By Emily Stifler Explorebigsky.com Managing Editor
The state of Montana has $343.8 million in the bank.
By July 2013, its ending fund balance, or surplus, should be $426.7 million, if current estimates from the Legislative Fiscal Committee are correct.
Republicans outnumbered Democrats almost 2–1 in the 2011 state Legislature, and budget arguments were heated near the end of the session. The governor’s budget office estimated a surplus, while the Legislative Fiscal Committee projected a potential $400 million budget gap the legislature would have to address.
Schweitzer and other Democrats wanted to spend some of that money on programs during the current biennium, the 24-month budget period between sessions.
When Schweitzer set forth a $3.7 billion general fund budget, the legislature balked. Responding to the LFC’s fiscally conservative report, the legislature cut spending by 6 percent more than the previous biennium, as compared to the governor’s proposed 5 percent. This ended a plan to increase state employee pay, and one to construct new state buildings.
These decisions were based on the climate of huge economic uncertainty, said Sen. Joe Balyeat, R-Bozeman.
“During my 12 year legislative tenure I’ve seen the LFD’s projections turn out to be too high on several occasions… one time by more than $250 million,” Balyeat wrote in a comment on a Great Falls Tribune opinion piece.
Where the money came from
The general fund has over 30 sources of revenue, but six big contributors make up 80 percent of that: property taxes, personal income, corporate income, vehicle fees and taxes, insurance premium taxes, and oil and gas taxes. States with sales tax were more affected by the consumer-driven recession.
The surplus was caused by larger than expected revenues, mostly from unprecedented prices on commodities and the resulting increase in corporate and personal income tax collections, as well as the higher price of oil, said Sen. Larry Jent, D-Bozeman.
Schweitzer said his administration has saved the government more than $100 million, without cutting programs. He cited a variety of means: more efficient governmental operations; state employee pay freezes; savings; cuts to human service spending, corrections, universities and public schools; and 5 percent spending cuts across the board.
“When you have good years, you keep a little grain in the bin, you don’t know what’s going to happen next year,” the governor said, using his classic metaphor of running government like a ranch, his previous job.
Other money came from strong revenue growth in 2011, and from sales of mineral rights on state lands, according to a Dec. 7 article in the Missoulian.
How the system works
Because the Montana Legislature isn’t always in session, it functions differently than the federal government.
Montana’s two-year budget period runs from July 1 of odd-numbered years to June 30 of odd-numbered years. By law, the state budget must be balanced by the end of the fiscal year, and deficit cannot be carried over.
In November of even-numbered years, the governor submits a budget to the legislature, based on proposals from government departments. The legislature then has the authority to pass or alter it. In turn, the governor has the power of line item veto on the legislature’s budget—Schweitzer exercised that authority in a show of branding vetoes on the capitol steps in 2011.
When the legislature goes into session every two years, it has a balance in the general fund to appropriate. While this system works remarkably well, Jent, now a gubernatorial candidate, says a few of its parts are clunky.
First, the citizen legislature only meets for a 90-day session every other year, but it has to budget for two years, something Jent likens to using a crystal ball:
“Some sources of revenue are relatively certain, like property tax,” he said. “Others depend on the economy, such as personal income taxes and corporate income taxes.”
Second, Jent said, The Legislative Fiscal Committee and the governor’s budget office don’t communicate well enough, and even though they use the same stats, they often have “different worldviews of economic forecasting.”
This causes chaos and turmoil at the end of the session, Jent says, allowing that some tension between economic experts forecasting revenue is healthy.
“However, it would be nice if the smart people in [the LFC] would talk to the smart people in the governor’s office.” He suggested a revenue estimate adjusted with current economic factors much earlier in the session could create a more homogeneous projection.
Since 2005, Montana has had a series of high ending fund balances like the current one. That money has acted as a rainy day fund for the state, which has been helpful during the recession.
The LFC’s current 2013 projection of a $426.7 million projected surplus is based on several things: 2011 legislation and gubernatorial vetoes; final closing accounting the year; forecasted revenues; and forecasted spending.
The $426.7 million is only an estimate, and things can turn around in a hurry, Balyeat said.
An appropriate projected ending fund balance is 5 percent of biennial expenditures, according to a rule of thumb set by the National Conference of State Legislatures. That’s in the range of about $175 million for 2013, according to Terry Johnson, the LFC’s principal fiscal analyst.
If the current LFC estimate holds true, Montana will exceed that 5 percent and have $275 million extra in the general fund it can either sit on or spend.
Johnson says the legislature usually tries to use surplus money for one-time initiatives like building projects. “If they use it for something that is going to continue to cost in the future, then they create a problem for future bienniums.”