MTPR

State Revenue Forecasts Predict Growth In Next Three Years

Nov 17, 2016

On Thursday, lawmakers got their first look at how much money is likely to be in the state’s checking account as they head into the upcoming legislative session.

It turns out that, even after a year of economic downturn and declining sales of coal, oil and gas, the state’s revenue picture is actually looking up.

“So mining and agriculture, not a big surprise, are having a tough time, are having declines in those industries, in the forecast and in the actual data we are getting,” said Legislative Fiscal Analyst Amy Carlson during the Revenue and Transportation committee meeting Thursday.

She said other industries are starting to fill in the gap.

“So I guess the bottom line is, yes, we are having declines, but we are also having increases and overall the wages are growing,” Carlson said.

Growing wages are important because income taxes account for more than half of Montana’s general fund revenue.

The state revenue forecast was released Thursday by the Legislative Fiscal Division. And it nearly mirrors projections released earlier this week by the governor’s office - which isn’t always the case.

Both sets of projections released this week show state revenue increasing in each of the next three years. This comes after state revenue dropped last fiscal year by about $80 million.

Dan Villa is the governor’s budget director.

“The Montana economy is changing,” Villa said. “And I know that some senators have been talking about that over the interim, about the service industry is not just dishwashers and waiters, but that service industry includes other high wage professions like financial advisors, doctors, lawyers, all those sorts of things that come in on the service side. So, really, we have the facts we’ve seen the last year, we know that wages are growing, we know that the number of Montanans working continues to be at or near record levels."

On Thursday members of the committee voted in favor of adopting a state revenue estimate that combines aspects of both the Legislative Fiscal Division and the governor’s projections.

Both the governor’s office and state lawmakers expect to have about the same amount of money available this year as they had in 2015.

The new consensus forecast projects the state to bring in about $7 billion over next three years.

But Republican Senator Fred Thomas, chair of the revenue committee, says approving the state revenue forecast is a long way off from agreeing on how that money should be spent.

"The easy part about the revenue is that all these tax code are already in place," Thomas said. "So it’s just an analysis of what will those laws bring in. And so then, when they go to the budget they have to authorize all of that. And yeah, it will be contentious, especially when it is going to go backwards in some cases."

Thomas was among the Republican leadership criticizing Governor Bullock’s budget released this week. That budget calls for 1.4 percent increase in spending over the next two years, and includes $150 million in bond debt for infrastructure. Thomas called it irresponsible, and said the Republican majority in the Montana House and Senate will authorize a budget different than the Democratic governor’s proposal.

Republican Representative Jeff Essmann, who’s also chair of the state GOP, says he sees positive shifts ahead for Montana’s economy, but not because of policies in the state. 

“My gut is considerably more optimistic than it has been in about three sessions, in terms of upside potential for the economy,” Essmann said. “I’ll just say all the regulatory drag on the economy is removed by a new administration in D.C. - economic activity has got a better shot of increasing than decreasing.”

Essmann encouraged the governor’s office to bet on a successful administration of President-elect Donald Trump. He says the state might not even need to plan on setting aside $300 million in reserves, as Bullock’s budget calls for.

The governor’s budget director said their office doesn’t have to assume a Trump administration will increase the state revenue, because their projections already show it rising.

Both Republican and Democratic members of the committee voted in favor of adopting the state revenue forecasts.

That kind of near-unanimous bipartisan agreement is unlikely to continue once lawmakers have to decide how that money should be spent, in a state economy that both parties expect to change in the coming years.