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Editor's note: This is the first of a three-day series examining Gov. Brian Schweitzer's proposed budget for the next two years.

HELENA — Gov. Brian Schweitzer has proposed a state budget for the next two years that provides more money for education and human services and offers tax cuts to homeowners and businesses, while relying heavily on one-time-only transfers of money to balance it.

Schweitzer's budget calls for spending $3.7 billion from the state general fund over the next two years, an increase of just 1.97 percent over the budget passed by the 2009 Legislature. He would leave a surplus of $129 million as of mid-2013.

“The top-line numbers are we are going to increase funding for K-12 (schools) and for higher education, and we are going to cut taxes, and we are going to create jobs,” Schweitzer, a Democrat, said when unveiling the budget Nov. 15.

Schweitzer's budget has many moving parts and is tightly balanced.

It now goes to the 2011 Legislature, which will decide how much of it to approve or change — although the governor gets the last say, with the veto power.

Republicans will control both chambers of the Legislature, having amassed a 68-32 majority over Democrats in the House, which was tied 50-50 in 2009, and added a seat to widen their lead over Democrats in the Senate to 28-22.

“Any budget is interesting in that my office proposes, and you dispose of it,” Schweitzer told incoming Republican legislative leaders this week. “Gosh, I don't think we've ever proposed a budget that ended at the other end of the chute looking like it did on the way in. I don't expect the same this time around.”

Incoming Senate President Jim Peterson, R-Buffalo, and House Speaker Mike Milburn, R-Cascade, both voiced concern to Schweitzer about his budget's reliance on one-time transfers of money from other funds and uses to balance the general fund.

Schweitzer said these intergovernmental fund transfers have been used before in Montana. Other states also are depending on them now, he said.

If Republican legislators block the transfers, they will have to come up with budget cuts or find other sources of money to balance the state budget.

Here's a look at some details of Schweitzer's budget proposal:

One-time-only fund transfers: Schweitzer proposes transferring $95 million from several other pots of money intended for other uses across state government to help balance the general fund budget. These require legislative approval.

The largest would drain $18.5 million in coal-tax revenue from the Treasure State Endowment Program and move it to the general fund for two years. The endowment program, passed in 1991, makes grants to local governments for public works projects.

Schweitzer calls this an earmark program and says Montanans are experiencing “earmark fatigue” nationally and in the state. He said many similar grants went to local governments with federal stimulus money the past two years, in addition to the Treasure State Endowment Program, so they can hold off for two years.

Local governments already have voiced concern over this move, warning that the proposal could delay many needed local projects by a couple of years.

Other major transfers proposed by the governor include $10.7 million from the long-range building program, where Schweitzer has ordered projects canceled; $10.7 million from computer-technology projects he has canceled; $20 million from an emergency firefighting account; $2.89 million from the Big Sky Economic Development account (a Commerce Department program unrelated to Yellowstone County's Big Sky Economic Development Authority); $20 million from the school facility account; $6 million from the coalbed methane account, and $1.3 million from the natural resource damage account.

Tax cuts for homeowners: Schweitzer is proposing a state income-tax credit to help offset property taxes paid by Montanans on their primary residence. The tax credits would be $50 per homeowner next year and $100 the following year. His budget allocates $12 million to pay for the tax credits the first year and $24 million the second year.

Tax cuts for businesses: Schweitzer called for eliminating the property tax on business equipment over three years for companies with up to $1 million worth of equipment. When fully implemented, that would exempt 98.6 percent of Montana businesses — all but the largest 425 companies in the state — from paying the tax.

The amount of equipment exempt from taxation, now $20,000 per business, would rise to $200,000 in 2012, $500,000 in 2013 and $1 million by 2014. The governor's budget allocates $22 million over the next two years to pay for the reduction.

State employee pay plan: The Schweitzer administration negotiated a tentative deal with state employee unions to raise state workers' pay by 1 percent in January 2012 and by 3 percent in January 2013. Many state employees have faced a pay freeze for the past two years.

To take effect, the deal must be approved by members of the three major unions and the Legislature. Its estimated cost for the two-year period is $21.6 million from all funds, including $11.4 million from the general fund.

Increased tax enforcement: The budget counts on $28 million more in tax collection efforts by the state Revenue Department by targeting out-of-state individuals and businesses it believes aren't paying the state what they owe in taxes. This enhanced enforcement, however, depends on passing a bill giving the tax agency the authority. Republican legislators have generally opposed such efforts in the past.

Actual budget cuts: Two departments, Commerce and Transportation, absorbed most of the general fund budget cuts proposed by Schweitzer.

Commerce would see a reduction of 28 percent, or just under $4 million, for the two-year period. Its overall proposed budget still would be more than $29 million for the two years, with much of the money coming from federal funds.

The cuts include eliminating the agency's regional development officers, which were cut earlier this year; $1.75 million for a new worker training program; $1.5 million that finances private businesses' use of a state supercomputer in Butte, and $90,500 from the state's census office, which had used money to promote the 2010 Census and provide information.

“We did the best we could,” said Commerce Director Dore Schwinden. “It's tough times, and everyone's shouldering part of the burden.”

Schweitzer's budget proposes cutting the entire $2.6 million in general funds from the Transportation Department's budget. However, that is a small portion of the budget of the department, which still would receive $677 million over the next two years from state and federal gas tax revenue.

“When we put together a budget for the next biennium, we made some pretty good improvements in efficiencies,” Director Jim Lynch said. “We felt we could reduce the general fund, make contractor payments increase and the state can see the same, if not better, road service.”

Lynch said the department had another record year in contractor payments in the fiscal year that ended June 30 with $340 million in payments for work on Montana's highways and roads.

Tomorrow: A closer look at the Schweitzer budget's proposals for education.

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