Legislative actions during the last session are expected to impact the Great Falls budget, staffing and processes.

Gas Tax and Infrastructure Funding

One of those changes involves the increased gas tax with a graduated 6 cent increase by fiscal year 2023. The increase was originally an 8 percent increase, and the difference is being made up by an increased tax for luxury cars and RVs to fund the Montana Highway Patrol and increased annual vehicle registration fee of $5, according to the Montana League of Cities and Towns.

Of the annual proceeds from the gas tax, 35 percent or $9.8 million, whichever is greater, is allocated to the Montana Department of Transportation. The remainder, projected to be $21 million by fiscal year 2021, goes to local governments.

Great Falls was previously getting about $1 million of gas tax funds that were allocated to the city for use in any needed transportation projects.

The increased gas tax is expected to double the amount of funds available to the city, but the process to access the funds is changing.

Now, the City Commission will have to adopt a resolution documenting the required 5 percent in local matching funds and provide a description of the project to MDT and when the project is completed, the city must submit an annual report to MDT with final project costs, according to MLCT.

Jim Rearden, city public works director, said the change is good since it will give the city more funding opportunities for transportation projects, but the process will be more cumbersome.

Entitlement Share Payments to Local Governments

Another bill, HB 565, is cutting the city’s entitlement share payment by $187,352 for this fiscal year.

For strictly comparison purposes, the cost of adding a new firefighter position is an estimated $68,000 and the cost of adding a police officer is an estimated $73,000. The cost to replace portable radios for the fire department is $100,000.

The bill is implementing one of Gov. Steve Bullock’s budget goals, according to the Montana League of Cities and Towns and will reduce the local government entitlement share growth for non-property tax related reimbursements to 0.5 percent in fiscal year 2018 and 1.87 percent in fiscal year 2019.

According to the League, the bill will cause cities to lose and estimated $2.3 million in the upcoming fiscal year and $3.6 million the following year.

The bill was amended to make those growth reductions a one time event so they won’t reduce future growth by adjusting the base for future growth calculations, according to the League.

The fiscal note attached to the bill in April stated that the bill revises the formula for entitlement share payments to local governments by creating a separate growth rate for business equipment reimbursements for tax law changes that reduced taxable value.

Legislative actions in 2011 and 2013 reduced the business equipment and reimbursed local governments for those cuts with additional entitlement share payments to prevent local mill shifts.

A 2009 policy brief from the Montana Budget and Policy Center stated that between 1994 and 2007, the tax rate on business equipment fell more than 50 percent from 2.98 percent to 1.45 percent. During the same time, according to the policy brief, residential homeowners saw an increase in the share of property taxes they pay to fund state and local governments from 38 percent to 49 percent.

A 2014 fact sheet from the Montana Department of Revenue stated that businesses with a statewide aggregate market value of $100,000 or less worth of business equipment are exempt from paying taxes on and reporting that equipment. Before the SB 96 in 2013, only businesses with less than $20,000 in equipment were exempt.

Businesses that have equipment with a statewide aggregate market value between $100,000 and $6 million in equipment pay a tax rate of 1.5 percent on that equipment, down from 2 percent, according to the fact sheet. At $6 million, the tax rate increases to 3 percent.

According to the DOR fact sheet, that tax reduction equated to $11 million in savings for Montana businesses.

According to the state’s fiscal note, the fiscal year 2017 entitlement share payment was $54.252 million to county governments, $70.167 to municipal governments and $6.394 to consolidated governments.

The reduction will only apply to the next two fiscal years, under HB 565, and in fiscal year 2020, which begins July 1, 2019, the statutory growth rates are restored to 3 percent for counties; 3.25 percent for consolidated governments; and 3.5 percent for municipalities, according to the League.