At the beginning of October, Gov. Arnold Schwarzenegger announced California may need an emergency $7 billion-loan from the Federal Treasury because his state is running out of cash to pay for basic services. A week later, Montana’s Legislative Fiscal Division projected a budget surplus of nearly $1 billion through the middle of 2011 for our state. That’s a striking contrast in fiscal strength at a time when the global financial system looks shakier than a newborn calf taking its first steps. And it’s something about which Montanans should feel reassured.
But, this being October of an election year, the existence of a budget surplus promptly became (at this point quite mildly) politicized, with officials in Democratic Gov. Brian Schweitzer’s administration touting the prudent stewardship of the state economy under his first four years. Republicans, as they did before the 2007 Legislature, see the surplus as evidence that tax cuts are in order.
The reason for the surplus, according to the Fiscal Division, is “stronger than anticipated” growth in revenue for the general fund derived from taxes on individuals, corporations, and oil and gas production. Meanwhile, state lawmakers appear skeptical, given the climate of economic uncertainty, that the budget surplus will be as big as projections indicate.
All of which sets the stage for an ornery legislative session in January. After the 2007 session, hobbled by bitter partisanship, went down in flames because lawmakers couldn’t hammer out a budget, I asked some of the state’s top political observers at the time why the Legislature failed. The answer was due, in part, to the fact that a billion-dollar budget surplus became a kind of ideological bludgeon the parties wielded against each other on key issues.
Previous legislative sessions, during times when the state was strapped for cash or facing an education lawsuit, forced lawmakers to work pragmatically. But with a fat surplus on hand in 2007, both parties were drooling to push their agendas: Republicans to enact big tax cuts, while Democrats saw the opportunity to save money for things like wildfire suppression, and fund programs like all day kindergarten. With control of the governor’s office and state senate, the Democrats largely won the day after a special session in 2007, leaving Republicans disgusted with Schweitzer’s one-time $400 tax rebate, calling it a political gimmick compared to the longer-term reduction in tax rates preferred by the GOP.
When state lawmakers convene in Helena, they will once again face funding questions that don’t necessitate cutting essential services. Many cities around Montana aren’t as lucky. Kalispell has to lay off employees just to scrape together a balanced budget, so you can bet there’s going to be some underlying resentment heading into the next legislative session as local governments grapple with revenue shortfalls, while the state legislature resists providing those city and county governments alternative funding resources from atop its cushy cash surplus.
The surplus also engenders no small amount of resentment on the part of taxpayers who, amid high gas and grocery prices, have every right to wonder why the state government looks to have more of their money to play with than it needs. But regardless of who wins in November, both Schweitzer and Republican opponent Roy Brown say they will use a portion of the surplus for tax relief. Brown pledges to eliminate the business equipment tax, and pay for the loss with the surplus, as well as provide $300 million in property tax reductions. Schweitzer is keeping his cards closer to the vest, but has indicated he will use a portion of the surplus for tax relief and to cut the business equipment tax.
In the heat of the election season, it’s easy to get caught up in these arguments over the surplus again, but it’s also essential to take a step back and look around the country at some of the funding problems wealthier states, like California, face. There is a lot that could be going wrong in Montana that isn’t. So in a time deep economic uncertainty, cross the Montana state government off your list of worries for now – and be thankful for that.