MTPR

How Montana's Budget Ended Up $200 Million In The Hole

Oct 30, 2017

Montana is facing a state budget crisis. The state is projected to have about $200 million less than it needs to fund everything in the budget that lawmakers and the governor agreed to this year. That much is clear, but there's a lot of disagreement about why the $200 million hole is there, and what to do about it.

Today and tomorrow we're going to take a look why the state budget is so far out of whack.

Every legislative session, lawmakers try to figure out how much money the state will have to spend based on two forecasts – one from the executive branch, and one from the legislative branch.

Kelly Flynn, is a Republican representative from Townsend. He sat on the House committee that approved the legislative forecast. He says lawmakers used the best information they had to lay the foundation of the state budget.

Rep. Kelly Flynn.
Credit Courtesy Montana Legislature

"You have an independent body, and I stress that, the Legislative Fiscal Division, their job whether it’s Democrats in charge or Republican in change, they’re supposed to make the best possible estimate on the revenues we have so that we can budget," Flynn said.

It seems straightforward: Once the estimates on how much money the government will have available are in, lawmakers decide how to divvy it up to meet the state's needs. But it's not that simple.

"It is a politically charged debate, and it’s gamed by both sides," Flynn said.

Flynn says politics can seep into the forecasting process, even before debate begins on how to spend government money.

In this year's legislative session, Governor Steve Bullock, a Democrat, accused Republican lawmakers of putting too much stock in the optimistic forecast. Bullock countered that lawmakers actually needed to pass some tax increases to be able to pay all the state's bills.

Republicans, who get elected on the philosophy of keeping taxes low and government small, fired back. They passed a budget based on the independent forecast that most lawmakers believed reflected realistic expectations for the state economic growth and incoming revenue. That forecast, they said, projected that there would be enough money coming into the state without raising taxes.

But then, in June, it became clear that the actual amount of money coming into government was well below what the forecast predicted. Now, updated forecasts project a shortfall of more than $200 million, blowing past additional safeguards passed this year to protect against holes in the state budget.

"To look at it in hindsight, even though the revenues are growing, they are not growing to point where we thought they would be back in February and March when we were looking at those estimates," Flynn said.

Montana is not alone in writing budgets that don't work because of errors in revenue forecasting.

"In defense of revenue forecasters, there is really a lot of art, not just science to it," Barb Rosewicz, research director for the Pew Charitable Trust’s state fiscal health project, said.

In 2011, Pew partnered with the Rockefeller Institute of Government to study state revenue estimates.

They concluded that, across the country, actual state revenues are recently tending to fall below the forecasts elected officials use to write budgets. The researchers said that happens more often during and after recessions, and that state revenues are increasingly difficult to forecast as parts of the national and state economies grow more difficult to predict.

"There's no database that's gonna give us an answer of what's gonna happen, until it actually happens," Rosewicz said.

This means that as Montana’s elected leaders fight over the spending within a state budget, the foundation on which that budget is built is growing less stable. And this year it toppled.

A season of what's likely to be record-setting fire expenses added an additional push to make the state budget fall off balance.

Rosewicz says it’s hard to nail down what caused the error in Montana's revenue forecast, and there are many factors; taxpayer and consumer behavior and underlying cycles within the economy.

As Montana’s lawmakers and governor continue debating a possible special legislative session and the best way to patch the wrecked state budget, even trained forecasters can only give educated guesses about how much money the state will have to spend going forward.

Tomorrow we’ll take a closer look at what role Montana’s economy plays in the state budget shortfall.