In Positive Sign, Analysts Predict State Tax Revenue Improving This Year

By Beacon Staff

At a Feb. 18 legislative committee meeting in Helena to study Montana’s budget outlook, Sen. Kim Gillan, D-Billings, asked those present to turn off their mobile phones by engaging in a bit of gallows humor based on an informal tradition that when someone’s phone interrupts a meeting, they are obligated to bring treats for everyone.

“If your cell phone goes off, you used to have to bring donuts, but given the state’s fiscal situation, you’re going to have to make a donation to the general fund,” Gillan said, drawing belly laughs from the lawmakers in the room.

Her joke was appropriate given the briefing the Legislature’s Revenue and Transportation Interim Committee was about to receive from state Budget Director David Ewer and Terry Johnson, a principal legislative fiscal analyst.

But though state tax collections continue to come in below forecasts, the news wasn’t all bad. Both Ewer and Johnson forecast state tax collections would improve in fiscal year 2011, beginning in July, indicating an economic rebound.

Ewer predicted tax collections in 2011 would increase $23.8 million over the current year, saying, “This economy is kind of chugging along.” Johnson was more optimistic, forecasting tax collections would increase by $70.8 million in that period.

Ewer went on to say Montana, as of that day, has $318 million in the bank, which he described as “a strong cash position.” The majority of corporations in America are exceeding earnings estimates, and that could be reflected in the upcoming tax season.

“We are seeing a strong rebound in earnings and corporations are going to have to pay taxes on it,” Ewer said. “We’re going to watch very carefully this tax season.”

Yet while the long-term outlook may be improving somewhat, Montana still faces significant problems in its current budget, due to revenues coming in lower than forecast. The state’s fiscal situation will be the main topic at a March 3 Legislative Training Day at the Capitol, where lawmakers will receive an overview of the current budget, as well as the impact of Gov. Brian Schweitzer’s suggested spending cuts, among other topics.

Total general fund revenues are estimated to be $350 million less than anticipated by the 2009 Legislature, according to a report by Johnson. That’s 9.7 percent of the total revenue anticipated by the Legislature. State tax collections from July 2009 to January 2010 are down $235 million, or 23 percent, over the same period the previous year.

Johnson recently predicted a general fund deficit of $62.5 million by mid-2011, while Ewer predicted an ending fund balance of $5.6 million.

“As revenues fall below expectations,” Johnson wrote in his report, “the structural imbalance (difference between on-going revenues and on-going expenditures) widens thereby creating a significant budget challenge for the 2011 Legislature.”

It was that aspect that most concerns Sen. Bruce Tutvedt, R-Kalispell, who said he is troubled that the state is “hemorrhaging” $20 million in cash every month, at present.

“We need to get to structural balance sooner rather than later to be fair to the government agencies,” Tutvedt said in an interview last week. “The sooner we can bend that curve on making revenues and expenditures equal with each other, the better it will be for all parties.”

With the relatively high turnover of lawmakers created by term limits, Tutvedt said few legislators have faced a session where state revenues were coming in 10 percent lower than estimates, and the March 3 meeting will be key in preparing those lawmakers for what they face.

As for Ewer, Schweitzer’s budget director, Tutvedt was skeptical of his revenue forecasts.

“It’s highly improbable that that’s going to happen,” Tutvedt said. “He had his political reasons for coming out with whatever he did.”

But Rep. Mike Jopek, D-Whitefish, who was also present at the Feb. 18 meeting, said while the 2011 Legislature will be up against a tough financial situation, that fiscal analysts for both the executive and legislative branch see a revenue increase beginning this year is a positive sign, demonstrating, “the resilience of Montana.”

“Starting in July, there’s a lot of positive movement coming our way,” Jopek said. “That’s not too far away.”

Jopek believes it’s important to remember Montana is one of two states still currently operating with a surplus, and despite high unemployment in the Flathead, the overall unemployment rate for Montana is relatively low compared to the rest of the country.

“I’m not trying to diminish that it’s hard times, but I think an optimistic image is good because we have the ability to talk ourselves into a perpetual recession,” Jopek said. The March 3 meeting, he added, will serve as a “reality check,” not just for lawmakers, but for government agencies that should prepare for funding cuts in the next budget.

“It’s gut-check time on a lot of stuff,” Jopek said.