‘User fee’ bill would harm Montana nonprofits with slim margins, opponents say

More than a dozen nonprofit organization officials told a Republican lawmaker Feb. 8 her bill was a tax masquerading as a fee that targets some of Montana’s most vulnerable people and the organizations that serve them.

“Additional fees and expenses would have a disastrous impact on our member agencies who are currently fighting for enough funding to stay in business,” said Patrick Maddison, the CEO of Flathead Industries and president of the Montana Association of Community Disability Services.

House Bill 391, sponsored by Rep. Sherry Essmann, R-Billings, seeks to put a “user fee” on a host of tax-exempt nonprofits that would be collected by a city or town and by counties. The money collected would be put toward road maintenance, police, fire departments, emergency services and mental health treatments.

The bill says the fees collected would be distributed in the same proportion property taxes are exempted for road maintenance and those local services, which Essmann said would reduce property taxes on Montanans.

But House Taxation Committee Vice Chairman Rep. Mark Thane, D-Missoula, pointed out the bill only said how the fees would be spent, not how the measure would reduce people’s property taxes.

A fiscal note for the bill has been requested, and the committee did not take action on it Wednesday.

When the committee got to questions, after 16 opponents and zero proponents testified on the bill, Rep. Scot Kerns, R-Great Falls, asked Essmann to explain the difference between a user fee and a tax.

“I don’t know, maybe you’re right, Representative Kerns. Maybe there is no difference,” she said. “Maybe this is a thinly-veiled disguise to get people who use our services to pay their fair share of them.”

Kerns told Essmann he noticed The Montana League of Cities and Towns and Montana Association of Counties were not there testifying. She said the MACO representative “had another obligation” and that she hadn’t talked to others.

“This is going from the state and mandating to an incorporated city or town that they must collect this user fee or taxation, so I guess I’d love to understand – this seems to be running in conflict with local control?” Kerns asked.

Essmann said the bill indeed runs in conflict with local control, but that she was speaking on behalf of her constituents whose voices “may not be heard at the local level.”

“I’m here to give them some property tax relief from those who use our services every day, rely on them,” Essmann answered.

The bill, as introduced, would implement city or town, and county, user fees on improvements on exempt properties based on square footage, along with a flat user fee on exempt property with no exempt improvements.

The fees would be levied on nonprofit churches, educational facilities, health care facilities, public museums, art galleries, zoos, facilities to care for people with disabilities and mental illness, athletic fields, low-income housing and more, according to the bill.

Essmann told Rep. Alice Buckley, D-Bozeman, she had chosen those types of organizations because she believed they were more often in urban areas and more likely to use city and county services. She said she would be open to amendments to perhaps “rethink” the properties that were included.

Essmann said it was not her intent to put nonprofits out of business, but opponents to her bill said the measure would exacerbate problems service providers already face.

Mary Windecker, the executive director of the Behavioral Health Alliance of Montana, said she and the organization’s members were “very confused by this tax.”

“On the one hand, it singles out some of the most vulnerable citizens of Montana for kind of a punitive tax, and then, it turns around and says that the funds can be used to treat mental health,” she said.

Windecker noted a rate study showed that mental health, substance use disorder, and developmental disability treatment facilities were already receiving less than the cost of care, and said more of them would have to close if Medicaid reimbursement rates are not increased.

Tal Goldin, the supervising attorney for Disability Rights Montana, said while boosting funding for police, fire, emergency and mental health services was a good end product, the means by which the bill would address those needs were wrong. That is especially so in the midst of the worst mental health crisis in Montana in two decades because of the lagging reimbursement rates, he added.

“Let me not mince words: This is a tax. It’s a tax by another name, and it will make Montana’s mental health crisis worse,” Goldin said. “… This bill puts these organizations, who in some circumstances are already operating in the red, in worse shape.”

Montana Nonprofit Association Executive Director Liz Moore said many of the association’s members were small and had no depreciable assets, while others included large mental health, low-income housing, senior and disability service providers. She said the bill was increasing safety revenue by taxing organizations that provide safety nets in Montana communities.

Further, she said many of the association’s members could not tell if they would be included in the fee-levying structure – like drug and alcohol treatment centers that are not listed but which are often working with people experiencing mental health difficulties.

Others who testified in opposition included the interim chief executive of the Montana Hospital Association, organizations that own historic property and run low-income housing properties, behavioral health groups, summer camp programs, and people representing aging services organizations.

“Just as we are down the hall working very hard to have Medicaid rates increased for our nursing homes, and many of you have heard of the crises nursing homes are in across Montana, here we are looking to impose a fee on nursing homes – so taking us backwards from what we’re trying to do down the hall,” said lobbyist Margaret Morgan, representing the St. John’s United retirement community in Billings.

Many of the opponents argued that the services they provide already more than pay back into the communities the exemptions they receive, and nearly all noted the thin margins on which they were already operating.

“It’s a clever way to tax a tax-exempt institution,” said Matt Jetty, the director of exhibits at ExplorationWorks in Helena. “To call it a user fee and tax churches and nonprofits — we don’t have extra money. This is just a lousy way to increase the revenue of Montana.”