Legislators receive primer on coal severance tax fund, trust balances and spending rules

Sam Schaeffer, a staff member in the Legislative Services fiscal division, told the House Education Committee that Montana collected about $77,000,000 in coal severance tax in fiscal 2024 and that the state's constitution requires at least half of severance receipts to be deposited into a coal trust.

Schaeffer said the remaining half is distributed as cash to several state special revenue accounts and programs. "You can see last year in fiscal 20 24, we collected about 77,000,000 in coal tax," he told the committee. "The constitution says that at least 50% of the coal mine every year, the coal severance tax must be deposited into the coal trust."

Why it matters: the corpus (principal) of the coal trust is protected by the constitution and may be appropriated only with a three-quarters vote of each chamber, Schaeffer said, while the interest earned on the trust is available for legislative appropriation. "You can only spend the interest off the trust," he said, and that interest is accumulated in income-holding accounts until the Legislature appropriates it—most commonly in the long-range and HB 2 appropriations processes.

Schaeffer walked the committee through the trust and subtrust structure. At the start of fiscal 2025 the total coal trust balance was roughly $1.3 billion, and subtrusts include the Montana coal endowment, a regional water fund, an economic development subtrust, a school facilities subtrust and others. The interest earned by each subtrust flows into an income fund for legislative appropriation; Schaeffer said current interest yields were "in the vicinity of about 4 to 4 and a half percent."

He explained distribution mechanics the committee will need to consider when they evaluate bills that draw on coal-related balances. Certain subtrusts have statutory caps that, when reached, cause further distributions to revert to the permanent fund unless statute specifies otherwise. Schaeffer noted that House Bill 515, the school facilities/major maintenance bill heard later in the same meeting, proposes topping the school facilities subtrust at a $300 million cap via a one-time general fund transfer; that change would affect future interest flows available for appropriations.

The briefing also covered tax-rate drivers and revenue volatility. Coal severance is a value tax that varies by mine type and coal quality; as with other commodity-based revenue sources, collections fluctuate with prices and production. "Anything that's taxed as a percent of their value, especially commodities... the price... can have a material impact," Schaeffer said, citing recent annual collections that rose and fell between roughly $40 million and $88 million in recent years.

The committee used the briefing to frame upcoming school-funding bills that either request coal-interest distributions or depend on those distributions for one-time transfers. Committee members and staff said the primer was intended to give legislators context for votes that could affect the trust, income flows and long-range spending programs.