Montana will cut services, lay off more than 20 employees to balance budget

Dan Villa, Gov. Steve Bullock’s budget director, met with reporters to discuss the cuts, which are required under a law passed during the this year’s Legislative session.

The governor has long insisted on an unofficial rainy-day fund to tap in case of emergency. Lawmakers established such a reserve fund this year, but it was designed to build up during years with faster-than-expected growth. With no money yet in the fund, budget shortfalls can only be managed with cuts.

In case that happened, legislators and the governor’s office negotiated pulling money away from state programs whose funding could be redirected to patch holes in the broader budget.

State agencies were told to prepare for severe cuts and were asked to send the governor's office the measures they would take to comply.

House Appropriations Chairwoman Rep. Nancy Ballance, R-Hamilton, said Villa briefed her about the cuts and generally thought they matched legislative intent. She described the third tier of cuts, in particular, as non-essential services.

“The library, Historical Society, promotions for tourism, agricultural marketing. Those to me are much different than funding schools or funding Medicaid," she said.

Villa said the deep cuts could have been avoided if Republicans were willing to pass revenue measures like increasing the tobacco tax and closing tax loopholes for corporations.

“It means they’ve made the decision to implement cuts,” Villa said.

Now it’s unclear how the state could see revenue growth if Republicans maintain a majority in the 2019 Legislature and again reject a budget from the governor’s office that will likely include tax increases.

“We left $300 million in the bank. We called on the Legislature to implement the best financial practices,” Villa said. “Really at this point the voters need to speak.”

Outside organizations echoed Villa in pointing a finger at the Legislature.

"This latest round of cuts come on top of already deep budgetary cuts that will devastate the services that many Montana families rely upon and, in many instances, put more pressure on communities and local property taxpayers to pick up the tab," said Heather O’Loughlin, co-director of the Montana Budget and Policy Center. "The Legislature had a choice. Instead of asking the super wealthy and multinational corporations to pay their fair share, a majority of legislators chose to cut life-saving services for older Montanans and people with disabilities and to ask middle-class families to pay more for college."

If all the taxes proposed by the governor’s office at the start of the session -- such as increasing the tobacco tax, upping taxes on the most wealthy Montanans, altering the capital gains credit, eliminating the so-called “Water’s Edge” corporate tax loophole, bumping up a tax on alcohol and changing taxes on wealthy estates -- an estimated $204 million in revenues could have been generated.

Ballance defended the hard line against tax increases held by most Republicans.

“From my perspective, tax increases that go on forever for something that looks like a short-term problem is not the right answer,” she said. “I would always take the spending cuts first.”

Senate Majority Leader Fred Thomas, R-Stevensville, reframed the governor's tax increases as hitting poor Montanans hardest rather than the wealthy, pointing to a hard-fought legislative battle over an increase to the cigarette tax.

"The fact is their No. 1 priority was to raise taxes on the poor in the state," he said. "They got that cigarette tax out of the Senate and into the House. That was their main priority. It would have raised taxes on the poor that smoke to the same level of our state income tax of 6.9 percent."

Thomas also zeroed in on cuts within the Department of Public Health and Human Services, including Medicaid provider rate reductions, as proof of the Democratic governor's priorities. It also reflects a conservative view within the GOP that state government is too big.

"The bureaucracy will decide not to reduce its costs and will take it out on the public who's getting less services," Thomas said. "The governor can focus these cuts where he wants to."

Senate Finance Chairman Llew Jones, R-Conrad, was less critical of the governor's cut choices than Thomas, saying painful reductions are unavoidable.

"They're working hard to make it fit within a difficult situation. I'm certain that I would have made different choices but I would have gotten the same pushback," he said, noting he shares Thomas' concerns about cuts to health and social services that could affect clients. "Government spends in three major areas and a bunch of minor ones: health and human services, education and corrections. That's 80 percent of our state fund spending. To think we cannot impact those areas somewhat when our revenues decline to this level is unrealistic."

Ballance and Jones suggested the triggered cuts might not have been necessary at all if it weren't for ongoing federal discussions of tax reform. They said states around the country have seen collections decline from personal income and corporate gains taxes as financial advisers recommend that their clients delay reporting a year to see if President Donald Trump will make good on a promise to reduce those federal tax rates.

"We should see a bump in calendar year 2018 when that is reported," Jones said.

Whatever the cause, some state programs will be hit harder than others by the cuts.

An expected $30 million will be taken from the state fire fund, out of roughly $65 million in the reserve, even as Bullock over the weekend issued an executive order declaring a fire emergency.

John Tubbs, director of the state Department of Natural Resources, said last week there could still be enough left in the fund to pay for this summer’s blazes. But a dry spring and hot summer have made for an active fire year, including one complex the size of New York City burning and barely contained in eastern Montana.

The fire fund was established after an especially bad fire year hit state finances hard and forced legislators to return in a special session. That year, 2013, the cost of fighting fires exceeded $71 million. Other years, like 2015, have been more mild, with costs at $7.4 million. An average year runs about $22 million.

DNRC has spent $18.8 million on firefighting so far this year, Tubbs said Tuesday.

General fund reductions will most readily impact DNRC’s water resources and forestry divisions, Tubbs said.

For example, a drought task force cut means a position will not be filled, and an update to the state’s drought response plan goes on the back burner.

More than $500,000 in general fund reduction and pay raises amount to about a 7 percent vacancy savings, with duties spread to other employees, Tubbs said.

“We will provide the requirements of statute but we will not do the level of work with the public as we otherwise would,” he said, adding that the agency is trying to minimize the impact to the public.