When the 65th Montana Legislature convened Jan. 2 in Helena, a pool of 150 citizen lawmakers assembled to begin dispatching a single constitutional obligation — passing a balanced, two-year state budget.
But for the first time in several sessions, the governor and the Legislature are grappling with a more difficult task than they are accustomed to as they stare down a tight budget that will influence nearly every policymaking decision and force across-the-board cuts to government functions.
One year after ending with a $300 million surplus, lawmakers predict a session defined by “belt-tightening” as they pare back spending to offset a decline in tax revenue, which has slowed as spending on public schools, the university system, pension reform, and state employee raises has accelerated.
“This session is going to start and finish with the budget,” said Rep. Frank Garner, R-Kalispell, the former police chief stepping into his second term. “It is disappointing, but you can only wring your hands for so long. We are charged with one thing constitutionally and that is producing a balanced budget, and that is probably the single biggest looming issue as we look at the coming session. So we have to get to work.”
The general fund budget is akin to the state’s checkbook, with money largely coming from state taxes and investment earnings. In order to replenish the account and stanch the spending, Democratic Gov. Steve Bullock has asked most government agencies to trim 5 percent from their budgets, while his $4.7 billion budget proposes $110 million in cuts.
He also insists on ending with a $300 million buffer to serve as the state’s so-called “rainy day fund,” something he and the Legislature have accomplished in both of the past two sessions.
To achieve that, however, he’s proposed $140 million in transfers from various funds into the main coffers and $123 million in new taxes, mostly in the form of higher income tax rates on the wealthy.
Legislative Republicans holding solid majorities in both the House and Senate say tax increases and some of the transfers are not up for debate, in which case spending cuts would have to be even deeper for the next two years.
The GOP holds a 32-18 advantage in the Senate and a 59-41 majority in the House. The party elected Sen. Scott Sales of Bozeman as Senate president and returned Rep. Austin Knudsen of Culbertson to the role of House speaker, and both said declining tax revenues don’t leave much room for new initiatives.
Still, Bullock and some GOP leaders say tensions surrounding the state’s finances are nowhere near crisis levels, and while crafting a balanced budget that maintains basic services will require tough decisions, the potential to make investments in key areas like infrastructure remains strong.
In four months, upwards of 1,800 bill drafts will weave their way through the halls of the Capitol as 150 different personalities representing a range of constituents debate their merit, with the most vigorous debate centering on how to cobble together an infrastructure bill to fund projects that can gain broad support on both sides of the aisle.
Garner said he intends to carry 14 bills this session, including a bill he’s working on with the Montana Infrastructure Coalition to generate additional revenue to fund infrastructure.
“One of the things I would hope to do this session is work with the coalition to find ways to fund our ailing bridge and road infrastructure,” he said. “We have a $20 billion infrastructure need over the next 10 years and we’re only budgeting $7 million a year, so we have a significant deficit, and these things are not going to fix themselves. We have to find some way to generate revenue.”
Senate President Pro Tempore Bob Keenan, R-Bigfork, served as president of the Senate in 2003, when the state faced a projected general fund deficit of $232 million, and said working within the confines of a restrictive budget is right in his wheelhouse.
Nevertheless, he was critical of the Bullock administration’s handling of the budget.
“Those were lean times, but this is a very unique situation, and I feel like we’re walking into a train wreck,” Keenan said. “The governor’s budget office had to have known that this situation was coming but they did nothing to cut back on expenses.”
In order for the governor to have authority to make emergency, mid-year cuts, however, the ending fund balance would have had to dip below $118 million, or 5 percent of annual state spending. Because it didn’t fall below that threshold during the last biennium, those triggers were not met.
According to Dan Villa, Bullock’s budget advisor, three elements conspired to hit Montana’s revenue stream and contribute to the budget shortfall.
First, Congress passed the Protecting Americans from Tax Hikes Act (PATH), which accounts for a $30 million loss to corporate revenues due to bonus depreciation and tax cuts that impact Montana revenues. Second, OPEC production remained high, making oil prices lower for longer. And third, market slowdowns in China drove down coal revenues.
“We took all three of those hits on the chin,” Villa said.
Even so, he said the rainy day fund that neared $360 million last year served its purpose in keeping government functions afloat.
“We weathered the storm, and we should see revenue growth over the next two years,” he said, adding that oil prices are rebounding and coal is coming back.
Sen. Mark Blasdel, R-Somers, who is serving as majority whip this session, said protecting the Montana Highway Patrol and Flathead Valley Community College from proposed cuts would be at the top of his list of priorities.
He also said agreeing on a narrower definition of infrastructure would be critical in the first weeks of the Legislature, and suggested that projects should be limited to water, sewer, bridges, and roads.
“I think we should stay focused on living within our means,” Blasdel said. “There is going to be a lot of moaning about the budget, but for Republicans I think there is a pretty unified approach that we have to fix this and do it right.”
Last session, lawmakers voted to end the session early without passing a $150 million infrastructure bill, which stood out as a sticking point for a conservative bloc of Republican House representatives, many of them from the Flathead Valley.
The public works bill required at least $150 million in cash, bonding and borrowing authority to finance a slate of local public-works projects and construction of new state buildings on college campuses and elsewhere.
Some Republicans wanted less borrowing and more cash, while Democrats who worked to craft the bill said it struck a fair balance that demonstrated sound fiscal responsibility.
This session, most lawmakers agree that passing an infrastructure bill will be critical, and Bullock has already introduced a new $292 million plan for infrastructure improvement throughout the state.
Rep. Dave Fern, D-Whitefish, said he didn’t think the tension between the executive and legislative branches could create a productive dynamic, serving the interests of both parties. However, he cautioned against holding critical funding hostage in the name of partisanship.
“I don’t think tension is necessarily a bad thing as long as you don’t take the attitude of my way or the highway,” he said. “But I don’t want to play political football with something as important as infrastructure.”
Keenan was among the Republican lawmakers to vote for the infrastructure bill last session, but said this session he’ll oppose any “pet projects” like new state buildings.
“Those were ornaments on the Christmas tree,” Keenan said. “So the biggest hang-up is defining infrastructure. It’s that simple. Make sure that the focus is on roads, bridges, water, and sewer projects and we’ll support it.”
“The budget is going to be a big deal these next four months,” he added. “You can expect to see some pretty colorful political theater.”