The Montana Board of Livestock’s vice chairman says that a contentious proposal to increase fees for dairy inspections is dead, but he offered little indication how the state ultimately will close the program’s budget shortfall.

John Skully told the Legislature’s economic affairs interim committee Thursday that his board will continue to work toward a solution with the state’s dairy producers, distributors and processors, who have sharply criticized a proposal intended to fix a deficit initially projected at more than $145,000.

Temporary spending cuts trimmed that projection by about two-thirds, but Department of Livestock officials say they are unsustainable in the long term.

“One thing I know is the proposal isn’t going to be approved,” Skully told the committee. “What we’re going to have to do in the next 30 to 60 days is sort of summarize all of the input we have and try to figure out what kind of a solution we’ll have as we go forward.”

Wendy Arnold, who co-owns Flathead Lake Cheese Co. in Polson, would have faced a $750-per-month fee under the original proposal.

Dairy processors such as Arnold have never before been charged dairy inspection fees. She told the committee that her annual production is just 2.47 percent of the cap at which the minimum inspection fee was proposed.

“Paying a fee is one thing, but paying an astronomical fee is another,” she said.

Skully indicated that businesses such as Arnold’s likely would pay some fee when the rule becomes final.

“I think prudent business management says there needs to be a cap, and there needs to probably be a minimum,” he said, adding later, “Clearly, some people would like to pay nothing and I’m not sure that’s an option.”

George Harris, the department’s central services administrator, said the deficit is mainly due to the falling number of dairy producers in the state, meaning the fee revenues no longer cover the program’s cost.

But Wilcoxson’s Ice Cream President Matt Schaeffer said a heavy-handed inspection fee could make that trend worse.

“I’m at the point now that I’m going to go down to Idaho and talk to them,” he said. “I don’t particularly want to use out-of-state milk, but this additional fee that you’re trying to impose on us is huge for us.”

Several dairy producers said they believe the Department of Public Health and Human Services should help foot the bill.

The committee concluded the hearing on the fees by lifting its objection to the rules, based on Skully’s assurance that the Board of Livestock would not move forward with the fee-increase proposal. Committee chairman Rep. Ryan Lynch, D-Butte, asked Skully to provide an updated proposal at the committee’s next meeting on April 20.

Staff attorney Jameson Walker said the board has until July 8 to publish a final rule for the inspection fees.

Reporter Sam Wilson can be reached at 758-4407 or by email at swilson@dailyinterlake.com.