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HomeMy WebLinkAboutLeague-District Meeting ReportMONTANA LEAGUE OF CITIES AND TOWNS District Meeting Report ' May - 2004 State Finances - All of the big money questions that come up during a session of the Montana Legislature are referred to the bottom line. In good years, when the state was flush, the Legislature boosted spending and cut taxes in various combinations that depended on which party had control. In the bad years, when the state fund balance sank below the water line, the Legislature cut spending and raised taxes in accordance again with the partisan alignment of the moon and the stars. Last year, the state budget hit a bad patch. It was $150 million in the hole when the Legislature came to Helena in January, and it was balanced through a combination of painful spending cuts and tax increases that hit tobacco products, hotel rooms and other selected targets. A report prepared by the Legislative Fiscal Analyst in Mamh indicates that revenues and spending are in relative balance, closely tracking budget projections for the two-year funding cycle. There are unknown dangers and suspicions out there that could throw the state budget completely off balance. A recent district court decision could force sharp increases in state support to local schools. The Department of Corrections has asked for an additional $33 million to handle the exploding prison population. There is also the looming threat of another dangerous and expensive fire season. As bad as it looks, it is still better than it was in 2003. At this, time, it seems that budget pressures have eased, options have opened up and the Legislature can get back to making decisions that are based on old time political assertions instead of bottom line financial necessity. Entitlement Program - Cities and towns will receive more than $43 million this year in state transfer payments under the provisions of House Bill 124 that was passed by the 2001 Legislature. These allocations will increase at a rate of approximately 3.3% over the next four years, reaching nearly $50 million in FY-07. These increases are driven by a formula that is geared to the state economy. The growth rates were part of the original deal between the state and local governments. They are statutory appropriations outside of the normal budgeting process, and changes in the distribution formula must be approved by a 60% vote in both houses of the Legislature. This is about as good a guarantee that can be written into a law, but the commitment may not be covered by the legislative definition of forever, which really means "until we meet again". The growth rote for the Entitlement Program for the coming fiscal year will be 3.30%, which will increase state transfers back to cities and town by nearly $1.5 million. The annual adjustment for mill levy calculations will be 0.968%, which is one half the average rate of inflation over the past three years. Loeal~Option Taxes - The League has supported local option taxes for more than 20 years. To promote support for a good idea that has never found a home in Montana, cities have agreed to a long list of concessions. They accepted provisions that required voter approval and property tax reductions, limited the list of taxable items and provided methods of sharing revenues with counties and small towns. These agreements worked to build support for local tax authority, but they did not go far enough to satisfy a majority of the Legislature. The following memorandum lists the reasons that local option taxes would be a square deal in Montana: October 9, 2003 Reasons Why Montana Should Enact a Local Option Tax Law · Thc option tax bills considered by the last two Legislatures were geared to the tourist economy. They would have allowed cities and counties, with voter approval, to collect a tax of up to 4% on accommodations, restaurant meals, liquor by the drink, luxury items, recreation and other goods and services most commonly used by visitors. · Option taxes would establish a logical link in the public finance system to what is actually happening in the state's economy. They would assure that the 10-million tourists who visit oar state each year pay a fair share of the services they use while they are in Montana. · Most tax reform proposals do nothing more than shin the load among segments of the Montana economy and population. Local option taxes will bring new money into the state. The Department of Revenue estimates that about 48% of the option tax revenue would be collected from tourists and other outsiders. · Thc bills considered in recent sessions of the legislature mandated property tax relief. These provisions would allow local governments to cut mill levies while maintaining necessary services and programs with money collected from travelers. · Recent option tax measures recognized the importance of rural areas to the economy of the state's trade centers. These bills were written to set up a regional revenue sharing system that would have returned 30% of the money collected in file trade centers to the cities, towns and counties in the surrounding areas. · These bills required voter enactment, which is consistent with the idea that local citizens should have the fight to decide the type and amount of taxes they will pay to support city and county governments. Voters can increase mill levies and authorize bond debt. They should be allowed to consider other finance options. · Most states have used local option taxes for many years to finance city and county goverament. Montana is one of the few that have not authorized ganeral option authority. The idea has been proven in practice across the country, but it is not necessary to look beyond West Yellowstone or Whitefish to understand that local option taxes work to improve coramunities, expand local economies and reduce mill levies. · Critics of option authority have argued that people will take their business out of town to avoid paying the tax. This has not occurred in the cities that have enacted the resort tax, and the evidence in Whitefish and West Yellowstone show that community improvements have increased business, attracted new development and job opportunities. · Option authority will neither block the way nor open the gate to a general sales tax in Montana. This is a separate issue, and the connection to the debate on a general sales tax, while widely supposed, is mostly imagined. · Montanans should not be asked to subsidize the cost of services used by 10-million tourists each year through higher mill levies, user fees and other assessments. Fair tax laws assure that people pay for the servic_e they receive. This is not happening in our state, because the Legislature has refused to give voters the power to broaden and balance the tax system and gear it to what is really happening in the economy. · A tourist tax is not regressive, because it does not apply to food, medicine, housing, utilities, most clothing and the other necessities of life. · The Montana tax system was written for a different time. It was intended to hit natural resource industries, but it is missing most of what is going on in the new economy. The Officers and Directors ask League members to use the information from this memo and their own ideas to build support for local option taxes with the Legislators they will be sending to Helena in 2005. 2 Other Tax Proposals - A lot of what happens next winter depends on the elections this fall. There has been wide discussion of finance policy during the campaign season. The following is a list of tax ideas that are likely to be considered by the 2005 Legislature: A general sales tax is always on the agenda when the Legislature comes to town. There is also an understanding that this issue, which is one of the most controversial in the state's history, will ultimately have to be decided by referendum. The recent court decision could pressure the Legislature to propose a sales tax, with the condition that most of the revenue would be used to replace mill levies as the principal method of funding schools. · The Economic Development Association is working on a bill that would impose a sales tax on so-called "big box stores". Collections would be dedicated to promote economic development, bolster the university system and finance capital improvements. A big box tax bill was rejected by the 2003 Legislature. · Some candidates have been talking about rolling back the phased in tax reductions on business property that were approved by the 1999 Legislature. There has also been discussion of taking apart the income tax reform bill that was passed last year. These suggestions are meaningless unless there is a dramatic shift in the political alignment of the Legislature and Governor's Office. · .There i.s also the possibility the Legislature will react to the school funding decision by increasing state equalization levies by as much as 60 mills. Corresponding reductions in local levies would be required to keep the lid on property assessments. Capital Projects Funding - During the 2003 Legislature, a bill was introduced to cut funding for projects authorized under the Treasure State Endowment Program. The hearing on this bill occurred on the coldest morning of a long winter. Representatives of cities and towns from all across the state drove through dangerous conditions to defend projects they had been working for .years to develop. The bill was pulled, and the Legislature received the message that reductions in endowment grants are off limits. There is also a possibility that a bill will be introduced to divert money directly from the Coal Tax Trust Fund to f'mance public works projects for state and local governments and schools. Similar measures have been introduced in recent sessions oftha Legislature, but all have failed because trust fund diversions must by approved by a 75% majority of both houses. Local Government Powers - If recent trends continue, the 2005 Legislature will be flooded with bills to limit the powers of cities and towns to provide services, manage operations and decide local issues. In 2003, the Legislature considered numerous measures to restrict local authority. · Several bills were introduced that would have made it virtually impossible for cites and towns to annex contiguous properties. Another measure revised the definition of wholly surrounded property to make annexation more difficult. Montana's annexation laws are among the most restrictive in the country. They stifle the natural growth of Montana cities, and allow many people to enjoy municipal services without paying a fair share of the costs. · The Building Industry Association promoted a bill that would have severely restricted system development and impact fees. These payments are based on the premise that new development should pay a share of the cost of the services and facilities that are required to accommodate growth. The alternative is to require existing properties to subsidize development through higher taxes and utility fees. · Several bills would have banned government competition with business. These privatization measures have become common in recent sessions of the Legislature, and different vemions have applied to everything from garbage service to municipal swimming pools. · .The Legislature did pass a bill that nullified a clean indoor air ordinance that had been approved by 62% of the voters in the City of Helena. The bill has been challenged on constitutional issues, and a decision of the Supreme Court is expected before the end of the year. The Constitutional article on local government was intended to provide residents of cities and towns the right of self government. Over the years, this concept has been twisted, compromised and corrupted, and local control is the skirmish line on which cities and towns fight most of their battles in the Legislature. Only the Shadow knows the evil that lurks in the dark heart of a Legislative winter, mad as always, it is never too soon to get ready for all the strange ideas that are somewhere out there waiting to be drafted into bills. ..~ Proven Reputation for Excellence 7400 Shoreline Drive * Suite 3 * Stockton * CA * 95219 (209) 957-3185 * Fax (209) 957-2055 Consultant's Report Montana Community Health Care Alliance In response to a request by the Executive Director of the Montana League of Cities and Towns, Legacy has prepared this report on the status of the implementation of employes benefit programs by the proposed Montana Community Health Care Alliance. This report wil[ review the Advisory Committee's instructions to Legacy and Deloitte Consulting reis§ye to establishing funding rates for the four recommended medical benefi plans and outline an option Legacy believes is possible for members of the League's MLCT Pool rela'dve to the provision of employee benefit coverages. The original effective date for offering the proposed employes benefit programs was July 1, 2004. However, because of information presented by the actuary, Deloitte Consulting, a decision was made to delay the effective date until October 1, 2004. The Advisory Committee agreed to postpone the effective date fo allow the actuary to prepare funding rate options. Fundinq Rate SetlJn.q - Self-Insured Medical Plans Bruce Dane, the actuary fTom Deloi~e Consulting is prapadng funding rate ssenados based on specific criteria defined by the Advisory Commi~ee dudng its meeting on May 11, 2004. Pdor to prepadng the funding scenarios, Legacy will provide Deloitte Consulting with current claims experience an.d cun~nt large claim activity for each of the twelve cities included in the 2004-05 BCBS cost projections. After updating the projections to reflect the more current expadence, Deloitte Consu~ng will adjust the BCBS cost prejectJons applying their ac[uadal values for the differences between current coverage levels and the coverage under the proposed four medical plans. In addition, Deloitte Consulting will prepare an age/gender chart illustrating the dsk factor of each c~ and town based on their age/gender mix. Following is each rating scenario that will be presented for consideretlon at the mesting on June 22, 2004. Scenario I - Rating by Employee Classification wil~ Fully Funded IBNR Resewea This scenado will show the monthly funding rate per employea (papm) separately for each of the four medical benefit plans for each employee classification ~ Active Employee, Eariy Retiree (without Medicare coverage) and Medicare Retires (wilh Medicare coverage). All rates will include funding for the entire recommended IBNR resen/e. Scenario II - Rating by Employee Classification with Partial IBNR Funding This scenario will show the monthly funding rate per employee (pepm) separately for each of the four medical benefit plans for each employes classification. All rates will include funding for 1/3 of the recommended IBNR reserve. Since participation in the proposed employee benefit programs requires a five-year commitme~ funding the IBNR reserves could be accomplished over the first three-years of the program; thereby, reducing the funding rates in the first year. Scenario III - Rating by Region Deloitte will present monthly funding rates per employee (pepm) separately for each of the four medical benefit plans for each employee classification based on specific geographic regions. This scenario will take into consideration the expected claim savings based on the discounts available through the BCBS PPO networks. Scenario IV - Rating Adjusted for Member Participation Deloitte will present monthly funding rates per employee (pepm) seperateiy for each of the four medical benefit ptans for each employee assuming pariJcipation by all twelve cities and towns represented in the cost projections and present funding rates assuming only those cities and towns that experience a premium savings would paracipate. Montana Leaque of Cities and Towns BCBS Pool ~ Option The MLCT Pool currently provides medical, dental and vision coverage through a fully insured contact with BCBS of Montana to approximately forty-one cities and towns. An alternative for the MLCT Pool to immediately reduce costs would be to seE-insure the existing MLCT Pool program. By self-insuring, the MLCT Pool could offer the same benefit coverage levels at a cost that is 5% less than current rates as compared to the BCBS offer of a 2.3% r~luc-'fion. We are confident assuming the same enrollment and benefit coverage levels, that a 5% reduction would still provide adequate funding to cover expected expenses. This option would allow the League to establish the self-insured program immediately instead of waiting until October 1, 2004. Further, the League's existing governing beard would have the authority to make such a decision. At anytime, the League's goveming board should be able to take action to modify the benefit plans offered under the MLCT Pool, adopt new funding rates for those plans and expand the program to other cities and towns that are members of the League. In other words, implement the proposed benefit plans and funding rates recommended by Legacy and Deloitte Consul§ng. ,..P~e2