Session collapses without budget

HELENA - Montana's 60th legislative session abruptly collapsed Friday, with the Senate voting the session to a close and the House following suit hours later - with no budget approved.

A special session is now necessary.

As of Friday, lawmakers had reached a complete impasse in negotiations over state spending and tax relief.

The dramatic end started just before noon while the House Appropriations Committee worked to bring House Bill 2 - essentially Gov. Schweitzer's original budget - back into play with amendments that reduced spending.

Democrats considered it a "stealth" move, but Republicans maintained that it was merely a "contingency" should the package of separate budget bills not clear the House in the session's final day.

As the amendments were being discussed, reporters rushed out of the room to the Senate Chambers upstairs, where senators were about to vote to end the session roughly 24 hours before it was scheduled to end. The 26-24 vote for "sine die," ending the session, shocked the Capitol.

With the Senate gone, House Republicans were left with no more opportunities to negotiate changes to Democratic spending bills they consider unacceptable. Within hours of the Senate's action, the House voted to adjourn, too.

House Speaker Scott Sales, R-Bozeman, said afterwards that House Republicans were met by a "brick wall" at every turn in negotiations for permanent property tax relief in the form of lower property tax rates.

"It was an ultimatum - you do it our way or it's the highway. But we held firm," Sales said.

GOP lawmakers wanted $300 million of a budget surplus now estimated at $1.3 billion to be used for tax relief, and as of Friday morning had dropped negotiation offers to as low as $140 million in tax-rate cuts.

That offer was rejected, with Senate Majority Leader Mike Cooney, D-Helena, calling the tax cuts "unsustainable." He said they would pose "structural imbalances" for future legislatures, particularly those faced with less rosy fiscal outlooks.

Cooney said the move to end Senate action was prompted by the revival of House Bill 2, with amendments that would remove all-day kindergarten funding and eliminate a $20 million spending increase for the Department of Revenue.

"We just couldn't be put in the position of them passing to us ill-conceived, harmful legislation," Cooney said.

He said that the Republican House leadership had shown "total disrespect for the people's business … It was Republicans in the House who decided to jam up the process from Day One.

But the GOP House leadership asserted that the spending plan approved by the Senate was unsustainable, exceeding even the governor's initial proposal.

"Spending went through the roof," said House Majority Leader Mike Lange, R-Billings.

According to the Legislative Fiscal Division, the Senate-approved spending bills would exceed the governor's proposal by $27 million in general fund spending and about $100 million in total spending.

The bills would exceed current spending levels by 23 percent in the general fund and 15 percent in the overall budget.

The last offer from Democrats, issued late Thursday, excluded any tax-rate cuts sought by Republicans but it did include a variety of tax relief measures, including an increase in exemptions on the business equipment tax, as well as a $600 one-time property rebate for Montana households - an increase over the $400 rebate proposed by the governor at the start of the session.

The offer included a demand that several bills pass "as is" in the form approved by the Democratic Senate.

One of those bills, House Bill 833, included several measures Republicans considered completely unacceptable.

Most notably, it included a provision to levy corporate income taxes on Real Estate Investment Trust revenue. Plum Creek Timber Co., the largest REIT in the state, maintains that the change amounted to a new tax that would be harmful to its operations and competitiveness.

Rep. Jon Sonju, R-Kalispell, called the Democratic offer "laughable at best."

He questioned how a 23 percent increase in total state spending can be considered "sustainable" and why Democrats would tax the largest manufacturer in the Flathead Valley when the state has a $1.3 billion surplus.

Plum Creek and other REITs do not pay corporate income tax on 90 percent of their land sale revenue, because that money must be distributed to investors as dividends, while other corporations aren't faced with that requirement. Democrats characterize that provision in the state code as a loophole for Plum Creek investors, and they note that most investors are from out of state.

Democrats made last-minute appeals to moderate Republicans to adopt the Senate bills and end the session with a balanced budget. The Republican caucus held firm, faced with bills that could not be amended with the Senate out of session.

Rep. Mike Jopek, D-Whitefish, questioned why the budget bills had not come to the floor for amendments and debate when they were in the House for weeks. The Republican caucus held off numerous motions to move those bills to the floor in recent days, all in the name of securing a satisfactory tax relief package.

In remarks at the close of the session, Lange likened what had transpired to an impasse in union collective bargaining negotiations.

"Don't expect this side of the aisle to roll over, because we won't," Lange said.

"After 90 days, they decided to go home without finishing their job," Gov. Brian Schweitzer said at the end of the day.

Asked when he might call a special session, Schweitzer declined to offer a specific date.

Schweitzer said lawmakers will be hearing from constituents who want to know, "How is it that you couldn't get the job done?"

The governor reiterated his position that there is nothing permanent about cutting property tax rates when the next Legislature could simply raise rates again.

But Republicans have long maintained that cuts in tax rates have more permanence and provide more benefit to taxpayers than one-time rebates.

The House GOP leadership urged its caucus to explain to constituents the problems they saw in the budget advanced by Senate Democrats and the lack of any permanent property tax relief.

Reporter Jim Mann may be reached at 758-4407 or by e-mail at jmann@dailyinterlake.com