Forecasts Predict Strengthening Montana Economy, Revenues

Rosy outlook follows recent declines in oil, natural gas and coal tax collections

By MATT VOLZ, Associated Press
Montana State Capitol building. Beacon file photo

HELENA — Forecasts released this week predict a strengthening economy and a modest revenue boost for Montana over the next two years, though a legislative leader says the recent declines amid a downturn in oil and coal production will take their toll on the next state budget.

The separate revenue estimates by Gov. Steve Bullock’s budget office and the Legislative Fiscal Division forecast the state’s general fund growing as wages increase, oil prices rebound and interest rates rise. Bullock’s estimate predicts general fund revenue will rise from $2.1 billion last summer to $2.45 billion in 2019, which is about the same as the Legislature’s outlook.

Both reports predict upticks in individual income tax collections, which make up more than half of the state’s revenue, driven by wage growth that is expected to rise between 4 percent and 6 percent a year. Corporation taxes and oil and natural gas production taxes are also predicted to increase with natural resources prices expected to go up and corporate profits forecast to rise.

“These improvements do not imply a boom, but simply that Montana, generally, will see better economic conditions than those that have prevailed over the last couple of years,” the governor’s report said.

The forecasts, while good news, don’t change the fact that the money the state now has in its treasury is a lot less than what budget writers had planned, said Sen. Fred Thomas, R-Stevensville, who is the chairman of the Senate Revenue and Transportation Interim Committee.

That means Republican legislative leaders will approach the next two-year state budget as though Montana is in a deficit.

“We’re still anticipating that the revenues will be under the expected expenditures under the next biennium, that’s why the governor’s proposing tax increases,” Thomas said.

Bullock, a Democrat, released his two-year budget proposal on Tuesday. It calls for a 1.4 percent increase in spending by mid-2019, and includes a $292 million infrastructure bill and funding for initiatives from preschool to job apprenticeship programs.

Bullock also proposed raising taxes on people who make more than $500,000, along tax hikes on tobacco and wine. He is also calling for new taxes on medical marijuana and vaping products.

Thomas and other Republican leaders, who hold majorities in the House and Senate, called the governor’s budget plan unrealistic and said they oppose raising taxes.

Patrick Barkey, the director of the University of Montana’s Bureau of Business and Economic Research, said he believes the economic projections in the reports are reasonable, but he is less sure that tax revenues will come back with an improving economy.

“That’s a harder call to make,” Barkey said. “We’re not sure we understand why revenues were so weak to begin with.”

Individual income taxes and corporation income taxes in particular fell short, and they make up a combined 62 percent of the state’s revenue. But there is no clear understanding of why, and how much of it was driven by the downturn in the energy industry, Barkey said.

Thomas’ committee takes up the two revenue estimates on Thursday, with the aim of forwarding to the full Legislature a final estimate that will be the basis for budget discussions next year.

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