HELENA — The budget analysis arm of the Montana Legislature is working on a more accurate way to estimate state tax revenues after a special session was held to address a projected $227 million shortfall compared to the revenue projections lawmakers worked with this spring.
Stephanie Morrison with the Legislative Fiscal Division told the Revenue and Transportation Interim Committee on Monday that the division is working on a monthly cash-flow model rather than using year-to-date calculations to try to better predict revenue.
"We're hoping this will allow for a better sense (of revenues) in time for the legislature to make changes," Morrison said.
Gov. Steve Bullock's administration argued during the 2017 session that the Republican majority's revenue estimates were artificially high and would lead to the need for a special session, so lawmakers passed a bill that would trigger cuts if certain revenues weren't reached. Even after those $97 million in cuts were made, the administration predicted a $227 million shortfall, in part due to having to spend nearly $80 million on this summer's record fire season.
The revenue shortfalls seen over the last two years — mostly due to lower-than-expected personal income taxes collected — have led lawmakers to consider studying the overall tax structure to make sure Montana's revenues more accurately reflect the state's gross state product.
Committee members discussed sending a letter to the Legislative Finance Committee, which also has discussed studying the state's tax structure, to ensure the Revenue members are involved. The likely outcome is lawmakers would develop a set of parameters for a study and introduce a bill in the 2019 session to authorize and fund the study starting in mid-2019, lawmakers said.
Bob Story, a former legislator and now president of the Montana Taxpayers Association, gave lawmakers a bit of a history lesson about trying to revise the state's tax structure.
He said about 20 years ago the legislature did a comprehensive tax study, offered several bills, and none of them passed. In the early 2000s, he said, another study recommended some tax bracket reductions and sales taxes on lodging, rental cars, meals in restaurants, recreation and "touristy-type dry goods."
The tax cut was passed with modifications, but the sales tax bill was gutted except for taxes on rental cars and lodging, Story said.
Revenue Department Director Mike Kadas told lawmakers that the 2019 legislature could see yet another dip in revenue because the tax bill passed by the U.S. Senate early Saturday could cost the state about $122 million a year, including about $80 million in individual income taxes. Montana's taxes are based off a filer's federal adjusted gross income, which will decrease.
The federal tax cuts will increase the deficit, Kadas added, triggering sequestration, which will see the federal government end its $24 million annual payment to the state for federal mineral royalties.
"It was a shock that there was this big of an impact," Kadas said, adding that the process leading to the bill's passage was horrible, with no hearings or a chance for states to comment.