Montana State Legislature

In conjunction with its Climate Change study, the EQC at its May meeting reached a consensus on directing staff to develop the discussion drafts, letters and reports listed below.

In completing the assignment, staff worked with various agencies in an effort to collect adequate background information for the Council, as well as to complete bill drafts that correspond with the Council's direction. Agency staff who provided information to assist staff also have been invited to the EQC's July 14-15 meeting to answer additional Council questions. It is also important to note that this is draft information meant as a starting point for EQC discussion.

During the July meeting, the council will review and further refine the information. The discussion drafts that are revised and approved will then be put out for a formal public comment period in August. The council will make a final decision on the legislation at its meeting in September.

1. LC6000. Legislation to increase funding for Montana Manufacturing Extension Center (through Coal Severance) and request additional funds be used to promote and develop recycling technologies.

LC6000. Legislation to eliminate the sunset on funding (through Coal Severance) for Growth through Agriculture program and Montana Cooperative Development Centers.

• These two requests were combined into one discussion draft.
• The interest income from the coal severance tax permanent fund is set to expire in 2010.
• The discussion draft removes the sunset date, continuing the $65,000 allocation to the Cooperative Development Center and $1.25 million for the Growth through Agriculture program.
• In addition, the discussion draft increases the allocation to the Montana Manufacturing Extension Center from $200,000 to $300,000.
• The draft requires that 35% ($105,000) of the Montana Manufacturing Extension Center funding be used in collaboration with the Department of Environmental Quality to encourage manufacturers and commercial business owners to recycle.
• A biennial report to the EQC on such activities also is required.

Additional notes: The Department of Agriculture has requested continued funding at these levels for the programs in its proposed budget, however, the request has not yet gone through the Governor's Office. The Department of Agriculture also has indicated to OBPP it will pursue a legislative request if it is not included in the budget. The $1.25 million represents nearly 70% of the Growth through Agriculture budget. The coal severance funding provides 25% of the Montana Cooperative Development Center program budget, which uses the money to leverage federal dollars.

The Department of Commerce has requested continued funding at the $200,000 level for the Montana Manufacturing Center in its budget request, which also has not yet gone through the Governor's Office.

MMEC uses the $200,000 provided by the coal severance tax as a state contribution (match) to obtain $512,000 per year from the National Institute of Standards and Technology's Manufacturing Extension Partnership (NIST MEP). Technically, this is not a grant; it is a Cooperative Agreement with NIST MEP. MMEC is required by Congress to match on a 2:1 ratio, so needs just over $1 million in non-federal funds. MMEC also charges clients for services and has other non-federal sources of cash and in-kind match through a variety of partnerships and activities. MMEC's typical annual cash budget is about $1 million, with the $200,000 providing about 20% of the budget. The remaining $500,000 is non-cash. The Manufacturing Center also provided background information and comments on the draft. The information is attached to the draft.

The 2010 Coalition also is working on extending the programs that are set to sunset.

2. LC6001. Legislation creating a loan program to assist political subdivisions of the state, including local and tribal governments, in developing recycling technologies and equipment at local landfills.

• The draft creates a $1 million recycling equipment revolving loan account to the credit of the DEQ. The money is a one-time transfer from the junk vehicle disposal fund into the new account.
• Loans can be provided to local governments, universities, tribes, and non-profit organizations. (For profit entities and private enterprise are not eligible.) The money must be used to assist in the purchase of equipment and machinery.
• The loan amount may not exceed $50,000 and must be repaid in 10 years.
• DEQ is granted rulemaking in administering the low-interest loan program.
• Outcome measures include a loan loss ratio under 5%, tracking and reporting of loan amounts and purposes, an assessment of the loans impact on the amount and type of recycling, and an estimate of the amount of material diverted from the local landfill for the 3 years following the loan.

Additional notes: There is currently a $4.2 million fund balance in the junk vehicle disposal account. The programs total appropriation is $2.4 million, and about $1.9 million has been spent to date. A portion of the program revenue, as required by 75-10-534, MCA, is returned to Montana counties for county junk vehicle programs.

The fund balance can be attributed to increased scrap metal prices. The program administrator indicated the additional revenue, however, has a flip side. For about the last 12 months, scrap metal prices have been on the rise. However, high metal prices also have reduced the number of vehicles being hauled and junked through the program. In Yellowstone County, for example, the lot usually holds between 600 and 700 junk vehicles. It currently sits with about 200 vehicles in the lot. Missoula County is in a similar position. Because of scrap metal prices, more people are choosing to strip down and junk their own vehicles, rather than have the county handle it. The increased revenue then is not expected to continue, according to program administrators. 

3. LC6002. Legislation to eliminate sunsets on tax incentives for recycling. This includes the recycled materials tax deduction (Dec. 2011 sunset) and the credit against air permitting fees for certain uses of post-consumer glass (Dec. 2009 sunset). It also includes the tax credit for investments in property or equipment used to collect or process reclaimable materials. (Dec. 2011 sunset)

• The credit against air quality permitting fees for certain uses of post-consumer glass in recycled materials terminates in Dec. 2009. (75-2-224, MCA)
• The amount of the credit is $8 for each ton of post-consumer glass used as a substitute for nonrecycled material. The maximum is $2,000 or the total amount of fees, whichever is less.
• The discussion draft eliminates the termination date for the tax credit for investment in property used to collect or process reclaimable materials. (15-32-601, MCA) It expires in Dec. 2011.
• The amount of the credit is determined in accordance with a percentage of the investment cost, i.e. 5% of the cost of the property on the next $500,000 invested.
• The deduction, 10% of the taxpayer's expenditures for the purchase of recycled materials, expires in January 2012. (15-32-610, MCA)

Additional Notes: The DEQ/Air Resources Management Bureau applied the postconsumer glass credit twice in the past five years: a.) Holcim US Inc. -- received a credit of $581 in billing year 2002 and Holcim received a credit of $1,500 in billing year 2003. The DEQ does not have a position for or against the credit. As a point of information, the credit is a benefit to recycling glass only to those businesses or industries that need an air permit. At one time, the credit was a benefit to a few companies that used glass and had an air quality permit, according to DEQ. Currently, the businesses that are using glass are not likely to be covered by air permits, so they do not receive a benefit. For example, glass is being used as an aggregate in concrete by a construction company, by a tile artist, and for bedding for pipes in construction.

Use of the credit for investment in property used to collect or process reclaimable materials has increased, with 89 taxpayers claiming the credit for a total of $797,243 in 2006. This is an increase from $431,512 in 2005. Purchasing equipment to collect, store, and process recycled materials is necessary to expanding recycling operations but can be cost prohibitive, according to the DEQ. The agency also added, "this tax credit assists with an ongoing need that is not likely to go away."

The DEQ provided the following comments on the deduction: "In order to meet goals for recycling, it is necessary to create a complete loop. Goods must be collected for recycling, processed into new goods, and then purchased by consumers. The credit and deduction work together to assist in completing the loop. The deduction helps create the demand to purchase recycled products that helps to drive the demand for materials to be recycled."

The Department of Revenue provided the following information on the deduction for EQC use:

Deduction for Business Use of Recycled Material

     Tax year           Taxpayers claiming credit                Amount of credits
       2005                            62                                       $13,049,514
       2006                            65                                       $21,368,400 

4. LC6003. Legislation that assists in creating more markets for recycled materials through research and education.

• The draft creates a recycling and waste reduction grant act.
• An advisory council, appointed by the DEQ director, assists the department in awarding the grants.
• The department is granted rulemaking authority to provide for grant application procedures and procedures for awarding grants on an annual basis through a competitive process.
• Two alternative funding mechanisms are offered in the draft to provide about $440,000 for the grant program.
• Council expenses, administration costs and allocations to the department for statewide advertising and workshops related to recycling are limited to 15% of the total. The restriction leaves about $375,000 to be awarded through the grant process.
• The first funding mechanism is a 35 cent per ton fee on solid waste. The second funding mechanism allocates 1.2% of the coal severance tax revenue to fund the program.
• If the fee is used as a funding mechanism, the draft requires the payees to have priority in the application process. If the second funding mechanism is pursued, the priority status would need to be reviewed.
• Grants would be used to purchase equipment, promote the expansion of waste reduction and recycling businesses, research and demonstrate how waste reduction and recycling can be applied to Montana markets, assist in market development activities that develop local uses for recycled materials, and to conduct educational activities.

Additional notes: The 35 cent per ton fee on solid waste would generate an estimated $440,000 annually. The tonnage for FY 2009 is estimated to be 1,241,652 tons. In accordance with the state's Integrated Waste Management Plan, that tonnage is expected to decrease by about 2% annually due to increased recycling. The amount available for grants would then decrease over time.

The alternative funding mechanism allocates 1.2% of coal severance tax collections to the program. Based on LFD revenue projections of $36.164 million for FY 2009, this funding mechanism would generate about $434,000 for the program. This would decrease the percentage of coal severance tax revenues credited to the state general fund from 26.79% to 25.59%. 

Number of tipping fee paying solid waste management facilities in Montana
(Note: If the tipping fee were to increase, the following stakeholders would potentially be impacted: MACo, League of Cities & Towns, and those represented by the Solid Waste Advisory Council, according to DEQ)

                        Classification                          Number 
                        Class II Major                            11
                        Class II Intermediate                  13
                        Class II Minor                              9
                        Major Transfer Station                  5
                        Minor Transfer Station                  5
                        Large Composters                        5
                        Major Soil Treatment Facility          4
                        Class III Major                            16
                        Class III Minor                            38
                        Class IV Major                             1
                        Class IV Minor                             1

5. Receive a report on potential legislation being pursued by the Economic Affairs Interim Committee concerning S.J. 13, a study of methods and recommendations to add value to Montana agricultural products through redevelopment of a food processing industry.

• The Economic Affairs Interim Committee was presented with four potential options for addressing value-added agriculture during their May meeting.
• Options include a.) increase the number of food innovation centers. b.) encourage in-state collaboration for value-added agricultural production. c.) increase funding for meat inspectors. d.) increase vocational technical college budgets to respond to local value-added agriculture production needs.
• The EAIC did not act on the proposals, and they have not been scheduled for further consideration. The EAIC next meets July 17-18.

6. LC6004. Legislation to provide tax incentives or tax credits to use Montana raw materials for production of food in Montana. 

• The draft provides a tri-phase tax abatement for food production facilities, based on the percentage of Montana grown raw materials used in their production.
• Greater use of Montana grown materials results in a larger tax abatement, up to 50% for a ten year period.
• Some of the technical structure of the abatement is similar to the "Clean and Green" proposal, HB 3, passed in the May 2007 Special Session.

Additional notes: The Department of Agriculture provided comments on the overall idea of legislation, and those comments are attached.

7. Send a letter to the Commissioner of Higher Education encouraging Montana universities to track, as economically as is feasible, the amount of locally grown food produced and consumed in Montana. Send a letter to the Commissioner of Higher Education asking Montana's universities to provide a report and recommendations on biomass, specifically the feasibility of the collection, processing, transportation, storage, and distribution of forestry and agricultural residues, as well as market development or expansion for these materials. 

• Issues of biomass and tracking of locally produced and consumed food combined into one letter.
• Letter approved by Chair and Vice-chair and mailed May 20, 2008.
• Requests Montana University System for help in developing a formal tracking system of locally grown foods.
• Requests a report and recommendations from MUS in the next biennium on the feasibility of the collection, processing, transportation, storage, and distribution of forestry and agricultural residues, as well as ideas on expanding the market for biomass materials.

8. LC6005. Legislation requiring the Department of Transportation to provide a report to the Revenue and Transportation Interim Committee on measures that the Department is taking to conserve energy in the transportation sector and conservation measures specific to city street design each interim.

9. LC6006. Legislation to update and remove any restrictive statutes related to mass transit.

• The discussion draft increases the percentage of motor vehicle revenue directed to the senior citizen and persons with disabilities transportation services account included in 15-1-122, MCA.
• The percentage increase would generate an estimated $630,000 to $660,000 for TransADE, Transportation Assistance for Disabled and Elderly, an amount similar to what was collected prior to the 2005 change in the allocation of motor vehicle registration revenues.

Additional notes: In 2001, the Montana Legislature approved S.B. 448. The bill created a senior citizen and persons with disabilities transportation services account in the state special revenue fund, 7-14-112, MCA.

The Department of Transportation uses the account to award grants to counties, incorporated cities and towns, transportation districts, and nonprofit organizations for transportation services using guidelines established in the state management plan for the purposes described in 49 U.S.C. 5310 and 5311. (Providing services for persons 60 years of age or older, persons with disabilities and for public transportation in rural areas.)

A 25 cent vehicle license and registration fee was deposited into the account to sustain the program. In FY 2004 the fee generated $629,442.

In 2005, the Montana Legislature approved S.B. 285, which revised how motor vehicle fees are collected and distributed. It eliminated the 25 cent fee and instead allocated .59% of the motor vehicle revenue deposited in the state general fund in fiscal year 2006 and 0.31% of the motor vehicle revenue deposited in the state general fund in each succeeding fiscal year to the account. In FY 2006 (at .59%) the fee generated $665,891.

Under the current statute, the program receives .30% of the motor vehicle revenue. Following the revision, the allocation to the account has substantially decreased. In FY2007, the allocation provided $298,018 and to-date for FY 2008, it has generated $307,812.

In 2007, the Legislature approved S.B. 160, which allowed money in the account to be used for purposes in 49 U.S.C 5311. The change was prompted by a 240% increase in Federal Section 5311 funding beginning in 2006, which required a nonfederal match. However, because revenues in the senior citizen and persons with disabilities transportation services grant has declined, the department has been limited in its ability to maximize use of the 5311 funding.

Staff spoke with several transit providers in the state, inquiring about potentially restrictive statutes related to mass transit. Several noted that in 2005, the Legislature approved H.B. 273, which exempted rural transportation providers from Public Service Commission authority. That legislation addressed the most immediate issue. However, transit providers all discussed various concerns with funding. The change in the account mentioned above, more commonly referred to as TransADE, was mentioned by most providers. The Montana Transit Association (MTA) also mentioned:

• Excluding transit providers from the recovery of indirect costs, required by H.B. 21 of the 2002 Special Session. Indirect costs are applied to all federal funds provided to MDT grantees. An example of the impact, according to MTA, is as follows: Current match on operating is 46%; administrative is 30%; Capital is 14%; the indirect cost rate will increase from 12.25% to 14.06%, reducing the amount available for program expenditures. MTA raises concerns about money going toward administrative costs (i.e. indirect or overhead costs) rather than capital and program expansions. MDT staff raises the issue that federal guidelines require federal funds be treated equally by MDT, unless prohibited by the federal government. Indirect costs are recovered from all highway, transit, aeronautics, and highway traffic safety funding, consistent with federal and state guidelines.
• Requiring a review of Urban Transit Districts every 5 years or in conjunction with the decennial census review/adjustment of urban area boundaries. MDT notes that it is currently involved in the review.

As a final note, the Legislative Finance Committee is working on LC 65, which eliminates the permanent general fund transfers included in 15-1-122, MCA. That includes the transfers of motor vehicle fee revenue. "In eliminating the permanent general fund transfers, the committee's intent was not to short the programs, but to replace the lost revenue from the general fund with general fund appropriations in H.B. 2," according to an overview of the proposal.

10. LC6007. Legislation providing additional funding for weatherization programs. Funding would come from a percentage of the increased oil and gas revenues realized in Montana.

• The estimate for the general fund allocation of the oil and gas production tax for 2009 is $101.3 million, an increase of more than $8 million from the actual amount collected in 2006.
• The bill creates a weatherization account by allocating 5% of the oil and natural gas production taxes. Based on the 2009 projected revenue, this would generate about $5 million.
• The Department of Health and Human Services is required to spend the money for home weatherization programs.

Additional Notes: Another option may be to look at the coal bed methane protection account, which also receives oil and natural gas production taxes. The account now stands at about $6 million. Since June 2005, the principle has been available for emergencies. None has been expended. After June 2011, funds maybe be expended for: a.) a loss of agricultural production or a loss in the value of land. b.) a reduction in the quantity or quality of water available from a surface water or groundwater source that affects the beneficial use of water. c.) the contamination of surface water or groundwater that prevents its beneficial use. At that time, the limit per landowner is $50,000. (76-15-905, MCA)

One option may be to consider a one-time transfer of funds from the CBM account and/or redirecting some of the revenue flow to the weatherization account. For example, a transfer of $3 million to the weatherization account and a reduction of 1 percentage point, would keep $3 million in the CBM account plus an allocation of about $230,000 annually through 2011, when the flow terminates.

Under this option, the amount of tax revenue to the weatherization account would need to be increased after 2011 to keep up the funding level.

11. LC6008. Legislation to expand tax credits (similar to those proposed in S.B. 210 in 2007) to create incentives for low-income property owners, landlords and/or renters to weatherize.

• The draft is identical to Senate Bill 210, as it was amended by the Senate Taxation Committee and approved by the Senate during the 2007 Legislative session. S. B. 210 was later tabled by House Taxation.
• The draft amends 15-32-109, MCA, which provides a credit for energy conservation investments in a building.
• It increases the limit on the credit from $500 to $800 and includes lighting in the investments that are eligible for the credit.
• The draft also makes the credit refundable for single taxpayers with adjusted gross incomes of $12,590 or less and married taxpayers with adjusted gross income of $14,590 or less, adjusted annually for inflation
• It also allows pass-through entities to claim the credit for investments in a residential rental building.

Additional notes: The fiscal note for S.B. 210 indicated the increased credits would reduce general fund revenue by $2.9 million in FY 2008, increasing to $3.5 million in FY 2010. (S.B. 210 would have terminated in Jan. 2010. The discussion draft does not include a termination date.) As background, use of the credit has increased. On 2005 returns, 14,060 claimed the credit for a total of $5.7 million. On 2006 returns, that increased to 19,041 taxpayers for $8.1 million.

The fiscal note for S.B. 210 is attached.

The income levels in the discussion draft are the income levels for the Earned Income Tax Credit that can be claimed on federal tax returns. At 100% of the 2008 federal poverty levels, those income levels would be $10,400 for one person and $14,000 for a couple. At 150% of the federal poverty level, the amount used for LIEAP, the corresponding income levels are $15,600 and $17,500.

The draft also does not address providing low income folks with the resources to pay the up front costs of installation. Based on the S.B. 210 fiscal note, on 2005 returns, taxpayers who met the income requirements to have the credit refunded claimed credits that were $226,365 more than their tax liability. Under the draft, that amount would be refunded to taxpayers.

12. LC6009. Study bill requiring the EQC during the 2009-2010 interim to study biomass and provide specific direction on issues including, but not limited to, expanding the Alternative Energy Revolving Loan Program, better utilizing the Renewable Resource Grant Program, promoting pilot projects, source reduction, emissions research and characterization, and a spectrum of tax incentives.

Additional notes: The Department of Natural Resources and Conservation has provided the EQC with three specific suggestions related to advancing biomass. Those suggestions include: a.) revisions to the Alternative Energy Investment tax credit. b.) an income tax credit for removing and processing biomass for energy use. c.) modifications to Montana's Renewable Portfolio Standards. The full memofrom the DNRC is attached.

13. LC6010. Resolution in support of the National Association of Counties stand in support of Congress enacting legislation granting a Governor authority to declare a crisis when the severity of fire danger from fuels on identified federal lands within that state pose a significant threat to public health and safety. Upon a declaration, responsible federal agencies would fast-track a mitigation plan to reduce forest fuels. The plan would be excluded under the NEPA appeal process, and any claimant filing a court action against the plant would be required to post a damage bond.

14. LC6011. Legislation to require all new state buildings to exceed current building codes or standards, potentially through an expansion of the State Building Energy Efficiency program.

• The draft requires new state buildings to meet the LEED silver standard.
• Tracking of efficiencies attained is included.

Additional notes: The Department of Environmental Quality researched LEED standards in other states and provided background information. Instead of LEED standards, there is the possibility of requiring new buildings to use 20% to 30% less energy than allowed by the adopted International Building code. The Department of Administration is responsible for all building construction and the issue of advanced building requirements would likely need to be discussed with A&E.