When it convened in January, the Legislature was looking down the track at a $143- million budget deficit and the possibility of a political train wreck that would rattle the bottom line of every public agency in Montana, including cities and towns. After 89 disagreeable days, the Legislature squared up the state’s books with $188 million in tax increases, fund transfers and budget cuts, leaving a projected surplus of $45 million on June 30 2005. This was obviously a time of short money and low expectations, and the 53rd Legislature will be remembered for the good ideas that failed and all of the bad things that didn’t happen.

Legislators introduced at least 25 bills intended to reduce municipal revenues, restrict management authority, impose additional costs or violate the generally honored but practically damned idea of local control. This report will analyze those bills on the municipal “hit list” and the few good ideas that were enacted into law.

Analysis by Issue

Finance

This Legislature was flooded from beginning to end with proposals to balance the state budget. Many of these bills would have boosted money from cities and towns under the lopsided logic that local governments were somehow responsible for the state’s financial problems. The Executive Budget fully funded the Entitlement Program that was established by the 2001 Legislature to replace local government revenues that were transferred to the state under House Bill 124. The quarterly payments provide full reimbursement for funds transferred in the base year with a growth rate adjustment that is set at 70% of the four-year average increase in personal income and gross state product.

In February, the House Appropriations Committee considered a motion to eliminate the growth rate adjustment for the next two years, which would have cut payments to cities and towns by $4.4 million. The motion failed, and cities can expect a 3.38% increase in entitlement payments in FY-04 followed by a 3.30% boost in FY-05.

It was vitally important to hold the entitlement share program together this winter, because money cut from the base payments and growth adjustment in the beginning would have been lost forever. The budget deficit was a critical test of all the good intentions that were written into the “Big Bill”, and it is good to know that a promise still means something in Montana.

House Bill 124 imposes a user charge on fines imposed by courts to fund the Law Enforcement Academy. Missoula offered amendments to assure that the state would not get first and final count on fines collected by cities and towns.

House Bill 345 would have transferred more than $16 million from the Treasure State Endowment Program over the next two years and wiped out grants for about half the projects recommended for funding by the Department of Commerce. The bill was tabled in the House Taxation Committee.

House Bill 492 would have moved money from the Treasure State Endowment Program to fund libraries under an amendment proposed to the House Appropriations Committee. The Committee rejected the amendment, and the full house eventually killed the bill on second reading.

House Bill 559, as amended by the Senate, would have diverted county option taxes on older vehicles to the state general fund. This little shell game would have cut local revenues by $2 million a year, with about 30% of this total coming out of city and town budgets. This amendment, which was strongly opposed by cities and towns, was removed during Senate floor action on the bill in the last few days of the Legislature. Senate Bills 435 and 488 included similar provisions. Both bills died in committee.

Senate Bill 397 was the 2003 version of the “best local option tax bill ever introduced”. The bill allowed local referendums on a four percent tax on goods and services geared to the tourist economy. It provided regional distribution of revenue and mandatory property tax relief. The measure was killed on third reading in the Senate for reasons that could not be explained by Aristotle or excused by Machiavelli.

Senate Bill 478 maintains the authority of cities and counties to levy for health insurance premium increases beyond statutory millage caps. The additional levy can only cover premium increases from one year to the next.

Annexation to Zoning

The Legislature burned a lot of time, energy and patience on a range of land use issues that covered everything on the alphabetical index from annexation to zoning. There is a skirmish line in the Legislature that divides private property rights and public purposes. Municipal policies to promote, regulate and equalize the costs of development have been under assault in recent years, and most of the disagreements that should be settled locally were referred to the Legislature.

House Bill 85 would have prohibited the use of water and sewer lines to wholly surround property for the purposes of annexation. The House Natural Resources Committee tabled the bill.

House Bill 290 would have required voter approval of Special Improvement Districts. The House Local Government Committee voted 17-1 to reject the bill.

House Bill 442 would have required a public vote on all contiguous annexations. Under current law, a vote is not required on the annexation of areas with less than 300 properties. The House Local Government Committee tabled this measure.

House Bill 712 would have established a vested property right at the time a development plan was filed with local government. The bill was intended to assure that applications would proceed under the regulations that were in effect on the filing date, but it went far beyond this purpose. The House approved the bill by a one-vote margin, but it was indefinitely postponed in the Senate Local Government Committee.

Senate Bill 60 was an old idea that came back again. The bill proposed to repeal the section of existing law that prohibits the incorporation of a municipality within three miles of an existing city or town. The real motive of the bill is to preempt annexation of unincorporated areas near fast growing cities. The Senate Local Government Committee killed this measure by unanimous vote.

Senate Bill 246 corrects a problem in existing law that made it difficult for counties to exclude property from fire service areas following annexation.

Senate Bill 326 revises growth policies. It extends the deadlines for adoption of growth policies, but also provides that they cannot be used for regulatory purposes.

Senate Bill 368 was introduced at the request of the Building Industry Association. The bill was intended to allow all local governments to impose impact fees on development, but restrictive and complicated provisions would have made this authority virtually useless. Cities and builders failed to negotiate a compromise, and the Senate indefinitely postponed the bill by a close vote after a long debate.

Senate Bill 396 would have required legislative delegation of local authority to collect impact fees. The bill would have reversed a Supreme Court decision on the application of self-government powers to development fees. The Senate Local Government Committee rejected the measure.

Senate Bill 397 was the 2003 version of the biennial attempt to pass a “government takings law” in Montana. This bill, like others introduced in recent years, would have required government agencies to provide just compensation if a court ruled that a regulatory decision had reduced the value of property. The Senate Judiciary Committee sent this bill to the floor, where it was rejected by a comfortable margin.

Senate Bill 426 would have prohibited cities from including affordable housing provisions in land use regulations. The Senate killed the bill by the narrowest of margins (25-25) on second reading.

Management and Local Control

The Republican and Democratic Parties allege their support for the idea of local control, which is also an element of the conservative doctrine of smaller and less centralized government. There is a lot of talk about “the governments that are closest to the people”, but bills that do nothing more than preempt the management authority and regulatory powers of local government routinely trump this theory. The 2003 Legislature considered numerous bills that in one way or another would have preempted the authority of cities and counties and moved Montana even further away from the principles of local control established by the 1972 Constitution.

House Bills 258 and 758 were introduced for one purpose – to preempt the Helena Smoking Ordinance that was approved by 62% of the voters at the primary election last June. This ordinance has been the subject of political conflicts and court cases for nearly a year, and now it has been repealed by the Legislature. This bill subjected an issue that was handled differently by cities across the state to state control and opened up the possibility that the Legislature at some time will pass a law banning smoking in bars and casinos all across Montana.

House Bill 426 would have prohibited government competition with business. It was aimed at a water slide operated by the City of Billings in a neighborhood park, but it had much broader application. The House rejected this bill by a margin of better than 4 to 1.

House Bill 640 may be the last chapter in the epic adventure to maintain the extended municipal building code jurisdiction. The bill, as approved, turns code enforcement over to the counties on October 1 of this year. The option of partial jurisdiction was rejected and codes will have to be enforced countywide.

House Bill 645 would have mandated acceptance of the low bid on construction and supply contracts. The bill would have barred, in most cases, consideration of other elements of a contract that are necessary to assure the most effective use of public money.
The House State Administration Committee rejected the bid to impose these restrictions on cities and counties.

Senate Bill 372 would have required cities to let all construction projects costing more than $50,000 to competitive bid. The bill was introduced at the request of the Contractor’s Association, which has complained bitterly in recent years about having to compete against “county construction companies”. The Senate Local Government Committee voted 10 to 1 to reject the bill, because members apparently understood that bidding doesn’t work without competition. They also were persuaded by the arguments that cities and counties were entirely capable of managing public funds and capital projects.

Finally – a Little Good News

While the 2003 Legislature will be remembered for all the things that didn’t it do — it did pass several bills that will correct irritating and persistent problems for local governments.

House Bill 132 revises the classification of municipalities. It allows a city with a population of 9,000 or more to retain first-class designation.
House Bill 249 requires the Department of Fish, Wildlife and Parks to work with cities to manage urban deer populations.
House Bill 272 prohibits state agencies from withholding entitlement share payments or other funds to settle claims against local governments.
Senate Bill 7 exempts local elected officials from the lobbyist registration fee.
Senate Bill 24 allows local governments to charge a convenience fee for electronic information.
Senate Bill 31 clarifies that judgment levies are exempt from statutory property tax limits.
Senate Bill 89 exempts local governments from the uniform unclaimed property act.
Senate Bill 320 allows a city or town to adjust the base year value of a tax increment district to account for the effect of state enacted tax reductions. The law applies only to those districts that have not issued bonds.

Conclusion

Cities and towns played “bulldog defense” during the 53rd Legislature. The emphasis, as determined by the Legislative resolutions, was to protect entitlement share payments and Treasure State Endowment grants from bills that would have bled money out of these programs to balance the state budget. Cities were also committed to preserving the management authority and regulatory powers that are legitimate and necessary elements of the business local government. With few exceptions noted in this report, cities effectively defended these interests.