Montana Budget Update Where Do We Go from Here?

An Unbalanced Budget Leaves Deep Cuts to Services for Montanans

The recent decline in state revenue threatens Montana’s ability to adequately invest in the public institutions and services that educate our children, keep our communities safe, and provide health care and other services to our most vulnerable neighbors. Acknowledging that revenue levels were below projections in the 2017 biennium, the governor released a proposed budget in late 2017 for the 2019 biennium that included a package of budget cuts, revenue enhancers, and fund transfers.

At the conclusion of the legislative session, the legislature: (1) accepted nearly all the Governor’s proposed cuts; (2) made even deeper cuts, particularly in health and human services and higher education; (3) and refused nearly every bill to increase revenue to sustain services at their current level. In addition to the significant reductions made during the session, policymakers left Helena with less than a $200 million ending fund balance (well below past sessions). Senate Bill 261 made further cuts when state revenue again dropped below projections.[1] In total, legislative action between January and July 2017 has resulted in $218 million in general fund cuts.[2] DPHHS has had present law reductions of $13.4 million in general fund dollars, and these cuts result in an additional loss of nearly $56 million in matching federal funds.[3]

Montana law requires the governor to reduce spending when the ending fund balance falls below a certain percentage of expenditures in the second year of the biennium. That trigger amount phases down as the state advances into the biennium. For the period between July 2017 and September 2018, that trigger amount is 5 percent of expenditures in the second fiscal year (FY19), or about $119 million. On August 30th, the governor’s budget office announced that it estimated the state’s ending fund balance at the end of FY19 would be below the trigger amount.[4] This estimate is based on: (1) lower revenue in FY17; (2) the governor’s budget office projecting lower revenue for FY18 and FY19; and (3) higher expenditures for FY18 and FY19, partly due to wildfires. In order to meet the required minimum, the state must restore $227 million to reach an ending fund balance of $143 million.[5] This $227 million can come from a combination of further cuts, transfers, and additional new revenue. The executive branch has some authority to make spending reductions but is limited to no more than a 10 percent reduction in each agency division. Alternatively, the governor (or the legislature itself) can call a special session to address the current budget crisis.

Now is the Time for the Legislature to Seriously Consider Revenue

Further cuts may be inevitable, given the level of the ending fund balance, but Montanans should continue to call for a balanced approach that was not adequately debated during the session. Republican leadership’s refusal to consider new revenue has meant devastating cuts for many services that support families and communities across the state. Additional cuts will impact nearly every part of the state budget. It is critical that citizens call on legislators to have a thoughtful conversation about new revenue to stave off even greater destructive cuts.

Making Tough Choices: A Framework for Considering Future Budgetary Cuts

While we believe a balanced approach that includes new revenue is essential to mitigate the worst level of cuts, we understand that short-term cash flow issues may necessitate the governor to take immediate cuts under the authority of 17-7-140.[10] We recognize the difficult decision in making further cuts, and the below factors should be considered to limit the damage of these cuts.

 

Montana Budget & Policy Center

Shaping policy for a stronger Montana.

MBPC is a nonprofit organization focused on providing credible and timely research and analysis on budget, tax, and economic issues that impact low- and moderate-income Montana families.