The Montana state Board of Investments OKs $10.5 million coal-tax loan for computers

The state Board of Investments on Thursday unanimously approved allowing the state Revenue Department to borrow $10.5 million in coal-tax money to pay for a new computer system to replace its costly and troubled former system.

On a 7-0 vote, with two members absent, the board went along with a recommendation by its executive director Carroll South.

By CHARLES S. JOHNSON
Gazette State Bureau

http://www.billingsgazette.com/index.php?id=1&display=rednews/2004/03/12/build/state/70-coal-tax.inc

The board in August had approved a $3.5 million Intercap loan to the Revenue Department loan as a first step to help pay for the new computer system. Under Intercap loans, the board sells bonds and loans the money to local governments and in some cases, state programs.

Problems arose when state Legislative Auditor Scott Seacat expressed concern about the Legislature’s increased use of the Intercap program to finance government operations and whether it constituted state debt. The Montana Constitution requires a two-thirds legislative majority vote or a majority of the voters in an election to issue debt.

The 2003 law that authorized borrowing didn’t receive the two-thirds vote required for the state to issue debt, South said. There were also questions over the fact that the Legislature didn’t specify a specific tax to repay the borrowing.

South said the board didn’t want to have to disclose these potential problems to the buyers of these bonds, fearing it might put "a cloud on all the Intercap loans," which total $70 million.

As a result, South said, it was later decided instead to obtain a coal tax loan to finance the new computer system to avoid these problems.

"It’s a difficult decision and it has complications," South said. "I told the board it’s making the best of a bad situation. We’re caught between the Legislature asking us to do something, and the auditor saying maybe we shouldn’t do this."

South said, "I told the board we need to be part of the solution, not part of the problem."

On Monday, the coal tax trust will buy the $3.5 million loan from Intercap. The Revenue Department will draw down the remaining $7 million in loans from the coal tax trust as needed.

The interest rate on the loan from the coal tax trust will be directly tied to the Intercap loan rate, which has been set for 2.75 percent for the next year and is adjusted each February. The loan will mature on Aug. 15, 2010, or sooner, depending on the useful life of the computer system.

Sen. Corey Stapleton, R-Billings, sponsor of the 2003 law, said he’s just glad the loan is moving forward to pay for the new computer system.

He was a leading critic of the department’s costly and problem-plagued previous system, known as POINTS or Process Oriented Integrated Computer System..

The POINTS debacle wound up costing the state at least $61 million, Stapleton said last year.

"In the end, this is probably the option that the executive branch, the legislative auditor and the Board of Investments thought they could live with," Stapleton said. "I think in the end, as long as we get the new system, it’s more important than how we pay for it."

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