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Local Lawmakers Assess State’s Dwindling Budget

By Beacon Staff

Montana lawmakers adjourned the Legislature in the spring of 2009 with what looked, at the time, like a budget equipped to fund the state through one of the worst economies in a generation. Yet barely nine months later, with Gov. Brian Schweitzer slashing spending and telling his departments to find ways to save amid plummeting revenue forecasts, the state does not look nearly as strong.

And while most Flathead lawmakers seem to agree that a special session in 2010 is unlikely, no one would rule it out completely, saying it depends on how much worse Montana’s budget outlook appears.

“If important cuts need to be made, I think the Legislature has to be involved,” Sen. John Brueggeman, R-Polson, said. “It would be a lot easier if we didn’t have to come to town, but that’s what we were elected to do.”

The most recent picture of the state’s budget emerged on Jan. 6, when Terry Johnson, top analyst for the Legislative Fiscal Division, issued a grim – if unsurprising – report. When lawmakers adjourned last year, the budget they passed maintained a projected surplus of $282.4 million through mid-2011. According to Johnson’s report, that projected balance has since dropped to $16.9 million. That’s down significantly even from what Johnson estimated a month earlier, when his report predicted a $44.4 million surplus by the end of the biennium.

The revenue drop-off is due mainly to declines in personal and corporate income tax collections, oil and gas production, and investment earnings: the result of ongoing layoffs and the shuttering of companies around the state, which are taking a toll on Montana’s coffers. In drawing up the budget, lawmakers planned for declines in these areas, but the reality is proving worse than what they anticipated. For example, lawmakers planned for a 30.5-percent decrease in corporate tax collection through December. The actual decline in revenue was 64 percent – or about $60 million.

Individual income tax collections, which account for the largest single segment of general fund revenue, are off by 15 percent – or $57 million. By contrast, Schweitzer has managed to identify about $8 million in cost savings so far, through such measures as cancelling the $4.5-million renovation of the state mental hospital in Warm Springs.

The current $16.9-million balance projected for mid-2011 triggers a requirement under state law that the governor begin exploring budget reductions should the balance drop below –in this case – $36.8 million or 1 percent of overall general fund spending for the current biennium, which is $3.7 billion total. Two days after Johnson’s report, Schweitzer’s budget director, David Ewer instructed department heads to draw up plans for how they would cut 5 percent out of the general funds in their respective budgets by Jan. 29, but warned reductions to some programs could be as high as 10 percent.

“Importantly,” Ewer wrote in a Jan. 8 memo, “reductions should minimize the impact to the citizens of Montana.”

Exempt from any reductions imposed by the governor are the legislative and judicial branches of the state government, the salaries of elected officials, the Montana School for the Deaf and Blind, principal and interest on state debt and K-12 public education base funding: a list accounting for about 35 percent of general fund spending.

With those departments and branches shielded, Rep. Mike Jopek, D-Whitefish, anticipates cuts could fall heavily on those areas that don’t enjoy such protections, like the Department of Public Health and Human Services – particularly certain mental health services, which have already seen funding reductions.

“These are extremely painful areas to start cutting from,” Jopek said. “When you start cutting into mental health services, CHIP (Children’s Health Insurance Program), those have very humanized effects associated with them.”

But should deeper budget cuts, or cuts in those exempt areas, prove necessary, the Legislature would have to do so in a special session. That’s why Jopek said it’s possible lobbies representing those areas, like education, would oppose a special session to prevent funding cuts.

“As long as we’re not going into special session, K-12 is off the table,” Jopek added. “From the education standpoint, they really stand to benefit if we stay out of Helena.”

But for Jopek and other Flathead lawmakers, the steep decline of the state’s budget outlook underscores just how deep a swathe the recession has torn through northwest Montana.

Rep. Dee Brown, R-Hungry Horse, was initially optimistic that the valley and state would begin to see economic recovery by the end of this year or the beginning of 2011.

“Now, I’m guessing it’s going to be 2012 and that’s very scary,” she said. “I just hope things turn around faster than my second guess is.”

All lawmakers interviewed also concurred that unemployment in Flathead County is certainly much worse than what’s indicated by the 10.1 percent jobless rate reported for November, the most recent statistics available and the fifth highest in Montana.

Sen. Ryan Zinke, R-Whitefish, believes the true Flathead unemployment rate is likely closer to 20 percent. A real estate broker who hasn’t sold anything in a year or longer, he said, is basically unemployed, though that won’t show up on the state’s rolls. The same holds true for an independent contractor who hasn’t landed a job in a year, he added.

The question facing state leaders, then, is obvious, Zinke said: “Raise taxes or cut spending, because borrowing is not an option.”

Particularly in light of the state’s recent property reappraisal, no one sees tax hikes as an option. The revenue declines are likely to motivate fiscal conservatives, who complain that government spending has increased too rapidly under Schweitzer, to trim programs.

“Some of the growth that we experienced in the last few sessions is going to have to be rolled back,” Zinke said. “The economy will level off, but our revenues aren’t going to be what they were.”

“It won’t be catastrophic to Montana’s welfare,” he added.

And the calls for cuts, either in a special session or heading into the 2011 Legislature, are bipartisan so far: “The next legislative session, it’s going to be very difficult as far as the fiscal situation goes,” Jopek said. “I think there’s more chopping to be done.”

Despite the dire forecasts, however, Montana is still faring better than nearly every other state as one of two, along with North Dakota, still operating in the black. Nor are lawmakers panicking either, many of whom can recall the budget deficit and cuts they faced during the 2001 session.

“There’s a lot of us who have been through this before,” Brueggeman said. “Our job is to try to make the cuts as humanely as possible.”

Zinke looks on the bright side.

“It could always be worse,” he said. “We could not be living in Montana.”