MTPR

Montana Lawmakers Look To Head-Off Future Revenue Shortfalls

Apr 12, 2017

A proposal for a new kind of rainy-day fund to protect Montana from future boom and bust swings in the state budget passed out of a House committee Wednesday.

Lawmakers are considering a change to how the state saves money, creating a new system allowing the state to react more quickly when it faces a shortfall in revenue.

"The '18, '19 biennium is going to be a touchy one," says Llew Jones, a Republican Senator from Conrad. "Montana is going to enter that biennium with some of the lowest operational reserves we've had in a long time."

Jones is a leading member in the majority party in constructing the state’s budget. He says Montana needs a new plan in place for when lawmakers adopt a forecast of state revenue that turns out to be wrong.

Over the last two years, state revenues fell more than $236 million below what the 2015 Legislature expected, according to a report from nonpartisan researchers in the state Capitol. 

That revenue drop resulted in across-the-board agency spending cuts and rejections of spending increases during this legislative session, creating a political brawl in the Capitol chambers over spending priorities.

Right now, when the state's General Fund falls below 5 percent of total general fund budget, the governor must call legislators back into a special session.

Sen. Llew Jones (R) SD9
Credit Montana Legislature

Jones says his plan would put in place more sensitive triggers protecting the state from sliding into a larger budget crisis:

"The concept I guess would be akin to if you were working somewhere and suddenly you found that for the next few months your salary is cut to 75 percent. It encourages you to very quickly react and cut some expenses rather than completely deplete your savings. It doesn’t deny access to savings, but it encourages that both a combination of transfers and cuts be utilized, and to be utilized rapidly so that you don't end up in a deep hole."

Jones' Senate Bill 261 would require a new state savings account. Over time, as the state brings in more money, that account would become a cushion for when revenues fall. Money could be withdrawn from the account, and the state would also be required to make small budget cuts.

Senator Jones calls that a more nimble budgeting system:

"The recession cycle is part of being in this country. So we just have to have it so that the citizens of this state and those that are dependent on services, either from the locals for from government, are able to survive the cycle, that we don’t live in a boom and bust."

The House Appropriations Committee passed Jones’ budget stabilization plan 19-3 Wednesday morning, with a few amendments adjusting the rules for when money can be transferred in and out of this proposed new savings account.

It will now head to the full House chamber for debate, having already passed the Senate.

In March, Governor Steve Bullock’s office testified to against the plan. Bullock has insisted instead on a $300 million ending balance in the General Fund to protect against revenue declines. Republican leaders in the Legislature say that isn't going to happen, and the General Fund will likely end up around $200 million.

Bullock's office has said it's willing to discuss ways to make Jones' bill better and move it forward in the Legislature.

Dan Villa, the governor's budget director, declined an interview request for this story. In an emailed a statement he said "... creative accounting, as currently proposed in the bill, is no substitute for actual fiscal responsibility. With so few days left in the session,  it's time for the games to stop and solutions to start."

Senator Llew Jones says his proposal isn't an immediate fix, and it won't start adding long term protection to the budget until revenues pick up and funds can be added to this new proposed savings account.

"Were there to be another significant reduction in revenue, it could be a painful biennium. There could be special sessions and we could have to react to them," Jones says.

The state’s 2017 earnings will be released at the end of June, when that happens there will be a clearer idea of what Montana's financial future will look like for the coming two years.

But by that time, legislators will have finished their work in Helena, and will have to learn about the state's revenue outlook from their homes across the state.