More details released on state budget proposal

Nov 27, 2022

Helena Independent Record

Given an estimated surplus of more than $2 billion, Republican Gov. Greg Gianforte is proposing a series of investments in state-owned facilities and changes to tax laws the administration says will ease some affordability problems facing Montanans around the state.

While outside budget analysts find some things to celebrate in the proposals, there are places they wish the administration would re-evaluate its focus, like the target of suggested tax cuts. In other areas, such as child care, they find the governor’s plans lacking.

“This is a pretty significant and rare opportunity for the state to be in the position of a significant surplus and decisions on how to best use those funds,” said Heather O’Loughlin, the executive director of the Montana Budget and Policy Center. The center in the past has advocated for things like Medicaid expansion and tax policies that reduce the burden for low-income Montanans.

The governor’s budget director touted keeping the rate spending increased at less than inflation growth.

Ryan Osmundson, who runs Gianforte’s budget shop, highlighted growth of 4.38% in the coming fiscal year and 4.28% in the second year.

“In these inflationary times, I am very proud of the agencies (and) my staff (with) how we got to that and we did not cut services and we have significant investments across the state,” Osmundson said. “That’s a very conservative budget.”

The governor’s budget proposal is an opening message to legislators about the administration’s priorities and proposed policies for the next two years. When lawmakers gather in the Capitol in January they’ll consider Gianforte’s ideas alongside their own when doing the only task constitutionally required of them during the upcoming secession — passing a balanced budget that sets the state’s revenue and spending through 2025. This year there will be a GOP supermajority in both chambers.

Osmundson and O’Loughlin agree the surplus, which Osmundson pegged at close to $2.4 billion, as providing the state with a rare opportunity to make transformational decisions that will affect generations to come. Generally referred to as the “sugar high,” the huge amount of extra cash was generated in part by federal policy meant to counteract the economic fallout from the pandemic like various stimulus bills, higher wages and more spending. Osmundson also credited the administration's “business-friendly climate” with playing a role.

Infrastructure investments 

The budget makes what Osmundson called “generational” investments in the Montana State Hospital and state prison.

“The investments we’re making will affect generations to come in very positive ways,” Osmundson said.

That includes what he pegged as $200 million for modernizing the facility at Warm Springs, as well as the state behavioral health system.

In the infrastructure section of the budget, there's $15.9 million for compliance updates to address recertification and deficiencies at the state hospital. There's also another $113 million for what's called a state health department "behavioral health initiative" for projects statewide. Earlier this year the hospital lost its federal certification, meaning it also lost $7 million in reimbursement from the federal government. The hospital was running $17 million over budget by August.

While there's not a significant amount of detail, the budget shows about $180 million going into the state prison, with about $135 million devoted to replacing the existing low-side housing.

In a press conference Nov. 10, Gianforte said the changes would repair the prison and ultimately expand capacity, in an effort to make both the facility and communities around the state safer. The prison has struggled with retaining and recruiting employees recently, and the state recently increased pay to help address the issue.

Maggie Bornstein, the legislative session lobbyist for ACLU of Montana, raised concerns about the move to build capacity at the prison alongside proposed legislation from the Criminal Justice Oversight Council that she said could increase incarceration numbers. That includes proposals to reduce the amount for theft that would qualify as a felony from $1,500 to $500.

“Not only is it really upsetting for us to see the writing on the walls in terms of the physical build-out of Montana State Prison to incarcerate more people, but seeing the roadmap of how the state really plans to ensure they maximize capacity by changing statues to incarcerate more people,” Bornstein said.

Gianforte said the proposal is necessary. "The state prison is in disrepair and that disrepair threatens the safety of correctional officers and inmates," he said.

Health and human services

Last session lawmakers passed a bill to study the rates paid to heath care services providers, and Gianforte’s budget includes increases for those providers to a portion of the degree recommended in the study.

The boost providers will see varies by type of provider. Osmundson said the rate study showed wildly varying rates and need for increasing those rates across all types of providers.

“We knew we couldn’t get there overnight, couldn’t fix everything at once,” Osmundson said. “We’re going to make a plan and … a stepping stone to get to a better place.”

There’s also a roughly 4% increase for providers who fall outside the rate study, and the budget dedicates $70.9 million overall, with $25 million coming from the state, to the department director for one-time-only rate increases to stabilize services around the state.

O’Loughlin said further details and comparison are needed to know how close the budget comes to matching what the rate study suggested.

“It’s hard to know right now because it’s really hard to compare the provider rate study with what’s in the budget,” O’Loughlin said.

“That’s certainly an important step the Legislature and providers have been working toward over the course of the last year in looking at what we really need to do to get our providers rates to a place where folks can access mental health, substance use disorder treatment, health services across the state and particularly in rural areas,” O’Loughlin said.

One thing missing from the budget, however, is an investment in child care options, O’Loughlin pointed out.

“We are a little concerned there isn’t really an investment in child care,” O’Loughlin said.

While the state has used federal funding from the American Rescue Plan Act to try to stabilize the state’s child care network and made changes, which are now being rolled back, to increase affordability and stability for families using the Best Beginnings Scholarship to help pay for child care, the budget proposal does not include any items in the health department’s budget to look at the state’s child care deserts or affordability of care.

The budget does, however, include a $1,200 annual tax credit for children ages zero to 5.

“This $1,200 tax credit for younger kids will make it easier for parents to pay for what kids need: childcare, preschool, health care, diapers, food and clothing,” Gianforte said earlier this month.

Rose Bender, deputy director of research at the Montana Budget and Policy Center, said the center hopes that the tax credit will be refundable, making it accessible to lower-income Montanans.

In the last budget, the Legislature moved the Comprehensive Schools and Community Treatment program from the state health department of the Office of Public Instruction. The program provides students with mental health services and assistance in schools. A change in how the federal government viewed the state's funding model coupled with lawmakers deciding school districts would need to put up their own cash caused concern around the state last year. Some districts were able to continue the program while others weren't. Gianforte's budget moves the program back to the health department and gives it $18 million in funding for schools to access.

FWP funding

While the budget keeps spending increases at under 5% overall, the state Fish, Wildlife & Parks department is seeing a 19% jump in proposed spending, or about $20 million over the two-year budget.

Part of that includes the governor’s proposal of $7 million for the block management program. Legislators recently voted to advance a proposal to double the amount landowners can receive under the program, and several conservation groups have endorsed the plan.

There’s also $6.5 million in spending authority the agency says is needed for a new maintenance program. Due to a reorganization of the department, the maintenance is now all under one single umbrella instead of different divisions. The budget also has an additional $6.5 million for adjustments that are made in agencies across the state every year, like personal services, inflation, and fleet costs.

Income tax rate

Gianforte's budget also proposes a reduction to the rate paid for those with incomes of more than $19,800, dropping it from 6.7% to 5.9%. Gianforte has said his ultimate goal is to get the rate below 5%. 

Reiterating their critique of the proposal from last year, Bender said that the focus on the top income rate means that most Montanans will just see a minor benefit.

“This continues to push our tax system to rely more on folks living on lower and moderate incomes as opposed to the wealthy,” Bender said.

The budget also includes other efforts to further changes from last session, like increasing the business equipment tax threshold to $1 million, which he estimates would reduce the number of businesses paying that tax by 5,000. 

Housing options

Another piece of the affordability puzzle Montanans are facing is the cost of housing, both for rentals and trying to buy a home.

While the details are still being refined on the proposal to create more affordable housing options, the governor’s plan is to propose a pot of money available to local governments to incentivize them to allow higher density in their zoning.

The plan would put $200 million into an account that bears interest and could go toward paying for sewer and water infrastructure costs to abate the total of building new developments, so long as the density is high, Osmundson said.

The plan does not require that any housing built be offered at a specific price point. Gianforte said his administration thinks an approach that would require any housing built to be affordable could skew the market in a detrimental way.

O’Loughlin said the budget and policy center has some concerns about taking Gianforte's approach versus a direct state investment in affordable housing.

“Policy-makers have been hearing from communities about this impacting families, business’ ability to hire and keep employees and we’re hopeful that the Legislature will consider meaningful investments in those two areas,” O’Loughlin said.

Other states, O’Loughlin said, have gone the route of an affordable housing trust fund and one of Gianforte’s task force recommendations was to identity an ongoing funding source and more funding for a fund here.

While that’s not reflected in the governor’s budget, it’s something the Legislature “should and could consider,” O’Loughlin said.

Another plan from Gianforte would address the cost of housing from the property tax side.

“As we have seen, property values are rising and the tax values are following that,” Osmundson said. The governor's proposal would give Montanans a $1,000 rebate for their primary home, or if a tax bill is less than that the full amount would be covered.

The rebate would be made as a check to property tax payers, not through income taxes, Osmundson said, and be in place for the 2023 and 2024 calendar year. During that time, the governor’s office will work with counties to find ways to lower property tax bills, he added

The program would be paid for with general fund money and not have any impact on local governments.

“We didn’t come with a proposal to harm the counties in any way,” Osmundson said. “This holds them harmless.”

Rose Bender, deputy director of research at the Montana Budget and Policy Center, said her main concern with the idea is how renters would be included in any efforts to reduce the cost of housing.

An interim committee that focuses on revenues has proposed expanding the elderly homeowner tax credit to all ages, which Bender said would do more to eliminate property tax burdens for people.

“It would be nice if they could include renters and it could be a bit more targeted based on what people are paying (as a percentage of their incomes),” Bender said.

— Montana State News Bureau deputy Tom Kuglin contributed to this story.

Montana Budget & Policy Center

Shaping policy for a stronger Montana.

MBPC is a nonprofit organization focused on providing credible and timely research and analysis on budget, tax, and economic issues that impact low- and moderate-income Montana families.