appointed by the governor, will make recommendations for who gets the money – and the Gianforte administration will make the final call. Most projects will require some matching money from those putting in the applications.

Jones said the idea is to make long-term investments in projects that will benefit business development and education in Montana for years to come.

“As we look at the end of the line (of the session), we see the light at the end of the tunnel, and it’s nice to see that Montana will (have) a balanced budget with decent reserves,” he said. “I know that during this Covid shock, there are probably 45 other states that wish they were us.”