So Governor Schweitzer thinks our Legislature boozes it up too much? Well, on the 28th of December, the Legislative Fiscal Division (LFD) released its Legislative Services Division 2013 Biennium Budget Overview. Our state legislators will rely on this document as they fight out Montana’s budget for the next two years – if you had to read it, you’d need a drink, too.
In actual practice, the Overview serves as a needed cross check on the governor’s budget proposals. For example, the governor proposed a budget with a claimed surplus of $283.5 million. In contrast, the LFD Overview forecasts revenue from all sources at $3.58 billion, against “spending pressure” of $3.96 billion, leaving a “structural budget gap” of around $383 million.
Argue who is right all you want, but Fact No. 1 on everyone’s mind is this: After a five-year run of revenue increases averaging 9.4 percent per year, in 2009 general fund revenues slumped 2.7 percent and a full 10 percent in 2010.
Schweitzer has proposed a bunch of stopgaps to plug the holes, such as taking away 90 percent of “local school oil and gas revenues” to pay $72.9 million of the “quality educator component” of the school funding formula, rather than tap the general fund.
School debt service funding ($17.2 million) would also be lifted off the general fund, by robbing the so-called savings account for school facilities.
Schweitzer also proposes to transfer $71.4 million from special account balances to pay current expenses. One example is $20 million would be taken from the Fire Suppression Fund, leaving a $2 million balance for next year’s fire season. Remember, we had a special session in 2007 to sock that money away.
Schweitzer also proposed not to grant a 2 percent provider rate increase for Health and Human Services, which would save $26 million. And he furthermore chose a course of, as stated in the Overview, “not addressing the pension issues” this time around, “saving” $65.4 million until next time.
That might work if next year is sure to be better, but next year will probably be worse.
For example, a good bit of Montana’s budget comes from Washington, D.C., not from Montanans. Over time, about half, sometimes more, sometimes less, is federal. Total federal funds spent in FY 2008 were $1.7 billion compared to $2.1 billion in state general funds. LFD explains that “public health and transportation services consume over 81 percent of the federal funding” in the budget. Furthermore, LFD warned that Washington is expected to become less generous, meaning that maintaining the same level of services “would require a substantial change in state tax policy.”
Could Montana citizens bear “substantial change?” As for our state tax policy, individual income taxes provided 45 percent of Montana’s state general fund revenues, with property taxes (13.4 percent) and corporate income tax (7 percent) the two next largest. So it’s no coincidence that a decline in individual and corporate income tax plus declines in petroleum production taxes caused 84 percent of Montana’s revenue decline the past two fiscal years.
Scary, isn’t it? Even scarier is all the talk about more funding for education. Everyone knows that our K through 12 enrollment peaked at 165,000 students in 1996, and has declined since to 141,000 current students. Yet the unified education budget is asking for a 6.22 percent increase in the next biennium.
Even more scary, and so far unremarked, the net unfunded liability of Montana’s nine pension plans increased from “$2.5 billion in 2009 to $3.3 billion in 2010.” In one year, that’s an $800 million hit that will have to be made up for. Even more problematic, overall unfunded pension liabilities have increased sixfold since 2002 while “the actuarial assets increased 25 percent.” The Teachers Retirement System is the worst, with a negative cash flow projected to start in 2021 or 2022. Who will have to make up that shortfall?
Don’t know, but the Legislature is going to have to figure it out one way or the other – the sooner the better.