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HELENA - Gov. Brian Schweitzer's administration may be breaking the law by withholding $3.5 million in grants to 50 local governments, the Legislature's chief lawyer says.

"If a county, city or town has submitted a proper application for the funds or has not been notified that its application was deficient, there does not appear to be any legal basis for withholding the funds," wrote chief legislative attorney Greg Petesch.

Sen. Dan McGee, R-Laurel, requested Petesch's opinion about the state Commerce Department not releasing local grants appropriated by the 2009 Legislature. Republican legislators have been highly critical of the Democratic administration's decision to freeze the grants authorized in House Bill 645.

Petesch went on to write: "Because there is no statutory basis for withholding funds if the local governments have submitted correct and complete applications, then withholding the funds appears to be an arbitrary and capricious action and an abuse of discretion by the (Commerce) Department that is unconstitutionally violative of substantive due process after Article II, section 17 of the Montana Constitution."

Schweitzer adamantly disagreed.

"There is no place in the statute that gives the authority to the Legislature to tell me what I can and what I cannot cut," Schweitzer said. "It's completely within my prerogative to cut places up to 10 percent."

He went on to say: "The people of Montana have trusted me to balance this budget, to challenge every expense and that is exactly what I'm doing. I'm responsible for balancing the checkbook and I'm going to do it."

He blasted Republican Senate leaders for criticizing him in an op-ed article after the 2009 Legislature for insisting on too large of a projected ending fund balance, $250 million by mid-2011, and for vetoing "their spending spree."

"Montana today is one of two states that got it right," Schweitzer said. "These Republican leaders would have run the state government (into the red) like 48 other states did."

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In January, the governor ordered the Commerce Department to put the local grants on hold because of state budget problems from plunging tax collections.

Petesch said the 2009 law required local governments to spend these grants by Sept. 30, 2010, or the unspent money would return to the state general fund. He said the Commerce Department is "required to disburse the funds to recipients as quickly as possible."

State law authorizes the governor to order spending cuts of up to 10 percent if there is a projected general fund budget deficit. The governor's budget director, David Ewer, has certified this projected deficit to Schweitzer and recommended spending cuts.

"However, reductions in spending have not been ordered," Petesch said. Freezing the local government grants was not included in Ewer's recommendations that were reviewed by the legislative fiscal analyst or Legislative Finance Committee.

"A reduction in spending for the Big Sky Economic Development Program could result in a breach of contact for local governments that have already received their allocated funds," Petesch said of the program.

The Commerce Department's only roles in these grants are to determine if an alternative project submitted by local governments to replace an original one passes legal muster and to determine if the application is correct and complete, he said.

"There does not appear to be any rational basis for granting funds to some local governments that have submitted correct and complete applications and withholding funds from other local governments that have submitted correct and complete applications," Petesch said.

In response, Schweitzer said a Commerce Department official did testify before the Legislative Finance Committee that the projects were on hold. He said the administration's directors submitted about $40 million in budget-cutting ideas to Ewer, who presented a modified list to the committee.

"All we heard from the Legislature is complaints that we were cutting too much," Schweitzer said. "They gave us no new ideas on where we might cut."

Schweitzer reiterated that he will "measure three times and cut once" before cutting budgets, and said he's on the third measurement.

Asked if the $86 million bonus bid on the state-owned Otter Creek coal tracts might free up the local government grants, Schweitzer said he is looking at them.

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