What will the 2017 Legislature’s Budget Bill Look Like?

What will incoming legislators have to look forward to in January 2017?
 
The smart ones will have a fair idea of this during the November-December transition period.
 
Others won’t know what’s going on until the final days of the session.
 
To give our legislators a leg-up, I figured I’d go ahead and wade into Montana budget projections.
 
Boy, this is gonna be exciting!
 

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Let me start off by saying I’m no expert in this stuff and I could make some mistakes or interpret something wrong.
 
We get a lot of our information from the 2017 Biennium Ending General Fund and that comes to us from a 43-page 2019 Outlook report (PDF).
 
We know that the 2015 legislature thought they’d have $314 million for an ending fund balance for 2017.
 
That turned out to be wrong, as 2016 revenues are $166 million lower than expected, and we still have a couple months to go (it could be $191 million).
 
There’s an additional $11 million in extra non-budgeted items and school costs.
 
So in actuality, the 2017 ending fund balance will be around $163 and $188 million.
 
This creates problems for legislators when it comes to spending, although that ending fund balance – or surplus – still only accounts for about 4% of the total 2017 biennial expenditures.
 
Revenues for the 2019 biennium are expected to be $4.84 billion, which is an increase of $242 million over 2017.
 
That money will be eaten up by HB 2, statutory appropriations, non-budgeted transfers and various other bills that legislators bring forth.
 
One thing these decreased revenues will definitely do is curtail the governor’s ability to continue with very high budget surplus amounts.
 
Yes, the days of $250 million surpluses are over, and for the simple fact that the governor would  need to reserve around $62-87 million to reach that number.
 
I don’t see that money being reserved as we know additional expenditure pressures – such as money for prisons due to increased population, as well as funding pressures within state agencies – will create a need for an additional $43 million.
 
To make matters worse, the Individual Income Tax Risk alternative forecast is telling us we’ll lose $55 million there.
 
So that’s $98 million just to make up for declines in income tax revenue as well general upkeep on our existing state and social services.
 
So legislators have $4.8 billion to play around with, and most of that’ll break down like so:
 

• $1.9 billion for HB 2
• $288 million for statutory appropriations
• $20 million for non-budgeted items
• $8.5 million for other

 
By 2019 we’ll see HB 2 expenditures go up by $189 million, most going for the livestock department, school districts, Medicaid, and annual pay increases, all of which are stipulated by law.
 
The way HB 2 breaks down, 93% of the bill is already decided upon before the legislature starts, with 7% up for grabs.
 
The reason is simple:
 

• 51% goes to OPI and the Commissioner of Higher Education
• 26% goes to DPHHS
• 10% goes to Corrections
• 6% goes to Justice, Judiciary, and the Office of Public Defender

 
Not a lot of room to play around, huh?
 
Well, there’s not enough revenue.
 
That won’t change…unless energy and mineral and commodity prices turn around, or new taxes or new streams of revenue are generated.
 
Drilling new oil wells won’t help as they have an 18-month tax holiday after they get up and running.
 
Then there’s coal. Coal severance tax revenues are important to our long range building program, as that gets 12% of the coal tax money. With infrastructure already in disrepair, many think coal revenues are the answer.
 
Ramping up coal production isn’t the answer, however, as coal severance tax collections make up just 1% of the general fund.
 
Counties are especially hard hit though, getting 40% of oil and gas revenues. With revenues down and infrastructure failing, many areas of the state are clamoring for local option sales taxes.
 
That’ll help property taxpayers (maybe) but it’ll likely hurt common workers.
 
Perhaps that’s not seen as a problem, however, as the number of working age people continue to leave the state.
 
For 2017 we’re expecting a 4% growth in the 65+ age group but just about 0.3% for both the 0-24 and 25-64 age group.
 
By 2019 the 65+ age group’s population growth will be closer to 3% while the 0-24 group goes up to 0.5% and the 25-64 age group falls to about 0.1%.
 
That’s not encouraging news for employers, or for our income tax revenue outlook.
 
These are things for current Montana legislators to think about, as well as those that are expecting to win their races next month.
 
The transition period in November and December will go quickly and you’ll be left wondering a lot.
 
So look up forms and get an idea of the budget, where the money comes from and where it goes.
 
That way you won’t be relegated to the sidelines.
 
Good luck.