Don't bank on projected surplus
We think lawmakers did a fine job of balancing the budget last year. And we hope that even with a surplus laid before them, fiscal restraint will continue when they return to Helena this winter.
Talk about a reversal of fortune!
Just two years ago, Montana's general fund budget was straddled with a $230 million deficit. Then just last week, we learned that the Legislative Fiscal Division is projecting a $277 million surplus above current spending for the next biennium.
How can this be? It seems obvious that gambles taken by lawmakers in recent years have paid off to a degree.
The so-called "Big Picture" budget forecast is based largely on indicators showing a sizable upturn in the state's economy. Here in the Flathead, economic growth has been unmistakable over the last couple of years. Just count the construction sites.
"Now we're starting to see the economy recover. Wage and salaries are seeing positive growth; so are income taxes and corporate taxes and oil and gas revenue," said Chuck Swysgood, budget director for Gov. Judy Martz.
Economic growth can be attributed to everything from Montana's attractiveness to its quality schools. But tax cuts also fit into the equation.
It was just six years ago when the state's business equipment tax was reduced, despite naysayers' predictions that the cuts would result in revenues dwindling into a budgetary black hole.
Some even claimed that black hole had materialized last year when lawmakers wrestled with the projected $230 million deficit. But that's not what happened. Virtually every state in the nation except Wyoming was faced with drastic revenue shortfalls that resulted from the economic calamity following the 9/11 terrorist attacks. A recession had ensued, and many states dealt with it by axing their budgets.
Not in Montana. Instead, Republican lawmakers patched together a delicate budget that counted on improvement in the state's economy during the current biennium. Without more money flowing into state coffers from economic growth, the black hole would come to be.
That's because the budget was balanced largely with "one-time" additional revenue that won't be available in the coming biennium.
Lawmakers instituted new taxes on car rentals, tobacco and accommodations to generate extra revenue, but they also passed Senate Bill 407, which will reduce income taxes starting this January.
The new tax revenue would not be enough to compensate for the income taxes that will be lost to SB 407 - unless economic growth provided additional revenue compensation. Fortunately, that's what we've seen.
Another example: new legislation created a one-time registration fee for boats and trailers. That measure was intended to provide a convenience for taxpayers, but it was also intended to come up with a one-time boost in revenue to help balance the budget. Registration revenue is expected to drop off sharply in years to come.
Considering the doom and gloom of two years ago, the budget was pieced together without the draconian cuts that many had expected.
State services were not only kept intact, but many received more funding than was expected at the beginning of the last legislative session.
We think lawmakers did a fine job of balancing the budget last year. And we hope that even with a surplus laid before them, fiscal restraint will continue when they return to Helena this winter.