MTPR

Low Revenue Returns Have State Agencies Preparing For Cuts

Jun 6, 2017

State revenues have again fallen short of lawmakers’ expectations and could trigger funding cuts across state agencies in the coming months.

The nonpartisan Legislative Fiscal Division released their final revenue update for the fiscal year Tuesday. The fiscal year ends June 30.

LFD Director Amy Carlson told an interim legislative committee Tuesday that revenues were around 62 million dollars below the revenue projection lawmakers used to build the state budget earlier this year.

“So, if you feel like the rug has been pulled out from under you, join the club,” she said.

Carlson says in April, when the legislature was still in session, LFD’s projections showed revenues coming in above expectations, possibly up by $10 million. But the actual decline in revenue the state is faced with is because, in part, fewer tax dollars are coming into the state from individual income.

LFD’s analysts say that may be due to taxpayers expecting the Trump Administration and congress to create lower tax rates, so taxpayers are waiting to pay, hoping to qualify for that lower rate sometime soon.

“We have directed agencies to be prepared for any revenue eventually, from best case to worst case,” Villa said.

Dan Villa is the Budget Director for Governor Steve Bullock. Villa says he expects revenues to fall at least $6 million below projections, setting off a first round of budget cuts mandated in a new statute passed by lawmakers, and signed by the governor, earlier this year. Those cuts would made on August 15.

That legislation, commonly known as the ‘Budget Stabilization Plan’, requires four progressively increasing levels of spending cuts along with funding transfers from the state’s firefighting fund, when revenues fall short of projections. Each level is triggered when state revenues fall $12 million below the revenue estimate lawmakers approved when they created the state’s two-year budget.

While Director Villa plans with state agencies for possible cuts, he’s says it will be months before the depth of those cuts is known. “Absolutely too early to panic,” Villa said.

If cuts do happen, and Villa says it's very likely, one of the first state programs to get funding pulled is a new appropriation created by lawmakers to fund housing and community services for seniors and people with disabilities.

Heather O’Loughlin with the Montana Budget and Policy Center.

“That bill effectively is eliminated for the next fiscal year if revenue comes in at roughly $6 million below what was projected,” she said.

O’Loughlin says if revenue falls further, more than $24 million below expectations, pay for healthcare providers could be cut by $7 million, and mental health services for kids and adult by $4 million.

“These cuts, they’re going to be felt in many of the communities across the state,” she said.

O’Loughlin, like Budget Director Dan Villa, says it's going to be at least another month before clear details about cuts will be known.

During the legislative session, Democrats and Republicans fought over the state budget and debated the best way to protect the state against future revenue declines. Democrats pushed a series of tax increases, what party members referred to as “revenue enhancers” to bring more money into the state. Republicans shot down those proposals, choosing instead to spend less in a tight budget year.

Fred Thomas, the Republican Senator Majority Leader, stood outside a hearing room after legislative researchers presented updated state revenue projections Tuesday.

“We weren't interested in raising taxes. We adopted the very best recommendations we could, and we made alternative provisions if they didn’t pan out. They haven't panned out right yet today, and reductions are going to have to take place,” Thomas said.

Thomas also criticized Governor Steve Bullock for not addressing falling state revenues back in 2016, before the legislative session began.

Jenny Eck, the Democratic House Minority Leader argued this situation, and the cuts facing state agencies, was avoidable if taxes were raised.

“Those were lost opportunities to share the burden that the state faces. And it’s going to be working families that have to bear that burden,” she said.

If cuts to state agencies to happen, they’ll be made in mid-August.