Local Option Tax Gets BSEDA Support

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Created on Wednesday, 18 February 2009 18:25

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Economic development interests across the state are putting their all behind a bill this legislative session to open up a new revenue stream for local governments. The idea is that local governments need revenue sources to maintain and develop infrastructure and infrastructure is vital in attracting new businesses and growing existing businesses.

Focus on empowering local governments – cities and counties – with the option of instituting a local option tax was initiated several sessions ago by the Big Sky Economic Development Authority (BSEDA). Having confronted the proposal’s failure before, its proponents are optimistic that they have finally straightened out its kinks and will garner the support necessary to get it passed this year.

A local option tax in the City of Billings is projected to generate $12 million annually, 40 percent of which is likely to be paid by non-residents. After revenue sharing and property tax relief, it is estimated that it would add $6 million to city coffers annually.

Despite its past devotion to the cause, over the past year BSEDA, an independent entity of Yellowstone County government, has been somewhat distracted with the need to find a new director following the resignation of Former Director Joe McClure, who first recognized the potential of a local option tax as a solution to the frustrated efforts, in the state, of passing a general sales tax.

The Billings Area Chamber of Commerce picked up the slack, this year, and took the lead on getting the legislation written and introduced by Sen. Jeff Essman, in what they hope will be a more acceptable structure for state legislators. (LC0001) With the sponsorship of Lee Enterprises the Billings Chamber hosted a “Local Option Tax Summit” in Helena in September with Dr. Larry Swanson talking about “Investing in Area Economic Prosperity: Local Options for New Revenues.”

Last week the boards of BSEDA and its sister organization, Big Sky Economic Development Corporation (EDC) voted to continue their support of the legislation, with the agencies’ new director, Steve Arveshoug, pointing out that the Chamber has been counting on them and that the continuity is important.

McClure traveled the state developing the coalition of support among all the urban counties, pointed out EDC Board Member Debbie Singer — it’s important not to drop the ball if BSEDA hopes to remain credible in the future.

“What ever our personal views are,” said Jim Gallop, BSEDA Chairman, “we need to continue that support. The Chamber assumed that since we supported it in the past we would do so today.”

“We have an obligation to continue our partnership with the city and Chamber to find a way to solve their financial problems,” said Arveshoug. There were only three dissenting votes to support the legislation, among some twenty members of both boards at the joint meeting of the boards last Thursday.

Optimism about finally passing the measure this year comes from the fact that the proposal that is being pushed forward addresses issues that were points of objection in the past. Probably the most important adaptation is the revenue-sharing it offers for neighboring counties. It’s a concession to rural counties who saw no reason to endorse a tax for the “big cities” which would in large part have to be paid for by their constituents when they went shopping. The bill proposes regions of counties around the major cities within which the taxing entity would share 20 percent of the revenues. The counties with which Billings would share would divvy up an estimated $2.4 million annually based upon population.

Revenue-sharing is a bitter pill for some to swallow, but it isn’t going to pass without the support of rural counties and that won’t come without it, explained Bruce MacIntyre, Director of Government Affairs for the Chamber.

Another adaptation to an idea that started out as a simple effort to do no more than remove the population cap requirement of the state’s Resort Tax, is built-in property tax relief for the county. The resort tax was originated to help the town of West Yellowstone which has little private property, to develop a revenue stream to pay for paving streets.

The new draft proposes that 30 percent of the revenues generated by a local option tax will be applied to property tax relief in communities which rely primarily upon property tax revenues for infrastructure needs. Hopefully, that will assuage some of the resistance among business owners and homeowners, alike. In Yellowstone County that would mean about $3.6 million in property tax relief.

An important part of the strategy to convince law makers opposed to the idea of additional taxation is the requirement that local voters must approve the imposition of a local option tax. That’s what their past experience in the legislature taught the proponents – it is persuasive to emphasize to legislators that their vote is not to implement a new tax but to simply grant authority to local government to consider the tax.

The understanding was just as important in getting the approval of many members of the BSEDA and EDC boards, among whom there was opposition voiced about the tax itself.

“We aren’t saying support the tax,” said EDC board member Rick Reid, “This is an opportunity to let the people decide.”

The proposal also places a cap of four percent on the rate of taxation allowable and has a sunset provision, which would necessitate continued voter approval.

The necessity for the taxing option is the fact that the City of Billings needs the revenue, emphasized Arveshoug.

MacIntyre reminded board members that the city of Billings had to dip into a million dollars of reserves this year to meet budget needs – “and that didn’t include paying for firefighters.” Because of municipal government shortfalls, said MacIntyre, “business will see an increase in fees and a decline in services.”

City Manager Tina Volek attended a past meeting of the BSEDA/EDC boards to explain what the city’s revenue needs are, and that the city has no more room within which to raise taxes without changing their city charter, which would have to be approved by the voters.

According to Volek implementation of a city-wide sales tax would require no more administrative cost than the addition of a half-time employee.

The strategy in the legislature, explained BSEDA staffer, Linda Beck, who serves as BSEDA and EDC’s eye on Helena, is to hold back on the bill until after they see what happens with all the other tax bills in the hopper.

MacIntrye in speaking earlier to a joint executive committee said that they believe there is good support in the state legislature. Missoula is a strong supporter and so is the League of Cities and Towns. The Montana Association of Counties has “qualified” support, he said, since many of its members want to see what the details are. The Montana Chamber of Commerce is remaining neutral on the issue. Bozeman is opposed to the current draft because they want “100% of all the revenues.”

The Yellowtone County Commissioners are “tentative,” according to MacIntyre. But during the board meeting Commissioner Jim Reno said the county is not taking a position because the commissioners are split. Reno as a member of the EDC board was among the three votes in opposition to endorsing the legislation.

“Restaurateurs are worried about it,” said MacIntrye, “They are afraid that it will hurt business.”

Arveshoug asked if anyone had tried getting into a restaurant on a Friday night, assuring them that the restaurants had nothing to worry about.

EDC Board Member John Whitman said that he didn’t believe that a local option tax was advantageous to a community that thrives upon attracting people from the region to shop. “We have many business which are doing well because of trade from Wyoming, North Dakota and Idaho,” he said.

He also said that he believed the City of Billings is shirking its responsibilities to make the case to change its charter. He said, “This is an end run around the charter…. This is a bill to make it more palatable to shift responsibility.”

Board member Rick Leuthold voiced support saying, “Any tool you can put in the toolbox is important.”

Marilyn Floberg, EDC board member, said, “If you really are in favor of a sales tax, this gives you an opportunity.”

BSEDA board member Gordon Tryan opposed endorsing the legislation saying that the legislative vote on the measure to empower local governments is just as important in opposing a local option tax as the local vote. “This will place a burden unfairly upon small business. They will bear the brunt of it.” He disagreed with the idea that visitors to the community don’t contribute to the tax base. “We pay taxes on the money we make on them. You do get tax dollars from them already,” he said.

EDC board member Kate Hamlin said that in her real estate sales she had never encountered anyone who was moving to the community because there was no sales tax. “They come for the quality of life,” she said. Most of the time they don’t know what the tax situation is and they have no opinion on it.

Greg Kohn, another BSEDA board member, said, “I agree there will be an impact to small business, but they get a two percent rebate to collect the tax, so they won’t loose anything. And, there is property tax relief built into this.”

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