"Hard Times, Hard Choices:" What you need to know about Montana's budget-building process

Hot off its first 45 days filled with contentious policies and partisan clashes, the 67th Montana Legislature is buckling down to the task of building the state’s budget for the next two years. While the budget is arguably the most critical bill the Legislature passes, determining how much money state-funded programs will receive, the process of assembling it can often be a head-scratching affair.

With the budget now in the limelight as lawmakers race to the end of their 90-day session, here’s an explanation of the process of funding Montana’s public services.

What is the state budget?

The state budget, which travels through the Legislature as House Bill 2, provides the framework for how state money is distributed. Once passed, it “appropriates,” or distributes, funding for two years -- a “biennium.” The amount of funding agencies get varies from session to session as the size of the state’s coffers and the political goals of the Legislature change. The Legislature also proposes additional spending bills to fund new projects that are not part of the main budget.

Who sets the budget?

The Montana Legislature meets at the start of each odd-numbered year and is required by the state constitution to pass a “balanced” budget. This means lawmakers must craft a budget that spends only as much money as the state predicts it will bring in. While the governor can sometimes spend money that has not been appropriated by lawmakers -- as was demonstrated by former Gov. Steve Bullock during the pandemic when he decided where some federal relief dollars would be spent -- the Legislature retains the power to appropriate all state money while it is in session.

How is the budget set?

The road the budget takes through the Legislature is long and complex. By the time HB 2 becomes law, hundreds of hands have made small and large tweaks to its overall form as lawmakers choose where to send money.

The process of building a state budget begins with a proposal budget made by the governor, who typically builds off of the previous budget, adding to some programs and trimming down others. Former Democratic Gov. Steve Bullock proposed his final budget in late 2020, which Republican Gov. Greg Gianforte revised, cutting $100 million in proposed new spending from Bullock’s budget as part of his promise to “hold the line” on state spending.

The budget is divided into six sections, with funding for state government, health and human services, natural resources, public safety, public education and infrastructure.

As HB 2 currently stands, those six sections are fighting over $6.3 billion from the general fund for the 2022-2023 biennium. The Department of Public Health and Human Services is currently the largest recipient, budgeted at just over $3 billion, with the Office of Public Instruction tailing at $1.4 billion. The Department of Corrections is set to receive nearly $231 million.

Dave Lewis, a former Republican state legislator and budget director under three different Montana governors, says an old adage from his time working on state budgets was “educate, medicate and incarcerate,” as the majority of the budget went to schools, healthcare and the justice system.

“History in Montana is ‘hard times, hard choices.’” Lewis said in an interview. “We’ve never been really flush; we’re really careful about how we spend our money.”

When lawmakers meet in early January, they begin hearings on individual sections of the budget as state agencies ask for more or less money than is proposed, depending on their needs.

Those hearings typically span the first 45 days of the 90-day session, before each of the section subcommittees gives their reports to the main House Appropriations Committee.

The 2022-2023 budget just reached this stage on Tuesday, March 9, as the Legislature reconvened after a short break. The House Appropriations Committee met throughout the week and took action on the budget sections, making a number of tweaks to funding for various agencies.

The committee then advances the budget to the House floor, where it will be debated before it passes to the Senate to repeat the process. Differences between the Senate and House versions of the budget are ironed out in a special committee before the Legislature passes the bill to the governor for a signature.

When the budget is approved by both houses, the Legislature has completed its only constitutional task, and is free to adjourn until the next session.

Where does the money come from?

One of the most popular analogies in the Capitol for the budget-building process compares it to a system of pipes and buckets, with state agencies all jostling for a chance to tap those buckets to fund their programs. The “pipes” represent all the places Montana’s money comes from: statewide taxes like income, property and alcohol and tobacco, fees assessed on livestock, hunting and fishing licenses and more, and grants from the federal government. Those revenue sources feed into the “buckets,” or accounts, that the state manages, the largest and most important of those being the “general fund.” The budgeting process is all about which buckets are tapped to fund which programs, and how much each program is allowed to take.

When the Legislature passes laws that cut taxes or provide tax credits, revenue is generally reduced, which leads to less money immediately available to be appropriated by the budget. Part of Gov. Gianforte’s “Montana Comeback Plan” includes sweeping tax reform legislation like cuts to the top income tax rate, lowering the business equipment tax and providing tax credits for trade education, which Gianforte and supporters argue will draw businesses and jobs to the state, thus increasing revenue in the long run.

But, opponents to the cuts have said they will lead to decreased revenue and force lawmakers to make cuts to critical programs like Medicaid and education.

Heather O’Loughlin co-directs the Montana Budget and Policy Center, and spoke against many tax reduction proposals in committee. In an interview, O’Loughlin said lawmakers have already advanced this session’s budget with cuts to Medicaid caseload funding, even as they seek to increase pay for providers who accept Medicaid.

“I think there’s an interesting juxtaposition of the Legislature wanting tax cuts, while still wanting new spending,” O’Loughlin said. “I think there’s going to be a lot of discussion on how this will pencil out at the end of the day.”

What will this session’s budget look like?

As lawmakers hammer out the details of the next state budget, there are still several revenue wild cards, especially in light of the economic hit brought on by the COVID-19 pandemic, but also how federal COVID relief funds will be allocated.

Gov. Gianforte’s budget director Kurt Alme addressed the House Appropriations Committee on March 9 and told lawmakers the state could receive as much as $2.7 billion in one-time relief funding from the $1.9 trillion “American Rescue Plan” signed by President Biden on March 11, but warned them against using the money to fund long-term programs that will continue after the dollars dry up.

So far, the biggest cuts to Gianforte’s proposed budget have been in funding for the Department of Public Health and Human Services, which is currently coming in at $162 million below Gianforte’s proposed budget, with the largest portion of cuts proposed to Medicaid caseload funding -- lowering the projected number of people utilizing Medicaid services.

Also on the chopping block is funding for a preschool education program called the Waterford “UPSTART” program, which was funded by a federal grant in 2020. The program provided computers for 200 families of preschool-age children and software for kindergarten readiness. The program was set to continue with $800,000 in state general fund money in 2022-23, but an amendment from Rep. Matt Regier passed that removed the program.

Lawmakers have also not yet folded in Gianforte’s proposed “HEART” fund, which would use upcoming recreational marijuana tax money to pay for addiction recovery programs. Legislators are gearing up for a fight over those dollars, which could generate as much as $52 million per year by 2026, according to a study from the University of Montana.

While Republicans and Gov. Gianforte’s professed budget goal is to “hold the line” on new state spending, Democrats say they’re focused on preventing cuts to essential services.

Senate Minority Leader Jill Cohenour, D-East Helena expressed concern over Gianforte’s proposed tax cuts, which she said will make it harder to balance the budget without cutting costs.

“The response in the budgetary process is going to be, ‘where can we cut services?’” Cohenour said in a press call. “We’re going to continue to push, as a top priority, making sure we have a balanced budget.”

Rep. Llew Jones, R-Conrad, heads the House Appropriations Committee, which advanced HB 2 on to the full House on Friday, March 12. In an interview with members of the press, Jones said to expect more clashes over cuts made to the Department of Public Health and Human Services, as well as debates over additional funding for higher education as lawmakers gear up for a budget tug-of-war.

“Nobody gets their way in its entirety,” Jones said. “For some, it’s always too much, and for some, it’s always too little, and hopefully, you try to warm it to the right spot.”

Austin Amestoy is a reporter with the UM Legislative News Service, a partnership of the University of Montana School of Journalism, the Montana Broadcasters Association, the Montana Newspaper Association and the Greater Montana Foundation. He can be reached at austin.amestoy@umontana.edu.