A Big Picture Look At Montana's $170 Million In Budget Cuts

Jan 11, 2018

MTPR is doing a lot of reporting on the more than $170 million worth of cuts to the state budget that are resulting in people losing their jobs across state government and with private contractors, and reduced services to some of Montana’s poorest and most vulnerable citizens.

Today, we’ve asked our Capitol Reporter Corin Cates-Carney to join us for a big picture look at how the cuts came about, where they’re landing and whether there are any alternatives.

Eric Whitney: The budget we’re talking about was passed by the 2017 Montana Legislature, and was then signed by Governor Bullock, and it was pretty far out of whack right from the start, right, Corin? 

Corin Cates-Carney: Right. Budget writing starts with looking at how much money is coming into the state; but state revenue varies year to year depending on a lot of factors, so lawmakers rely on revenue projections, and this year the projections were way off. Democrats have criticized the Republican majority at the Legislature for adopting such optimistic revenue estimates, but ultimately the budget passed, and Governor Steve Bullock signed it.

EW: And it was off by more than a quarter billion dollars.

CCC: Montana also had a really expensive fire season last year. The $60 million that lawmakers set aside for this year and next year’s firefighting expenses was tapped out even before this year’s fires were out.

EW: And you reported that the federal government denied Montana’s request for $44 million in fire disaster funding from FEMA.

CCC: That’s right, but that was kind of a long shot. FEMA did approve $11 million to help out with eight of the biggest fires in Montana last year, but even that is going to take a couple of years to come in, so re-building the state fire fund before next summer remains a challenge.

EW: Getting back to the budget cuts, lawmakers passed a bill that triggered automatic cuts if the revenue estimate was off, right? There were four tiers of those automatic budget cuts that would kick in if state revenues failed to hit certain levels?

CCC: Yeah, that’s right. This new set of budget cuts would kick in for every $12 million bellow projections that the revenues fell. Once those levels triggered, the end result was around $97 million in cuts.

EW: And all of those got triggered?

CCC: Yes, the state health department took a big hit, and last fall it announced that it would start paying doctors and other healthcare providers who take Medicaid less. As we’ve reported, the budget cuts also caused some private non-profit companies to lay off workers that provide targeted  case management services for people developmental disabilities, as well as people with adult mental health issues. Each of those were separate cuts. The State health department says around 2,700 people with developmental disabilities could lose their current day-to-day [help] provider this spring. 

It sounds like those people with disabilities will be transferred to state health department staff to get the help they need, but we’re hearing that those staffers are going to have really heavy caseloads as a result, and advocates for the disabled are skeptical that state staffers will be able to keep up.

EW: Edward O’Brien had an interview with Missoula county’s chief prosecutor, and she said she thinks that those cuts to services for people who are mentally ill will likely result in more work for law enforcement, jails and the courts, and increased expense for local governments.

And those automatic budget cuts lawmakers passed, those still weren’t enough to balance the state budget, and so Governor Bullock called a special session in November, and lawmakers made more cuts?

CCC: That’s right. When they came back for the special session their challenge was to fill a $227 million gap between what the budget called for and how much the state actually has to spend. The Bullock administration proposed raising some taxes to help do that, but the Republican majority in the Legislature shot that down. 

What they ended up doing was covering the budget gap by doing three main things: They moved some money around between agencies, and that took care of about $94 million. Another pot of funding came from putting additional fees on the state workers compensation investment fund, and they agreed to negotiate a new lease with the state’s only private prison in Shelby, each of those could provide around $30 million. And they enacted another $75 million in cuts to state agencies.

EW: And the majority of those cuts are landing on the state health department, which kind of makes sense since the health department is one of the biggest slices of the budget, at about 21 percent of  state general fund spending .

CCC: Right, that’s in part because the federal government sends a lot of money to states, mostly via Medicaid, which is funded jointly by the state and federal government. If you look at all the dollars spent by the state combined with federal, spending on health care is the state’s biggest expense.

One consequence of the state budget cuts, though, is that when the state cuts spending on certain programs, that means it gets a smaller federal match, too. So that results in further cuts to state income. So, the $49 million reduction in state funding for the state health department is actually a $110 million cut when you subtract the federal matching funds.

For example, the state is cutting its funding for personal services in it’s Child Support Enforcement Division by around $170,000 the next two years. But that division’s total loss in funding is more than $400,000 over that same time.

EW: It looks like the next biggest cut is to public education, nearly a $44 million cut?

CCC: The first cut to public education came via those triggered cuts we talked about from the regular session. Those cuts totaled around $19 million. OPI’s funding took another $25 million hit during the special session, including the elimination of several transportation block grants for schools. The state’s university system took about a $4.5 million reduction during the special session.

EW: And it looks like a couple of the bigger line item cuts are to the Departments of Justice and Corrections.

CCC: Yes, during the special session both of those agencies saw reductions of about $4 million. We haven’t heard yet what exactly that means in terms of specific effects on Justice -- which is the attorney general’s office and the courts, or to the Department of Corrections.

When I spoke with DOJ staff last week they said the on the ground impact to these cuts will likely be seen in their partnership with local counties. Counties sometimes turn to the state justice department for help in prosecuting assault cases, homicide cases and other criminal cases. The DOJ also offers assistance in investigating these crimes when a county might not have the expertise. But with these cuts, counties will likely see less help.

EW: Is it a given that all the budget cuts being called for will actually have to be enacted? I mean, they’re based on projections, so is there a chance that those projections could be off and the state will actually bring in enough money that it wouldn’t have to make some of the cuts?

CCC:  On Wednesday the legislative fiscal analysts released new, updated revenue projections, and they said that things appear a little better than they did when all the budget cuts were passed. They said revenue is up over last year by about $120 million at this point.

EW: But that’s not enough to fill the budget gap, right?

CCC: Right. The new projection, which is just a projection, now forecasts that state income will still be about $50 to $75 million short of what was budgeted. That’s a lot better than what the governor’s office was projecting back in November when he called the special session, but still pretty far off from being balanced. Work done in the special session is keeping the budget stable, for the moment.

EW: And again, those are projections, so there’s still a chance things could continue trending up, or drop back down.

CCC: Either way, the cuts from the regular and special sessions are now law. And state agencies now have to adjust their budgets to reflect that.

Moving forward there’s a new special committee meeting next week to start looking into how Montana’s tax structure is built and how it captures revenue based on where in the state economy those taxes applied.

Some state lawmakers are concerned that the state may need a pretty big overhaul to its tax system, because the industries it’s traditionally relied on like coal and agriculture aren’t as reliable as they used to be. There’s been talk of finding ways to tax newer parts of the economy in e-commerce, or maybe shifting taxes to other economic sectors that could provide more stable streams of income for the state.

EW: And there’s now also concern about what the tax cut that the Trump administration got through Congress will mean for Montana. Republicans are echoing the White House line that the tax cuts will be good for business, and wages will go up, and as a result the state will actually have more revenue to tax, and be better off, is that right?

CCC: That’s right. But the Bullock administration isn’t so sure. The state department of revenue says that under one scenario, new deductions in the federal tax cuts could also apply to state taxes, and that would reduce state revenues by a projected  $46 million this year. But right now it’s still unclear if that’s actually going to happen. The Department of Revenue says it’ll have an updated analysis on that next week.

EW: Corin Cates-Carney is MTPR’s Capitol reporter, and he’ll continue to watch the state budget closely.