Legislators Eye Slippery Financial Slope in 2009

By Beacon Staff

Montana state lawmakers descend on Helena Jan. 5 for the 61st Legislature amid slippery circumstances. The roads leading up to the capitol building may be icy and treacherous, but conditions are far more unpredictable when it comes to the state’s financial health. Amid a global financial crisis and a deep national recession, it has become increasingly unclear just how much money lawmakers will have to work with as they hammer out a budget to serve Montana through 2011.

After coasting to re-election, Democratic Gov. Brian Schweitzer released a two-year state budget proposal Nov. 15 he described as “austere.” That proposal was slightly smaller than the previous biennium’s budget, cutting out one-time expenses but increasing funding for ongoing programs by about 4 percent. And unlike the budget that came out of the 2007 Legislature, Montanans would not be receiving any $400-tax rebate checks in the mail.

While in October, Schweitzer’s budget director David Ewer predicted a state budget surplus approaching $1 billion by the middle of 2011, Schweitzer issued a revised proposal Dec. 15, based on rapidly declining state revenue forecasts. Unemployment increases, coupled with plummeting oil and gas prices, and declining mineral royalties were among the factors that prompted Ewer to reduce his revenue estimate by more than $100 million over the next three years.

This revised budget chopped more than $140 million out of the November proposed general fund budget, and cut an additional $49 million out of federal and “state special” funding – basically everything that’s not the general fund. The new budget, however, proposes no cuts to any state employees or programs; it simply reduces the budget increases for those programs.

The revised budget drops what might be considered Schweitzer’s only “pet” project, a $21 million-plan to retrofit state buildings to increase energy efficiency. And the new proposed budget actually increases the amount of money the state would keep in its cash reserve, from $250 million in November to almost $300 million – an indication that in a wildly volatile economy, the more cash Montana has in the bank, the better.

Ewer acknowledges the revenue uncertainty, but noted that financially, Montana is stronger than just about every other state in the nation, and unlike in previous sessions, legislators are not faced with decisions about making cuts to vital programs like education, corrections or public health.

“My guess is that 47 budget directors would be happy to take my place,” Ewer said. “We are in a far better place than just about any other state.”

But as lawmakers return to Helena, some Republican leaders indicated more budget trimming could be necessary, and that revenue forecasts have the potential to deteriorate even further by the end of February, when more information about fourth-quarter 2008 revenues becomes available.

“The revenue is going to be less than it was,” said Sen. Keith Bales, R-Otter, chairman of the Finance and Claims committee. “It’s going to be a moving target and I don’t think we’re through with the cuts yet.”

The Legislature’s chief responsibility is to craft a two-year state budget, a responsibility lawmakers shirked in 2007, when a billion-dollar surplus fueled white-hot partisanship that ground the session to halt and forced adjournment with the work left undone. With the aid of a handful of moderate Republicans, Schweitzer managed to ram through a budget in a special session over the howls of conservative Republicans.

But few Republicans or Democrats anticipate such ideological struggles in 2009: There simply isn’t any money to fund new government programs or potential tax cuts to fight over. Circumstances may force lawmakers to take a more pragmatic approach this time around, but the philosophical differences over fiscal policy persists between Democrats, who control the evenly split House, and Republicans, who control the Senate.

Senate President Bob Story, R-Park City, questioned the large surpluses touted by Schweitzer during his re-election campaign, compared to how rapidly those budget forecasts dropped after the governor won.

“We had a billion dollars right before the election; right after the election it turned into $450 million,” Story said. “We’ll be lucky if when we get to the end of June we’ll have anything.”

As of last week, Story had not taken a hard look at the details of Schweitzer’s proposed budget, but he was wary of the governor making drastic cuts to some programs that would leave legislators holding the bag for unrealistic and politically unpopular decisions. Story also pointed out that despite cuts to the November budget, Schweitzer’s proposal still continues a trend of government expansion over which he has presided since 2005.

“The budget grew so fast in the last four years that it takes a tremendous amount of money just to hold it even now,” Story said. “Probably, as things go on, the revenue will decrease more and we’ll have to make some more adjustments.”

Democrats, on the other hand, view the budgets that have emerged from the previous two sessions as efforts to backfill woefully under-funded programs, much of which was one-time spending. But they also acknowledge that any budget emerging from the 2009 session is going to be relatively frugal compared to previous years.

Like Senate Republicans, Speaker of the House Bob Bergren, D-Havre, said the budget numbers lawmakers have to work with in February or March could look very different than at present.

“My biggest concern is that the cuts aren’t done,” Bergren said. “Right now the revenue estimate seems very volatile.”

Montana’s 61st Legislature appears unlike recent sessions where lawmakers knew going in whether they had a surplus to work with when times were flush, or which programs had to be cut when money was tight. But the upcoming Legislature should prove interesting in that when it comes to assessing the financial conditions of the 2009 session, no one has a ready answer.