Since early December, the Montana Department of Revenue has shuttered property assessment offices in six counties and laid off 21 assessment employees. Offices in 22 more counties are scheduled to close in the next 18 months. Like the recent layoffs of mental health workers in western Montana, these closures are a byproduct of the state’s budget crisis. And according to DOR, revenues will likely slump further as a result of the federal tax bill signed by President Trump last month.
On Dec. 22, DOR Director Mike Kadas sent an updated memo to state Budget Director Dan Villa estimating that changes to individual and corporate income taxes could set Montana back as much as $46.3 million in 2018. DOR spokesperson Mary Ann Dunwell explains that $29 million of that stems from the new 20-percent deduction for pass-through income. Since parts of Montana’s tax code mirror the federal version, that particular change will trickle down to the state. Dunwell adds that DOR and the governor’s office are currently discussing how Montana might uncouple parts of its tax code in an attempt to “mitigate that harm.”
Another potential hit for the state could lie in the tax bill’s elimination of the individual health insurance mandate. Montana currently leverages an insurance premium tax on insurance companies, meaning a decline in the number of individuals with health insurance would translate to lost revenue for the state. Kadas’ latest memo estimates that loss at $5.7 million in 2019.
Rep. Marilyn Ryan, a Missoula Democrat and member of the House Appropriations Committee, considers these revenue losses especially problematic in the wake of the Legislature’s November special session. Lawmakers managed to plug a sizable hole in the state budget in part through one-time cuts to various state retirement account contributions, she says, but they’ll have to make up for the money elsewhere next year. Sen. Llew Jones, R-Conrad, has already floated the idea in the interim to examine how the state deals with the so-called new economy, including online businesses like Amazon and Netflix that don’t pay state taxes or license fees. Ryan believes this line of discussion could be fertile ground for new revenue streams.
“We’re putting our local businesses at a disadvantage, and at the same time we’re reducing our revenue that we need in the state to run our programs,” she says. “We need to look at this new economy and how we can more effectively find revenue that will support the state services.”
Montana has dodged at least one bullet in Kadas’ Dec. 22 assessment. In late December, Congress waived a rule that jeopardized $24 million in federal mineral royalties a year, a loss that earlier DOR estimates indicated would have devastated county budgets statewide. Even so, if the state’s new $46.3 million loss estimate proves accurate, the current budget crisis is merely a beginning.
“Just look at the numbers. They speak for themselves,” Dunwell says. “This is the other shoe, and we’re still trying to figure out how to put the first shoe back on.”