HELENA – The Montana State Fund board of directors voted Wednesday to withdraw its lawsuit challenging a management fee passed during the special legislative session to help pay for the state’s record fire season.
The 5-2 vote happened during a special meeting called by board chairman Lance Zanto of Helena.
“The Governor’s Office is pleased the board is fulfilling their responsibility to follow the law passed by the Legislature,” Gov. Steve Bullock’s spokeswoman Ronja Abel said. “We look forward to a collaborative relationship with the State Fund going forward.”
During the recent special session, lawmakers passed a bill to temporarily charge a 3 percent management fee on state fund assets above $1 billion, which would raise nearly $30 million over the next two years. The state fund, which sells workers’ compensation insurance, expects to have about $1.5 billion in assets.
The special session was called to address a projected $227 million budget deficit due to lower than expected revenues and a fire season that cost the state about $70 million.
Board members voted 6-0 earlier this month to lobby against the proposed bill and to take legal action if it passed. The complaint, which was filed on Nov. 17, argued state law requires premiums collected by the state fund and the interest and dividends on investments to only be used for the operations and obligations of the state fund.
That same day, Bullock appointed two new board members — former Democratic Sen. Cliff Larsen of Missoula and his former senior policy adviser Jim Molloy. He also re-appointed Zanto and Lynda Moss of Billings. All four voted Wednesday to withdraw the lawsuit along with Jack Owens of Missoula.
Board members Matt Mohr of Bozeman and Jan VanRiper of Helena wanted to follow through with the complaint. Moss didn’t vote on the Nov. 10 motion to oppose the legislation.
Molloy argued Wednesday that paying the management fee would not hurt the actuarial soundness of the state fund, the contractual rights of the policy holders or any current or future injured employees the policies would cover. He suggested it was a battle better saved for a later date.
VanRiper said the board had a financial duty to policyholders. Many who commented, including former Montana State Fund board member Wayne Dykstra, argued the next time Montana faces a fiscal crisis the legislature is “going to come back to the well where they got the bucket of water before.”
“It’s really time to put a line in the sand and force this issue,” Dykstra told the board, suggesting it was a case that might be appealed to the Montana Supreme Court. “If we lose, we lose on the merits.”
Owners of roofing and construction businesses testified in favor of continuing with the lawsuit, which state fund legal counsel Brad Luck said would cost up to $60,000 going forward.
Luck argued that what the legislature labeled as a “management fee” is a pretext for a transfer of money by the legislature to the firefighting fund.
“So the question is, is that OK in terms of the constitution and the statues?”
District Judge Mike McMahon has denied the state fund’s request for a temporary restraining order to prevent assessment of the management fees. He also questioned whether the state fund “has established a legitimate cause of action or that it is likely to succeed on the merits of its claims.”