Senate Tax Committee hears SB 117 to cap local budget growth; cities, counties and public-safety groups urge rejection

Senator Daniel Zolnikov, sponsor of Senate Bill 117, told the Senate Tax Committee on Wednesday that SB 117 would cap annual local government budget growth at 4%, raise the discretionary inflationary adjustment to 100% (from the current half-rate adjustment), and change the treatment of newly taxable value so only 50% of newly taxable value would increase local budgets. Zolnikov said the bill’s goal is to slow compounding budget growth tied to newly taxable commercial and centrally assessed developments so existing taxpayers see some relief in mills.

“I was asked to move it early because last time, there was 12 meetings on this bill,” Zolnikov said as he introduced the measure and described the bill as a starting point for negotiation. He said the newly taxable change is intended to let new development contribute to budgets without fully compounding future local spending: “The whole purpose of the change in the newly taxable portion [is] to help lower mills for everyone else and incentivize growth and development to continue that.”

The governor’s policy adviser, Kevin Northey, testified in support and asked the committee for a do-pass recommendation, saying, “Property taxes are too high and need to be reined in.” Northey told members that about 85% of residential property-tax revenue supports local taxing jurisdictions and that property-tax growth has outpaced inflation in recent years.

Opposition testimony came from municipal and county officials, infrastructure and public-safety groups, and representatives of oil, gas and coal counties. Russ Nelson, president of the Montana League of Cities and Towns and mayor of Belgrade, urged rejection and warned of service cuts: “This bill adversely affects small, medium, and large municipalities’ general fund. The general fund pays for public safety — that’s police, and then fire and public works, roads, water, and sewer.” Nelson said SB 117 could force municipalities to consider layoffs in police, fire and public works.

County officials described the mechanics of the current levy limitation and the role of the Department of Revenue in providing inflationary adjustment numbers. Joette Woods of the Montana Association of Counties told the committee that the current calculation allows counties to levy the dollar amount that generated a similar revenue level over the previous three years, with an optional discretionary adjustment equal to half the rate of inflation. She said the bill would “tie the hands” of counties by capping growth at 4% even in jurisdictions that face rising costs or new service demands.

Multiple witnesses cited local impact estimates submitted by the Department of Revenue or by county analyses. Russ Nelson said the proposal would reduce Belgrade’s general fund authority by about 31.3%, Columbus by about 30% and Millstone by about 25% under his interpretation of the mechanism. John Oslund, a Yellowstone County commissioner, said Yellowstone would see roughly a 6% reduction, Missoula about 2% and Gallatin about 8.2% in the first year under the bill’s formula; he said some small counties could face much larger reductions (Oslund cited figures of roughly 42% and 41% for two counties he identified).

Rural and public-safety witnesses urged opposition on equity and service grounds. Joel Gaertig, representing paid and retired firefighters, said already strained fire and EMS staffing would be further harmed by budget caps. Infrastructure representatives warned that limiting growth would push maintenance and capital projects into the future and ultimately increase costs when deferred work becomes urgent.

Several county commissioners, including Todd Devlin of Prairie County and Sarah Hudson of a six-county rural development organization, said their budgets rely on a mix of tax and non-tax revenue and that large one-time developments (tank farms, pipelines, wind projects) can sharply change a county’s tax base and obligations. Zolnikov’s sponsor remarks and some proponents argued those one-time or limited-impact developments should not generate fully compounding budget authority.

Committee members asked whether local governments could still put measures before voters to raise levies; Zolnikov confirmed the bill would not prevent voter-approved levies. Members also questioned the mechanism and the distributional results; Kelly Lynch of the League of Cities and Towns said she and staff had tried to replicate spreadsheet scenarios and were not confident the formula met the bill’s stated intent to protect rural counties while constraining high-growth localities.

No formal committee vote was taken on SB 117 during the hearing. Senator Zolnikov closed by saying the bill was a starting point and that he expected to work with members and local governments on amendments if the committee chose to move the measure forward.

Because testimony included detailed local-impact estimates and many local officials, committee staff and LFD were asked to provide and clarify data for follow-up discussions and potential amendments.