State committee reviews budget shortfalls

Sep 17, 2017

By MBPC Staff

Great Falls Tribune - September 14, 2017

A legislative panel was told Thursday that the state budget would have an ending fund balance of $47.6 million, which is $64 million less than anticipated, prompting debate as to what their next step should be as a committee.

Members of the Revenue and Transportation Interim Committee were told by the public to rise above politics with any direction as state agencies make 10 percent in budget cuts  to close a projected $227 million shortfall left in the wake of declining revenues, and urged the board to seek other revenue streams.

The state is required by law to have a cash reserve of at least $143 million, but  Bullock's administration forecast an $84 million deficit by 2019 if nothing is done — leaving a $227 million gap to fill, even after $70 million in cuts that were triggered last month by low revenue results.

The word "dire" was used  several times throughout the morning by state officials as they talked about the budget Thursday.

State departments have also been hit with cuts mandated by a law passed during the 2017 legislative session. Senate Bill 261 calls for reductions triggered by declining revenues.

Sen. Jill Cohenour, D-East Helena, said SB 261 was an attempt to head off problems "but obviously missed the mark."

The committee was asked for comment as the governor is expected to review cuts to departments Sept. 26.

Dan Villa, the governor’s budget director, warned the committee against optimistic growth projections, saying while they may be possible, they were not plausible.

The committee passed a resolution that said the ending fund balance may fall below state statutes, but estimating revenue early in the biennium introduces uncertainty into estimates, and that the governor and Legislative Fiscal Division keep monitoring the situation.

There was some debate over the resolution as the majority of committee members wanted to avoid wording that would favor a special session that would haul lawmakers back to Helena. Some said such a session was not necessary at this time.

The Legislative Fiscal Division’s June report estimated an ending fund balance of $111 million, based on revenue estimates by the state Legislature.

Stephanie Morrison, lead fiscal analyst for the Legislative Fiscal Division, said there were lower than anticipated individual income tax collections and that the usual suspects of oil and natural gas collections were not “the story” this time.

She said House Joint Resolution 2 assumed there would be growth of 4.5 percent and it declined to 1.4 percent.

She noted the actual revenues were $75 million less than expected for HJ2 and expenditures were $13 million less than the prior year.

Morrison said the individual income tax collections were 5.7 percent below estimates, or $70 million. She said that may be due to taxpayers shifting income from 2016 in anticipation of lower federal tax rates.

Villa said later that was doubtful and that the phenomena started before the 2016 elections.

“This is a fundamental change in our revenue stream,” he said.

Morrison also noted that the wildfire suppression fund at the end of 2017 was $62 million, which was higher than expected as wildfires have hit the state hard.

Villa said at one time the timber industry was a major player in the state and paid a large amount of property taxes. That industry has been replaced by health care, often times with nonprofit status.

“Timber mills pay property taxes,” he said. “Hospitals do not. That’s a fundamental shift.”

Villa said the governor’s office was willing to work with lawmakers.

“We’re ready for your questions. We’re ready for your partnership because now Montana cannot afford politics,” he said.

People during the public comment session urged the committee to consider other revenues. Some suggested taxes added to tobacco and alcohol, often called “sin taxes.”

Such proposals failed in the last legislative session.

Heather O’Loughlin, co-director of the Montana Budget and Policy Center, said she hoped the state could come together and work on revenue sources and find a balanced solution that would avert a budget crisis.

Many urged lawmakers to work together.

“We’ve lost the ability to compromise,” said Joel Peden of the Montana Independent Living Project. “Ladies and gentlemen, without some compromise people will die.”
He also criticized lawmakers for taking health benefits while in office but yet were willing to take them from others.

Brent Mead of the Montana Policy Institute, a free-market think tank, said the reason for a shortfall was that state spending is up and urged the panel not to “dig into taxpayers’ wallets.”