CITY ATTORNEYS OFFICE CITY HALL, 435 RYMAN MISSOULA, MT Phone: (406) Fax: (406) LEGAL OPINION

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1 CITY ATTORNEYS OFFICE CITY HALL, 435 RYMAN MISSOULA, MT Phone: (406) Fax: (406) LEGAL OPINION TO: FROM: Mike Kadas, Mayor City Council Janet Stevens, Chief Administrative Officer Brentt Ramharter, Finance Director Kim Mansch, Finance Jim Nugent, City Attorney DATE June 7, 2002 RE: 2001 State Legislation Exempting Increases in Local Government's Property Tax Levy for Employer's Premium Contributions for Group Health Insurance Benefits From Tax Mill Levy Calculation Limitation FACTS: Pursuant to Montana s Inter-Local Cooperation Act in order to more efficiently use certain powers the City of Missoula City Council and the Missoula Board of County Commissioners have entered into inter-local agreements with respect to the provision of certain services such as public health and community land use planning that are provided by the City County Health Department and the Missoula Office of Planning and Grants. Employees of each of these two departments are County of Missoula employees administered by the County of Missoula. Each of these respective inter-local agreements provide for financial contributions to be made by the City of Missoula toward these county employee operations. City partial funding for these county employee health insurance benefit premiums is an issue that the City of Missoula must address for fiscal year ISSUE: Is the City able to rely on the property tax levy for group health insurance benefits to assist in funding the City s share of monetary contributions for County employees providing Municipal government services pursuant to a City-County local government inter-local agreement? - 1 -

2 CONCLUSION: Subsection (2) MCA as revised by HB-409 (2001) authorizes an increase in a political subdivision s property tax levy for the political subdivision s premium contributions for group health insurance benefits under beyond the amount of contributions in effect on July 1, 1999 and that additional contribution is not subject to the statutory mill levy calculation limitation established in state law. Both the City and County are political subdivisions eligible to exercise this statutory authority. Thus, the authority exists to provide additional funds for both eligible City and County employee group health insurance benefits. LEGAL DISCUSSION: The 2001 Montana State Legislature enacted HB-409, chapter No. 511, Montana Session Laws 2001 which was entitled: AN ACT EXEMPTING INCREASES IN A LOCAL GOVERNMENT S PROPERTY TAX LEVY FOR THE EMPLOYER S PREMIUM CONTRIBUTIONS FOR GROUP HEALTH INSURANCE BENEFITS FROM THE MILL LEVY CALCULATION LIMITATION: REQUIRING THAT A PUBLIC HEARING BE HELD PRIOR TO IMPLEMENTING A LEVY; AMENDING SECTIONS , , AND , MCA; AND PROVIDING AN EFFECTIVE DATE. The special effective date for HB-409 (2001) was July 1, HB-409 (2001) amended three (3) sections of Montana State Law as set forth in Montana Sessions laws is as follows: Political subdivision tax levy to pay premiums. (1) Subject to and subsection (2) of this section, a political subdivision, except for a school district, may levy an annual property tax in the amount necessary to fund the premium for insurance, deductible reserve fund, and self-insurance reserve fund as authorized in this section and to pay the principal and interest on bonds or notes issued pursuant to (5). (2) (a) The increase in a political subdivision's property tax levy for the political subdivision's premium contributions for group benefits under beyond the amount of contributions in effect on July 1, 1999, is not subject to the mill levy calculation limitation provided for in (b) Prior to implementing a levy under subsection (2)(a), a public hearing must be held regarding any proposed increases

3 Contributions. (1) Each agency, as defined in , shall contribute the amount specified in this section toward the group benefits cost. (2) For employees defined in and for members of the legislature, the employer contribution for group benefits is $270 a month for the period from July 1999 through December 1999, $285 a month for the period from January 2000 through December 2000 and $295 a month for January 2001 and for each succeeding month. For employees of the Montana university system, the employer contribution for group benefits is $285 a month for the period from July 1999 through June 2000 and $295 a month for the period from July 2000 through June 2001 and for each succeeding month. When a state employee is terminated to achieve a reduction in force, the continuation of contributions for group benefits beyond the termination date is subject to negotiation under Permanent part-time, seasonal parttime, and temporary part-time employees who are regularly scheduled to work less than 20 hours a week are not eligible for the group benefit contribution. An employee who elects not to be covered by a state-sponsored group benefit plan may not receive the state contribution. A portion of the employer contribution for group benefits may be applied to an employee's costs for participation in Part B of Medicare under Title XVIII of the Social Security Act, as amended, if the state group benefit plan is the secondary payer and Medicare the primary payer. (3) For employees of elementary and high school districts and of local government units, the employer's premium contributions may exceed but may not be less than $10 a month. Subject to the public hearing requirement provided in (2)(b), the increase in a local government's property tax levy for premium contributions for group benefits beyond the amount of contributions in effect on July 1, 1999, is not subject to the mill levy calculation limitation provided for in (4) Unused employer contributions for any state employee must be transferred to an account established for this purpose by the department of administration and upon transfer may be used to offset losses occurring to the group of which the employee is eligible to be a member. (5) Unused employer contributions for any government employee may be transferred to an account established for this purpose by a self-insured government and upon transfer may be used to offset losses occurring to the group of which the employee is eligible to be a member or to increase the reserves of the group. (6) The laws prohibiting discrimination on the basis of marital status in Title 49 do not prohibit bona fide group insurance plans from providing greater or additional contributions for insurance - 3 -

4 benefits to employees with dependents than to employees without dependents or with fewer dependents Procedure for calculating levy. (1) The governmental entity that is authorized to impose mills may impose a mill levy sufficient to generate the amount of property taxes actually assessed in the prior year, even if that levy is greater than the levy established by law. The maximum number of mills that a governmental entity may impose is established by calculating the number of mills required to generate the amount of property tax actually assessed in the governmental unit in the prior year based on the current year taxable value, less the value of newly taxable property. (2) A governmental entity may apply the levy calculated pursuant to subsection (1) plus any additional levies authorized by the voters to all property in the governmental unit, including newly taxable property. (3) For purposes of this section, newly taxable property includes: (a) annexation of real property and improvements into a taxing unit; (b) construction, expansion, or remodeling of improvements; (c) transfer of property into a taxing unit; (d) subdivision of real property; and (e) transfer of property from tax-exempt to taxable status. (f) transfer of property from tax-exempt to taxable status; and (g) revaluations caused by expansion, addition, replacement, or remodeling of improvements. (4) Subsection (1) does not apply to: (a) school district general fund levies and the school district levy for tuition obligations established in (5); or (b) the portion of a governmental entity s property tax levy for premium contributions for group benefits excluded under or (5) For purposes of subsection (1), taxes imposed: (a) include registration fees imposed on light vehicles under and distributed under (2); and (b) do not include net or gross proceeds taxes received under and (6) In determining the maximum number of mills in subsection (1), the governmental entity shall take into account any change from the prior year in the amount of statutory reimbursements for changes in the property tax laws. The amount of motor vehicle disposition under (2), as that section read on December 31, 2000, is an increased statutory reimbursement. It may increase the number of mills to account for a decrease in reimbursements and shall decrease the number of mills to fully - 4 -

5 account for any increase in reimbursements. (7) The department shall calculate, on a statewide basis, the number of mills to be imposed for purposes of , , , , , and However, the number of mills calculated by the department may not exceed the mill levy limits established in those sections. (8) The department may adopt rules to implement this section. The rules may include a method for calculating the percentage of change in valuation for purpose of determining the elimination of property, new improvements, or newly taxable property in a governmental unit. The italicized language in the new 2001 language inserted into these three statutes. The lined out language is language removed by the 2001 State Legislature. A Political Subdivision is defined in subsection (5) MCA of Montana s liability exposure and insurance coverage laws as meaning: (5) Political subdivision means any county, city, municipal corporation, school district, special improvement or taxing district, or any other political subdivision or public corporation. (emphasis added) Similar statutory definitions are set forth in other Montana Statutes. For examples see section , , and MCA. Clearly both City and County governments are political subdivisions pursuant to Montana law. Clearly the above identified property tax levy authority for political subdivision employer group health insurance premium contributions pursuant to section MCA are applicable to both city employee and county employee group health insurance benefits. Since the County employee group health insurance benefit premiums are eligible benefit premiums pursuant to sections , and MCA., the additional tax levy authority allowed by state law for these health insurance costs the city s share of these group health benefit plan benefits may be paid pro-rata by the City pursuant to its inter-local agreements as long as there exists an itemized billing from Missoula County expressly identifying the City s share of the additional costs for group health insurance benefits beyond the amount of contributions in effect on July 1, See subsection (2) MCA. There must be itemized documentation from Missoula County; in order for the City to be able to rely on the statutory authority statutorily ear marked for additional group health insurance benefits after July 1, Thus, it is imperative that Missoula County provide an explicit itemized billing to facilitate the identification and tracking of these monies for City auditing purposes

6 Inter-local agreements are required to address joint financial arrangements necessary to provide the government services. This type of expense would reasonably and logically be a common employee benefit for which it would be generally reasonable for the city to share the expense of. There also is no statutory provision that would limit, restrict or prohibit the city from utilizing this tax levy authority for this eligible county employee benefit related to the provision of municipal government services to the City of Missoula. CONCLUSION: Subsection (2) MCA as revised by HB-409 (2001 authorizes an increase in a political subdivision s property tax levy for the political subdivision s premium contributions for group health insurance benefits under beyond the amount of contributions in effect on July 1, 1999 and that additional contribution is not subject to the statutory mill levy calculation limitation established in state law. Both the City and County are political subdivision eligible to exercise this statutory authority. Thus, the authority exists to provide additional funds for both eligible City and County employee group health insurance benefits. OFFICE OF THE CITY ATTORNEY /s/ Jim Nugent, City Attorney JN:rmj pc: Legal Staff - 6 -