Pair of bills seeking to restrict nonprofits’ access to legal remedies passes Senate

A pair of bills seeking to restrict nonprofit groups’ access to litigation by changing how they’re taxed and how they can use the Montana Environmental Policy Act cleared the Montana Senate this week. 

Flathead-area Republicans are sponsoring both bills, which were unanimously opposed by Senate Democrats. Sen. Greg Hertz, R-Polson, is sponsoring Senate Bill 524, which would tax a nonprofit’s expenditures related to litigating or commenting on proposals before agencies like the Montana Department of Environmental Quality. Sen. Mark Noland, R-Bigfork, is sponsoring Senate Bill 557, which seeks to change how nonprofit groups can use MEPA, the section of state law that directs state agencies to study and disclose environmental impacts when reviewing major projects.

Proponents of the bills say that they’re seeking to level the playing field by introducing more equity and transparency into litigation that’s used to delay or halt state and federally permitted projects, particularly those with a natural resource component. Opponents counter that SB 524 and SB 447 are designed to “muzzle” nonprofits and stymie their access to judicial redress for unlawfully permitted projects.

During a March 28 hearing before the Senate Judiciary Committee, Sen. Hertz argued that nonprofits suing the state should be taxed for those activities. With SB 254, he seeks to establish that “litigation costs, including attorney fees and costs associated with a nonprofit corporation challenging or supporting a government action in a judicial or administrative proceeding” is not considered a “charitable purpose under state law.” Hertz, an accountant, maintains that those costs should be taxed as unrelated business income, which is subject to a 6.75% state tax.

“These individuals are raising money to sue the state to disrupt our livelihood. The individuals [taking those actions] are getting tax-deductible donations while the rest of us are using our after-tax dollars to defend these lawsuits, and defend our way of life,” Hertz told committee members. “I just want to level the playing field.”

No proponents spoke on behalf of SB 524. Representatives from the Montana Nonprofit Association, Montana Environmental Information Center, Northern Plains Resource Council, Montana Renewable Energy Association, American Civil Liberties Union of Montana and Montana Health Professionals for a Healthy Climate testified in opposition to the bill.

Montana Nonprofit Association Executive Director Liz Moore said there are technical issues with the bill’s attempt to classify an expenditure as a source of income. She said it’s unclear how the state would establish a reporting mechanism for litigation expenses and is concerned that creating such a classification would result in a discrepancy between a nonprofit organization’s federal and state tax returns.

SB 524 opponent Richard Parks said although environmental groups appear to be “targeted” by Hertz’s bill in an attempt to “muzzle” their speech, it could have broad implications for other nonprofit organizations. Parks owns a fly shop in Gardiner and volunteers as the legislative chair of the Northern Plains Resource Council.

“It’s disturbing that there is this persistent effort to shut public interest groups out of explicitly public processes that can affect everybody in the state,” Parks told Montana Free Press. “We all drink the water.”

MEIC Deputy Director Derf Johnson described SB 524 as “one of the more problematic and dangerous bills of this legislative session.” He said it would infringe upon the marketplace of ideas supported by the First Amendment of the U.S. Constitution by singling out organizations and activities and collecting taxes on those groups and people.

“I would ask for you to think about the other side of the coin. If any particular other type of speech or activity were to be specifically targeted, would that be appropriate?” Johnson said. “Would that be within our American ideals of democracy? I submit to you that it would not.”

During the question-and-answer period of the hearing, Mark Schoenfeld, an informational witness with the Montana Department of Revenue, said it would be difficult for the state to track the expenditures Hertz has targeted with his bill. At this point, the agency would probably have to rely on nonprofits to self-report those costs, he said. 

Hertz told the committee a similar proposal he sponsored in 2021 was vetoed by Gov. Greg Gianforte. This session, “I’m not asking who you are,” Hertz said, referencing his prior attempt to get at the donor lists of nonprofits challenging agency decisions. “I’m just saying if you are going to enter into lawsuits against the state of Montana, into different sections of our code, this bill will classify those legal fees as unrelated business income.”

In his letter vetoing Senate Bill 278 in 2021, Gianforte wrote that the First Amendment protects donors and “prohibits targeting them.”

“Montana’s charities play an invaluable role in the betterment of Montanans and their communities. SB 278 undermines that role,” Gianforte wrote. He added that he supported pieces of the bill and invited Hertz to take another swing at tort reform in the 2023 Legislature.

After passing the Senate Judiciary Committee on March 30, along partisan lines, SB 524 passed out of the Senate on Tuesday, 31-19. Jeff Welborn of Dillon, Brad Molnar of Laurel and Walt Sales of Manhattan joined all of the Senate’s Democrats in opposing the measure.

Whereas SB 524 proposes changes to sections of Montana law dealing with the tax code, Noland’s proposal, SB 557, seeks to change the Montana Environmental Policy Act, the “look before you leap” section of Montana law that directs state agencies to study and disclose cumulative environmental impacts associated with large projects.

The proposed bill would require an individual challenging a state decision to pay for the state’s costs to compile and submit a record, identify the funding source for a judicial challenge to an agency decision and seek an injunction for that project. It would also require a plaintiff seeking an injunction or restraining order to post a bond for a year’s worth of lost employee wages and project revenue.

Anne Hedges, MEIC’s director of policy and legislative affairs, said the cumulative impact of those changes would have a chilling effect on individuals’ or groups’ willingness to push back against inadequately studied or ill-advised projects.

“[This bill says] you have to request an injunction; you have to try to stop a project from going forward, and you have to post a bond in order to do it,” Hedges told MTFP. “That’s pay to play.”

Hedges said it would also represent a marked shift from the state’s approach to injunctions over the past 30 years. She speculated that piece of the bill was designed to create a higher, more costly barrier to use MEPA’s public process.

A broad variety of groups have challenged state decisions under MEPA, Hedges added, not just environmental groups like hers. Hedges said agricultural and property owner associations, tribal governments, and groups calling for increased motorized access to public land have used the MEPA process to engage with agency decisions, according to a 2021 file produced by the Legislative Environmental Policy Office.

Similar to SB 524, SB 557 would also provide that challenging an agency decision “is not considered a charitable purpose for a nonprofit corporation” and is not tax-exempt under Montana law.

In his introduction to SB 557 before the Senate Business, Labor and Economic Affairs Committee, Noland said his bill is about “fairness” and “accuracy.” He also said the proposal was crafted with a recent judicial decision regarding a proposed Paradise Valley gold mine in mind. 

Proponent Steve Wade with the Montana Chamber of Commerce and the Montana Contractors Association said he sees SB 557 as an opportunity to “move the litigation to the front end” and underscore that MEPA is an “analysis and information gathering-system” rather than a vehicle to halt projects. 

Wade was joined by the Montana Petroleum Association and the Treasure State Resources Association in supporting Noland’s bill.

Hedges was the sole opponent to SB 557 during its March 30 hearing.

“[What this says] is if agencies don’t follow the law, then there’s nothing you can do about it because you can’t afford to go to court,” Hedges said. “You’re making MEPA voluntary — this takes the heart, the guts and the soul out of the law.”

Among other objections, Hedges took issue with the bill’s requirement that a group challenging an agency decision must disclose its funding. She said it seems to be aimed at intimidating groups.  

“Does that mean we have to disclose our membership? Does that mean United Property Owners [of Montana] has to disclose its membership?” she said. “It’s unclear what that means,” she said.

In his closing remarks, Noland countered that there are some “pretty good-sized groups” funding lawsuits and it’s not clear who those groups represent. There should be a brighter light on the members of groups suing over state decisions, he said. 

SB 557 passed the Senate, 30-20. Democrats unanimously opposed the measure, as did Sens. Welborn, Molnar, Sales and Russ Tempel of Chester.

Both SB 524 and SB 557 were heard in legislative committees about a week before the deadline for most bills to clear at least one house of the Legislature. In the coming weeks, they’ll be subject to House committee hearings.