Wonky Words: OBPP vs. LFD

Now that the elections are over, talk around the state will focus on the upcoming legislative session. Things are already heating up with the Governor’s budget release, and the Revenue and Transportation Interim Committee (RTIC) is meeting today to decide on the revenue estimate.

But before we get to what RTIC will decide on the revenue estimate, we thought we’d do a quick “brush up” on the agencies who are providing recommendations to legislators.

These are two agencies that folks should be familiar with as we discuss the budget –the Office of Budget and Program Planning and the Legislative Fiscal Division. The difference between OBPP and LFD can get very confusing, but both are very important when talking about the state budget.

Here is where they are similar.

Both are government agencies housed in the State Capitol. They both provide fiscal analysis on the state budget and provide feedback to Legislators and other interested parties.

Here is where they are different.

The head of the OBPP is the budget director who is appointed by and reports to the governor. The director of the LFD reports to the legislature and does not change when legislative leadership changes. Each is responsible to a different government entity, which can lead to different analysis and conclusions based on the information requested by their respective employers.

Throughout the year, both OBPP and LFD monitor the budget and make note of any changes in revenue or expenses. The LFD reports findings to the appropriate legislative committee and OBPP makes recommendations to the governor on any necessary changes.


Today, both agencies will present their estimates for where revenue will be for the next two years (the 2019 Biennium). Below is a chart that LFD has prepared, which shows where each agency is at in the amount of revenue for the next two years. The differences in their estimates this biennium are not nearly as significant in past sessions. OBPP projects revenue slightly below what LFD is projecting.




Each November in even years (because the legislature always meets in odd numbered years), RTIC prepares a revenue estimate “projected to be available for legislative appropriation.” This initial estimate is considered the official estimate for the legislative session until it is amended or adopted by both legislative chambers. In general, this estimate is introduced as House Joint Resolution 2 (HJR 2). After the session begins, the initial revenue estimate can be debated, amendments can be made, and both the House and Senate can approve the final revenue estimate.

While the process and the details can get pretty complicated, the revenue estimate is a critical component for how Montana will invest in our state. The estimate has real implications on families and communities across Montana. Stay tuned as we see how things play out today.


Governor Proposes Tax Fairness in his Budget

Every two years, the Governor of Montana releases their budget proposing investments to support our communities, including education, workforce development, and infrastructure. The budget becomes the marker for what the legislature will consider in the upcoming session. Yesterday, Governor Bullock released his proposed budget for the 2019 biennium (fiscal years 2018 and 2019). Over the course of the next week, we will highlight some of the key components of the budget and walk through some of the logistics on what happens now.

Today, we start with high-level overview of the budget and some of the tax fairness measures that will be up for discussion in the session.

But first, we need to set the stage for what the Governor was facing as he put together this biennium budget. Over the past year, the state has experienced lower revenue levels than previously projected. While the state initially estimated that we would begin the 2017 session with a strong ending fund balance of over $300 million, that amount now stands at around $120 million for the start of the session.

What has happened to cause such a shift? One of the primary reasons is lower oil and gas tax collections as a result of lower production and price. Montana has also seen a slight dip in individual income tax and corporate income tax collections. Both Legislative Fiscal Division and the Governor’s budget office have forecasted that this drop of revenue is short-term – both agencies anticipate revenue growth rate to begin to pick up again in FY2018 and FY2019. (It is worth noting that while revenue in Montana has been strong over the past 5 years, we have lost nearly a billion dollars in the past decade due to tax cuts aimed at wealthy households.)

To address the revenue drop – at least, in part – the Governor’s budget proposes a series targeted tax fairness measures that will also improve our current levels of revenue. Now, to be clear, the Governor’s budget also proposes across-the-board cuts to nearly every state agency. But by addressing the inadequate levels of revenue in the state, he’s been able to lessen the cuts and provide strategic investments in infrastructure, schools, quality child care and early childhood development, economic development in Indian Country, and an increase (albeit modest) in wages for state employees. We will dig into some of these sections on the expenditure side in future blogs. Today, we want to give everyone some background on the tax fairness measures the Governor is proposing.

Earlier this year, we released a report that provided an overview of levels of lost revenue in Montana as a result of tax cuts in 2003 that primarily went to the wealthiest households. Before 2003, Montana had ten income tax brackets with a top marginal rate of 11%. The 2003 legislation eliminated (or collapsed) nearly half of those tax brackets and lowered the top rate to 6.9%. Today, an individual working full-time at minimum wage (about $16,700 a year) now has the same top tax rate as someone making $1 million. The 2003 law also created a tax break for income coming from investments (as opposed to wages). Today, an individual who earns a living through wages is actually taxed at a higher rate than someone making the same amount of money but through investments, like selling stock. Montana is one of only nine states that provide this tax advantage to investors, and it cost the state nearly $30 million in 2013.


Overall, these tax cuts have cost the state hundreds of millions of dollars in lost revenue, with 55% of the benefit going to the wealthiest 1% of households. This effort also made Montana’s overall tax system more regressive. Lower-wage families pay a higher portion of their earnings in state and local taxes (6.1 – 6.3% of income) than highest-income households (4.7% of income).


The Governor’s budget restores a higher top tax bracket, but it will only apply to those with annual incomes over $500,000 (less than 1% of households). This top tax bracket would be set at 7.9%. The Governor has also proposed scaling back the tax advantages to wealthy investors – by capping the beneficial tax treatment on the first $1 million in annual capital gains income. The budget also proposes to bring about parity on the state deduction for federal taxes paid. Montana is one of only six states that allow taxpayers to take a state deduction for federal taxes paid. This expenditure benefits those who itemize their deductions (primarily higher-income households), and costs the state over $65 million in 2013. The deduction is capped ($5,000 for individual; $10,000 for couple), but that cap doesn’t apply to estates and trusts. This disparity in tax fairness costs the state roughly a million dollars a year. The budget would apply the deduction cap equally.

The Governor has also proposed providing some additional support for Montana’s working families. In Montana, our income tax system makes it even harder for many low-income, working families to provide for their basic needs. Montana begins taxing a two-parent family with two children at a lower annual income than nearly all other states in the country. We begin taxing such a family when their income reaches $13,480 per year (about 55 percent of the federal poverty level). And as mentioned above, when factoring in all state and local taxes, this family is likely paying a higher portion of their wages in taxes than the top 1% of households. To address this inequity and give working families a leg up, Congress created the federal earned income tax credit. Nearly half of states have followed suit by creating a similar state credit. The earned income credit is tied to work – a taxpayer must be working in order receive the credit, and the amount phases down as a family earned more. In 2015, this proposal passed with bipartisan votes in House Taxation Committee and second reading on the House. Nearly 80,000 working families in Montana would benefit from a state earned income credit.

The budget also includes proposal to make corporation income tax fairer and increases to some consumption taxes. Stay tuned for more information on those in blog posts later this month!

Montanan Incomes Improve by Biggest Margin in the Nation

Incomes across the nation rose in 2015, according to the Census Bureau, with Montana making the biggest leap forward.

In 2014, the average Montana household had an income of $46,000. Last year, the median income was $49,500 – an increase of 6.8%, the largest in the country. The United States on average saw a rise in incomes of 3.8%.

This increase in earnings, coupled with a nationwide decline in poverty, is evidence that on the whole the economic forecast is growing sunnier.

At the same time, we still have a long way to go. One in five children in Montana under the age of 18 were living in poverty last year. For children under age 5, one in four live below the poverty line. There are still too many families working hard for low pay and struggling to afford the basics, like housing, child care, and transportation.

How can Montana keep moving in the right direction?

One of the best ways we can strengthen working families is through the Earned Income Tax Credit (EITC). The federal EITC, a credit which provides additional income support for low-income working families, is one of the most effective anti-poverty measures ever implemented. The federal EITC, coupled with the Child Tax Credit (CTC) has been able to lift 24,000 Montanans (including thousands of children) out of poverty each year from 2011 to 2013.

Enacting a state EITC would give a much-need boost to working families and our local economies. With a state benefit set at 10% of the federal EITC, families could receive a maximum of $627, which would then be spent in local businesses supporting our economy and helping families purchase necessary goods like children’s school supplies.

Now that we are beginning to benefit from a strengthening economy, we should make sure that all Montanans are able to see an improvement in their lives. Enacting a state EITC is an efficient and effective way to keep moving in the right direction.

Legislative Summit Keynote Announcement: Dr. Avis Jones-DeWeever

We are pleased to announce that Dr. Avis Jones-DeWeever will be returning to Montana as the keynote speaker at our 2016 Legislative Summit.

Dr. Jones-DeWeever first came to Montana in 2014 and gave an incredibly powerful and inspirational speech to a room full of advocates from around the state. This year she will address our summit on December 14 at 6:30 pm at the Great Northern Hotel in Helena. We know she will help energize and motivate each of us as we plan for the 2017 Legislative Session.

As accomplished scholar, writer, and public speaker, Dr. Jones-DeWeever is an authority on race, gender, and the economy as well as women’s empowerment and leadership development. She is also a regular contributor to TV One’s NewsOne Now with Roland Martin, PBS’ To the Contrary, Sirius XM Radio’s The Agenda, and the Huffington Post.

Dr. Avis Jones-DeWeever is the Founder of the Exceptional Leadership Institute for Women, a global personal and professional development firm that helps established and aspiring entrepreneurs and executives experience accelerated success while building a holistic life they love. She’s also the President of Incite Unlimited, a Washington, DC-based boutique consulting firm specializing in diversity consulting, communications strategy and the development and implementation of impactful research.

Dr. Avis formerly served as the youngest ever Executive Director of the National Council of Negro Women, a historic membership organization touching the lives of over four million women of African descent worldwide. She’s had the honor of being a Featured Speaker before the World Bank. She currently conducts workshops and trainings on women’s career and entrepreneurial success on behalf of U.S. Embassies across the globe and helps corporations better design and implement strategies to maximize the power of diversity and inclusion at work as well as for the marketplace of today and tomorrow.

Dr. Jones-DeWeever held positions in a variety of highly esteemed organizations and governmental institutions including the Governor’s Office of Virginia, the Maryland State Legislature, the Congressional Black Caucus Foundation, the Joint Center for Political and Economic Studies and the Institute for Women’s Policy Research, and the National Council of Negro Women.

To register for the 2016 Legislative Summit, you can do so here. If you cannot make the full summit, but would like to join us for the evening reception and keynote, please register here.

We are still accepting sponsorships of the summit. If you would like to become a sponsor contact Tara Jensen at 406-422-5848.

NorthWestern Energy’s Property Re-Valued and Taxes Go Down: Who Is Going to Pay?

We learned this week that the Department of Revenue settled a property tax dispute with NorthWestern Energy, which will lower the overall market value of its centrally-assessed property from what DOR had originally certified as the value for 2016. We thought this would be a great opportunity to do a quick refresher course on property taxes, how they are assessed, and what this will mean for you and your community.

First, let’s go through some basic information on property taxes.

NorthWestern Energy is the state’s single largest property taxpayer, and the company is a centrally assessed taxpayer. Centrally assessed property is property owned by a company operating as a single entity and connected across county or state borders. This includes things like railroads, telecommunication lines, power lines, natural gas or oil transmission lines, and airlines.

How are property taxes calculated?

The Montana Department of Revenue is in charge of appraising – or valuing – property in the state every other year (for centrally assessed, it happens every year). This amount is called the market value. The Department determines the market value for the entire company and then assigns pieces of that value to counties and local jurisdictions based on the percent of property (or mileage) in that jurisdiction. The Legislature has assigned a tax rate to each type (or class) of property, including types of centrally assessed property. The market value is multiplied by the tax rate to determine the taxable value. On a local level, individual local taxing jurisdictions (this would be city and county governments, local school districts, and some smaller special districts, like fire districts) determine the amount of revenue it can levy (with strict limitations) to help fund schools and local government operations, called mill levies. A mill levy is a tax rate per thousands dollars of taxable value of property. Once the taxable value is determined, each local taxing jurisdiction applies the mill levies to the property’s taxable value to determine the property taxes owed.

How each local government and school determines the number of mills it can levy is based on complicated formulas, which are primarily tied to the local government’s or school district’s current budget, the overall tax base in the jurisdiction, and some slight modifications based on inflation and growth. In this case, the Department of Revenue had already certified the total tax base for each local taxing jurisdiction, so counties and local governments had already set their mills.







So what happened with NorthWestern property value?

Toward the end of 2014, Northwestern Energy purchased eleven hydro facilities from PPL Montana for about $870 million. NorthWestern has also reported increased acquisition of natural gas assets and a series of upgrades to its system. All of these changes impact the value of the company. The Department of Revenue took into account this additional value for purposes of 2016 property taxes, and certified taxable values for counties reflecting this increased value.

NorthWestern Energy informally disputed the Department of Revenue’s new market value, and from statements made in the press, it sounded like this could have been headed toward a formal protest, which bottles up a good portion of the tax owed and puts schools and local communities in a very tough spot. The final settlement on this year’s tax bill reduces NorthWestern Energy’s total tax bill by about 8 percent.

What does this mean for local communities?

For those taxing jurisdictions that include NorthWestern Energy property, they will see their overall tax base go down and will generate less property tax revenue (at the current level of mills). Of the 1,300 taxing jurisdictions in Montana, about 900 will be impacted by this settlement. The below chart shows the difference in taxes assessed, for all taxing jurisdictions located in that county. (This is not what the county government gets, but for sake of simplifying the 1,300 taxing jurisdictions, we’ve lumped them together by county to give a sense of where impact is greatest.) For most, the percent change in total taxes assessed is less than one percent. However, for a community or taxing jurisdiction with a large NorthWestern Energy presence, the impact is greater – between two and five percent change.

Because this settlement will have such an impact on some communities, the Department will allow local taxing jurisdictions to request a new certification of the tax base. In that case, it can then go back and change its mills to make up the loss in revenue. This would mean a potential increase in property taxes for all property taxpayers in the jurisdiction.

What are we hearing so far from communities?

Some local jurisdictions have said they will absorb the loss in revenue – through the use of reserves or possibly cutting back services. But for some communities, this loss of tax base will have real implications for budgets and how it provides services in the community, and it may need to request recertification to recoup much-needed revenue.


Taxing Jurisdictions, by County Total Taxes Assessed OLD Total Taxes Assessed NEW Total Loss in Taxes Assessed
Silver Bow $11,635,288.29 $10,664,193.57 $971,094.72
Cascade $18,603,125.80 $17,050,525.62 $1,552,600.18
Yellowstone $13,706,083.20 $12,562,176.39 $1,143,906.81
Missoula $13,711,590.68 $12,567,233.83 $1,144,356.85
Lewis & Clark $12,317,248.25 $11,289,248.17 $1,028,000.07
Gallatin $14,225,641.93 $13,038,366.65 $1,187,275.29
Flathead $2,577,940.40 $2,362,778.01 $215,162.39
Fergus $1,532,402.26 $1,404,495.06 $127,907.20
Carbon $2,187,585.02 $2,005,004.84 $182,580.19
Phillips $532,145.80 $487,728.83 $44,416.97
Hill $2,705,893.67 $2,480,061.72 $225,831.95
Ravalli $3,333,848.23 $3,055,589.58 $278,258.65
Lake $360,846.58 $330,730.86 $30,115.72
Beaverhead $1,787,316.24 $1,638,140.34 $149,175.89
Choteau $1,067,011.18 $977,961.96 $89,049.22
Valley $695,582.32 $637,530.73 $58,051.59
Toole $1,220,192.07 $1,118,351.81 $101,840.26
Big Horn $1,036,157.18 $949,673.12 $86,484.06
Musselshell $644,020.93 $590,265.90 $53,755.03
Blaine $1,542,463.84 $1,413,726.46 $128,737.38
Madison $2,256,830.43 $2,068,482.58 $188,347.85
Pondera $1,043,510.89 $956,406.27 $87,104.62
Powell $2,610,254.80 $2,392,404.65 $217,850.15
Rosebud $3,932,046.66 $3,603,879.12 $328,167.54
Deer Lodge $6,903,301.07 $6,327,145.64 $576,155.43
Teton $1,428,065.07 $1,308,883.39 $119,181.68
Stillwater $2,941,713.38 $2,696,202.13 $245,511.25
Treasure $142,054.04 $130,198.73 $11,855.31
Sanders $3,507,675.36 $3,214,928.04 $292,747.32
Judith Basin $819,317.92 $750,933.98 $68,383.94
Glacier $3,531,799.52 $3,237,032.47 $294,767.04
Sweet Grass $969,683.22 $888,747.61 $80,935.60
Broadwater $1,345,749.33 $1,233,435.81 $112,313.52
Wheatland $967,110.59 $886,390.77 $80,719.82
Granite $1,102,485.27 $1,010,477.93 $92,007.34
Meagher $847,705.29 $776,957.40 $70,747.89
Liberty $335,967.32 $307,922.34 $28,044.97
Park $2,519,028.78 $2,308,789.97 $210,238.81
Jefferson $2,226,369.06 $2,040,550.93 $185,818.14
Golden Valley $484,522.01 $444,080.26 $40,441.75
Mineral $771,609.70 $707,216.77 $64,392.93


Teacher Shortage Spells Trouble

A shortage of teachers in our public schools spells trouble.

The Great Recession caused just that – a dramatic decrease in the number educators available to teach our children. As a result of budgetary cuts on all levels of government, the number of educators in our public school system fell drastically over a four-year period, causing children to be squeezed into overcrowded classrooms and lose opportunities to receive a top quality education.

Recently, the number of teachers at the front of the classroom is back on the rise. But nationwide, we still have 214,000 fewer teachers than we did at the beginning of the recession. Not only that, but during that time, we should have added an additional 158,000 to meet the needs of a growing population.

This trend has tested Montana as well. Last year, the state had over 1,377 open positions, nearly half of which were in critical areas such as special education, English, math, and science. An additional 540 of these were elementary school teachers.

In Indian Country, the shortage is even greater. A ten percent cut to the Federal Impact Aid program during the sequestration of 2013 meant school district on reservations had a tougher time filling positions with deep funding cuts.

It doesn’t help that Montana has the lowest average starting teacher pay in the country at $27,000, an amount too low to attract the number of quality teachers needed, especially in remote, isolated schools districts. The state’s Qualified Educator Loan Repayment program helps attract teachers to rural and high-need schools; however, the program doesn’t fully address teacher shortages across the state.

While Montana has increased our funding to public schools in recent years, we still have a lot of catching up to do in order to guarantee that all of our children are getting the education that they deserve.

Montana’s teachers are at the very heart of a quality education. When the spot at the front of the classroom is left open, our children pay the price.

New report shows some wealthy taxpayers can turn a profit off school privatization tax credits

A new report released today takes a look at states’ tax expenditures that benefit private K-12 schools, revealing that some wealthy taxpayers can actually turn a profit from these tax credits. You’ll recall that the Montana legislature passed one of these measures last session, which went into law in 2015. The bill (SB 410) allows a taxpayer to take a tax credit for a donation to an organization that provides scholarships to private school students. MBPC released a report raising concerns about this – and several other proposals – that divert state taxpayer dollars from investments in our quality public schools to private schools.

But the report by the Institute on Taxation and Economic Policy (ITEP) does more than just raise concerns about taxpayer dollars benefiting private institutions – it reveals that some high-income taxpayers are actually able to turn a profit as a result of this credit. This means that for some wealthy taxpayers, they can actually get a total tax cut that exceeds the size of the original donation.

How is this possible?

ITEP goes into a lot of detail on how this scheme works. In summary, the Montana tax credit is structured to reimburse a taxpayer for 100 percent of the cost of the donation (in Montana, capped at $150, or $300 for a married couple). In other words, for a household with tax liability, a donation up to the cap essentially costs nothing to the donor and is fully-funded by Montana taxpayers. To add to that, IRS also allows taxpayers to take a federal charitable deduction for their private school donation.

While most taxpayers would have a corresponding reduction in their federal deduction for state income taxes paid (and it would then be a wash), taxpayers who are subject to the federal Alternative Minimum Tax (AMT) are under different rules and can use the charitable deduction to lower tax liability and “double-dip” on the tax benefit of the donation. Depending on their marginal tax rate, these households could receive up to $105 in profit on the donation. In Montana, nearly 10,000 taxpayers are subject to the federal AMT, and about 80 percent of those have incomes more than $200,000 a year.

This tax scheme doesn’t benefit students or our education system, but instead benefits high-income households that can take advantage of a sophisticated tax planning technique.

Montana is not alone. Ten other states have similar “profit-making schemes” structured as private school tax credits. In fact, the levels of profit possible in some states are staggering. As ITEP notes, the cap on Montana’s credit limits the amount that one can profit – but profit, nonetheless.

Montana taxpayers and the state legislature should take note of how this credit can be manipulated by a small percentage of wealthy households and consider repeal (or at the very least, refrain from expanding this terrible policy).

Health Care in Indian Country: How Medicaid Expansion Can Help

Contemporary American Indian health concerns have been the topic of a four-part newspaper series by Billings Gazette journalist Jayme Fraser. The articles shed light on the decades-long issue of health disparities that are largely grounded in the inability of the Indian Health Service to meet the health care needs of American Indians. They also review various efforts to improve Indian health currently being undertaken by tribes, individual tribal health/IHS facility administrators, and public and private entities, particularly through nationwide healthcare reforms made available through the Affordable Care Act.

One of those measures encouraged states to expand the income eligibility requirements for Medicaid, which the Montana legislature did in 2015. After that, people earning less than 138 percent of the federal poverty level could enroll in Medicaid. This extended critical health care coverage to an estimated 19,547 American Indians in Montana.

Between November 2, 2015, when enrollment began, and September 1, 2016, the number of newly eligible American Indians who enrolled in Medicaid stands at 6,737, or 30 percent of the total number eligible. American Indian enrollment steadily increases each month, though the rate at which they are enrolling is beginning to slow slightly, demonstrating the need for a more concerted outreach and enrollment effort.

Our latest report details some of the ways outreach and enrollment workers can maximize their success in Indian Country. It is paramount that those engaged in coverage enrollment efforts understand the intricacies of how American Indians access health care. For example, knowing that American Indians have historically tended not to have health insurance, relying instead on the Indian Health Service, helps explain why American Indians may be less inclined to explore other coverage options.

Likewise, having an understanding of the historical and contemporary basis of IHS and being able to articulate the precise benefits of having Medicaid coverage are also necessary. It is also important to know the barriers the eligible demographic faces in accessing information and completing the enrollment process.

Besides supporting current outreach and enrollment efforts, the single most important thing the state can do to help the remaining eligible American Indians access the critical health care they need is to maintain the current eligibility requirements included in the HELP Act.

Thanks to health reform, more Montanans have health insurance

This week, the U.S. Census Bureau is releasing new data on health insurance coverage, economic, and poverty information both at the national and state-level. Today we’ll take a look at what new insurance coverage data means for families in Montana.

Based on the new American Community Survey data, we know that health care reform has increased the number of insured by offering people access to health care coverage through the health insurance marketplace. Through the marketplace, people can easily compare prices and benefits of health care plans. For individuals that make too much to get care through Medicaid, but don’t make enough to afford private insurance through the market place, federal subsidies help them pay their premiums and reduce their out-of-pocket health costs.


Health care reform has also strengthened Medicaid, which is good for families, communities, and states. Medicaid has been improving people’s lives by providing affordable health care that has boosted state economies for the last 50 years. In 2015 Montana became the 31st state to expand Medicaid through the Health and Economic Livelihood Partnership (HELP) Act, expanding coverage to individuals making less than 138 percent of the federal poverty level ($27,700 for a family of three).

Many states that have expanded Medicaid have seen higher enrollment levels than originally anticipated, and enrollment figures in Montana suggest the same. It was estimated that 70,000 additional Montanans would receive health insurance coverage through expanded Medicaid. In July, just six months after expansion, over 47,000 individuals had already enrolled in the HELP act. Overall, expanding Medicaid has helped reduce the number of Montanans without health insurance. Over the past several years, the number of uninsured in Montana has fell by about five percent, from 165,000 uninsured in 2013 to 119,000 in 2015.

Medicaid is a cornerstone of health care for people who struggle just to make ends meet. Thanks to Montana’s decision to expand Medicaid to help more people who can’t afford private insurance, more people are getting the care they need to go to work, take care of their kids, and be healthy, productive members of their community.