With less than two weeks remaining in the legislative session, the state budget is far from ready for the governor’s signature. Last week, legislative fiscal division released its updated status sheet. Factoring in the current spending bills, tax bills, current revenue estimate, and the budget, the legislature is leaving the state with a mere $162 million in projected ending fund balance. That current level is $138 million below the long-standing precedent for a $300 million ending fund balance. Perhaps even more shocking, it’s $38 million below some Republicans’ counter-proposal for a much lower $200 million ending fund balance.
Thus far, the legislature has:
- Failed to support nearly all of the governor’s tax fairness measures that would raise needed general fund revenue and provide a pathway for a balanced solution to the recent revenue downturn;
- Left significant cuts to the budget, particularly in the areas of higher education and social service programs for our seniors and Montanans with disabilities;
- Passed a myriad of new spending bills that risk leaving an insufficient ending fund balance for dealing with an economic downturn or lower-than-expected revenues; and
- Increased the revenue estimate simply as a mechanism for balancing the budget.
Any one of these problems should cause concern for the governor and any Montanans who care about the budget and the essential services it funds. The combination of the current problems is simply unacceptable and unsustainable.
The legislature has so far failed to make the difficult choices necessary for a responsible budget. As has been true all session, they have two choices: make further cuts to the budget and other spending priorities or raise revenue. MBPC believes only one responsible choice remains: raising revenue. With significant cuts already proposed by the governor and deeper cuts adopted by the legislature, the legislature must, finally, engage in a meaningful conversation about sensible ways to raise revenue. Options include listening to the dozens of health care professionals and organizations who have asked for an increase in the tobacco tax (which not only raises revenue but also is proven to reduce smoking and decrease health costs) or making sure that millionaires in Montana are paying their fair share for the services and infrastructure that make our families and communities stronger.
It may be that legislators are planning to force the governor to make the additional cuts to popular and essential programs. The governor did his job in proposing a responsible budget, one that included both difficult budgetary cuts but also adequate levels of revenue. Legislators were elected to make the same kinds of hard decisions. If they are going to reject every general fund revenue increase, they need to find other solutions for putting a responsible budget on the governor’s desk.
Today, the legislative fiscal division (LFD) released its weekly general fund status sheet, providing us a glimpse at where we stand with general fund revenue, projected spending, and the resulting ending fund balance. As the legislature takes actions on bills, including HB 2, LFD updates the status sheet to reflect these changes in spending and revenue bills.
This past week, the Senate Finance & Claims Committee took action on HB 2, adding back some of the cuts made in the House. In total, the Committee restored about $10 million in general funds, $32 million in state special revenue, and $12 million in federal funds.
The status sheet answers a big question: is restoration of these cuts sustainable under the current levels of revenue? The answer: no.
As of today, legislative fiscal division estimates an ending fund balance of $154 million at the end of the next biennium. The status sheets factors in SB 354 to raise the tobacco tax, which passed the Senate this week. This measure raises nearly $69 million in general fund revenue, but still needs to pass the House to become a reality. Even factoring passage of SB 354, we are $145 million below the Governor’s requirement of a $300 million ending fund balance. The ending fund balance is important because it is Montana’s only mechanism for protecting against revenue volatility and unexpected emergencies. This is Montana’s savings account.
Those who have been worried about the budget cuts – including cuts to Medicaid services for seniors and people with disabilities, cuts in higher education, and cuts to programs essential for our emergency responders in local communities – still have work to do. Higher education still faces over $11 million in cuts. Just as importantly, the budget still has several important stages to go and cuts can still be reinstated or increased. As it stands now, the budget is built on a house of cards that could collapse at any moment. We need to continue to be diligent in urging policymakers to pass new revenue and update the revenue estimate, to ensure adequate resources to fund programs essential to our communities.
Want to know more about actions taken this past week on the budget? Check out our quick summary here.
Senate Finance & Claims met on Tuesday to take executive action on HB 2. You can find all the amendments online here (third tab). The Legislative Fiscal Division also updated its budget narrative with actions from Finance & Claims. Here is a quick overview of some of the key actions taken.
Dept. of Public Health and Human Services. The committee restored the $14.9 million legislative cut to senior & long-term care (SLTC) division, which provides Medicaid services to seniors and individuals with disabilities who are living in their homes or in nursing homes. A third of this restoration was a shift in funds from Health Resources Division, which provides Medicaid services. SLTC division is still $11.6 million below the executive budget. The committee also reduced the vacancy savings required by the Department from 8% to 6%.
Office of Commissioner of Higher Education. All in all, the higher education budget is largely in the same spot as it was when it passed out of the House. Legislators moved amendments to restore the deep cuts to the universities, but those amendments failed. To date, higher education is still about $11 million below the executive budget, and university officials are indicating we are likely to see 18 percent increases to tuition if the levels of funding remain where they are now. Despite those persisting cuts to higher education, the funding formula for community colleges was fixed to reflect a slight increase in the state’s share of the formula.
Office of Public Instruction. Legislators moved an amendment to add an investment for preschool programs, but it failed on a party-line vote. However, the committee did pass amendments to provide an inflationary adjustment for special education funding (albeit smaller than previously proposed), and restored funding for both the Montana Digital Academy and the Data for Achievement payment. However, in total, OPI’s budget was reduced by approximately $13 million over the biennium.
Dept. of Labor & Industry. Department of Labor & Industry saw restorations, including state special revenue funds added back for Jobs for Montana Graduates Program, which provides graduation support and job training for high school students across Montana. The Committee also restored some funds for the Employment Relations Division, which is good news for workplace safety in Montana.
Dept. of Military Affairs. The Committee restored some funds within the Department of Military Affairs, including support for Air National Guard and Army National Guard. However, the Committee did not restore the funds provided to help train local emergency response teams handling hazardous material disasters and cleanup.
Following two lengthy days of hearings, the House Appropriations Committee made amendments to HB 2 on Thursday and Friday and passed it out of committee. The full House of Representatives will begin debate on HB 2 later this week. While the Committee passed several amendments to partially restore some funds, the budget still includes devastating cuts to programs critical to Montana’s students, seniors, and our most vulnerable communities.
To recap, legislative leaders began the budgetary process in January, by adopting cuts in the governor’s proposed budget and then taking additional deep cuts to nearly every state agency. Subcommittees worked through January and February and added back some funds. However, most of those additions simply reflect present law adjustments, or the amount of funds needed to continue existing services into the next biennium, and did not restore the deep cuts to the underlying programs.
Areas facing the deepest cuts include senior and long-term care, which provides Medicaid services to seniors and Montanans with disabilities, and higher education, with major cuts to Montana’s colleges and universities.
Here is an update on what happened in House Appropriations last week:
- The deep cuts to Senior & Long-Term Care (SLTC) largely remain. While the Committee passed an amendment to add back some (but not all) federal funds, it did not add general fund dollars. This action is meaningless. In other words, if the legislature fails to appropriate state general fund dollars, Montana will not receive the federal matching funds. Therefore, SLTC continues to face a budget hole of $53 million in total funds below the present law budget. The Committee considered amendments to: fully restore legislative cuts to SLTC; pare back the current 8% vacancy savings; provide an increase to direct care worker wages; and restore funds for respite services for family caregivers. All of these amendments failed. The committee did add back about $200,000 in funds for independent living contracts within the Disability & Employment Transition Division.
- Deep cuts to higher education remain, even with the additional $11.6 million in higher education funding, but this represents only 1/3 of the cuts below a present law budget. Of this $11.6 million, about $9 million will go to the MUS units (MSU, UM, and satellite colleges and universities). With this restoration, community colleges received of $1.7 million, and Tribal colleges received $81,000. Amendments to add back additional funds for the university units, funds for the Montana Seed Lab, and funding for the Governor’s Best and Brightest Scholarship fund, all failed to pass. Prior to full Committee action last week, the higher education budget sat about $30 million below present law budget. This includes the $23 million in cuts taken in early action, as well as a $7.8 million present law adjustment that the Subcommittee did not take. Again, simply looking at a comparison of present law budget with legislative action so far, the Committee action last week restored about one-third of the total $30 million in cuts below the present law.
- The Committee restored funding to support child care providers and improvements to quality care. The STARS to Quality program is a voluntary program for child care providers to improve quality of early childhood education and care. Previously, the subcommittee added back the one-time-only funds for STARS to Quality, but made the funding contingent upon the passage of a bill to legalize and tax blackjack. The full Appropriations Committee stripped that contingency language, providing $2.4 million in OTO funds for STARS to Quality.
- The Committee failed to pass an amendment to restore funds for workplace safety programs. Subcommittee action included cuts to the Employment Relations Division, cutting about $1 million within the workplace safety division. Legislators noted that Montana has ranked as one of the worst states for the number of workplace accidents. This cut will result in greater pressure on the Department of Labor and will likely increase accidents in the workplace. An amendment to restore the funds failed to pass.
- Efforts to restore funding for Department of Military Affairs failed, including funding to support regional response teams. The early cuts in the session included across-the-board reductions to Department of Military Affairs and cuts to the 6 regional hazardous materials teams with Disaster & Emergency Services, which provides training and assistance to local response teams handling hazardous material. The cut in state funding results in additional loss of federal funds. An amendment to restore these funds failed.
- The Committee restored funds for the Governor’s airplane.
The full House of Representatives will hear HB 2 later this week, presenting another opportunity to restore these deep cuts, and ensure that our seniors and Montanans with disabilities can continue to receive the services they and their families in need.
This week the Legislative Fiscal Division released a 694-page HB 2 Narrative summarizing final Joint Appropriation Subcommittee action, comparing the current legislative budget to the executive proposed budget and to the last biennial budget. The Narrative includes a 12-page summary as well as more in-depth analyses of each agency. The summary section is a helpful overview of changes the legislature has made so far compared to the executive budget. However, this year the overview could easily lead a reader to believe that legislative subcommittee action left the state budget and the programs, services, and infrastructure it funds in much better shape than it actually is.
Here are the main highlights from the LFD Narrative:
- The legislature cut general fund appropriations by $43.8 million from the executive’s budget and $19 million from the 2017 biennium budget.
- The legislature’s appropriations of state special revenue cut $46.7 million from the executive’s budget and $44.8 million from the 2017 biennium budget.
While the legislature appears to have provided a far greater amount of federal funds in HB 2, this requires some additional clarification:
- The Governor proposed to appropriate $359 million in federal funds for the Supplemental Nutrition Assistance Program (SNAP) through a statutory appropriation, rather than HB 2. After discounting this fund shift, the increased federal dollars from the executive budget is only about $207 million.
- Of this $207 million in federal funds, $193 million is federal funds for highway dollars tied to matching state dollars. In order to restore federal highway dollars, the legislature has made state funding cuts to the Montana Department of Transportation. (See below for more info.)
- Finally, over $50 million in federal Medicaid funds were added to the DPHHS budget for Health Resources Division in late subcommittee action as a result of updated caseload estimates, a routine process that occurs throughout the budget creation process. This adjustment does not restore the almost $90 million in cuts made to DPHHS alone.
Some additional commentary on subcommittee action
An important comparison to consider is how the legislature has funded programs compared to the present law budget, or the level of funding necessary to maintain current government services. As LFD notes, “present law gives the legislature a baseline budget presentation and illustrates a beginning point of the legislative budget decisions that require legislation.”
In early action by the legislature, subcommittees cut hundreds of millions of dollars in total funds to agencies. While subcommittees have added back some funds, nearly all of these additions reflect present law adjustments needed to continue existing services. So it is helpful to look at the present law budget as a baseline and then factor in the cuts or additions made beyond these adjustments. An initial take shows that the legislature has cut more than $100 million from the core programs and services that help make our communities and families safe, healthy, and economically secure.
Below are some initial thoughts on how things are faring for programs essential to our communities. These aren’t just numbers and dollar signs. They represent devastating cuts to services for seniors and people with disabilities and probable double-digit tuition increases for students and their families.
The slight budgetary increase to DPHHS reflected in the LFD Narrative is a result of standard inflationary adjustments and additional federal funds for caseload adjustments. Essential programs for seniors and individuals with disabilities continue to face deep and devastating cuts. While the present law adjustments for DPHHS reflect an increase of total funds of about $97 million, the Department is also taking a cut of $89 million in total funds in “new proposals.” These cuts represent $2.2 million cut to Disability and Employment Training Division that provides services to people with disabilities, including counseling, career training, transportation, adaptive equipment, and independent living services.
Senior and Long-Term Care, which administers Medicaid services for seniors and persons with disabilities, including Meals on Wheels, transportation services, in-home assisted living services, and nursing homes, continues to see the deepest cuts in DPHHS. In addition to negative present law adjustments, the legislature has cut $53 million in total funds for programs, potentially impacting provider rates, worker wages, and services for seniors living in their own homes and those in nursing homes. Montana’s population continues to age, and projections show that by 2025, nearly one-fourth of the state’s population will be over the age of 65. We should be very concerned about how these cuts will harm seniors and their families today, but also concerned about how these cuts set the stage for declining services in communities over time.
The legislature has funded Montana’s colleges and universities at $33 million below the past biennium, risking double-digit tuition increases for students and families in the next biennium. As discussed in our past report, early actions by the legislature reduced higher education investment by approximately $23 million. On top of this, the legislature did not provide the standard present law adjustment to the university system, representing an additional $7.8 million in cuts to a fully funded budget.
The Legislature’s effort to restore federal highway funds relies heavily upon deep cuts to the Department of Transportation, which could impact the health and safety of all drivers and future federal funds. Some legislators and the broad Montana Infrastructure Coalition have called for an increase to the state gas tax in order to avoid losing $193 million in federal matching funds used for construction and maintenance of roads, highways, and bridges. Instead, the budget subcommittee that oversees the Department of Transportation (MDT), dramatically cut state funding for MDT and used those savings to shore up the state highway account used to match federal funds. This plan would eliminate 75 vacant positions and cut overtime pay. MDT has raised concerns that this level of cuts could impact safety, which could result in failing to meet federal standards and a corresponding further loss of federal funds.
The Legislature will come back from its break next week and will have 45 more days to ensure we continue to invest in the services our families rely upon. Seniors, people with disabilities, students, and families who want a better life for their children shouldn’t be asked to shoulder the entire burden of our state revenue downturn. Montana can get to a balance budget while funding essential services, by ensuring we have adequate revenue and that everyone is paying their fair share.
The 2017 Montana Legislature has been marked with concern over massive budgetary cuts and the major shortfall in revenue. While not all cuts can be avoided, the legislature should take a balanced approach to ensure the state can continue to invest in our families and communities. This includes ensuring we have adequate revenue in the state by putting in place common sense measures to ensuring wealthy corporations are paying their fair share.
Earlier this session, the House Taxation Committee heard House Bill 215, an act revising the rate of tax for certain oil and natural gas production. Reducing or even eliminating this tax break, called the oil and gas tax holiday, is one step toward balancing the budget and making sure corporations are paying their fair share. Unfortunately, the House Taxation Committee tabled HB 215 earlier this week.
The oil and gas tax holiday is a policy that allows newly drilled wells to be taxed at a substantially lower tax rate during the beginning of production. Wells, however, produce significantly higher amounts of oil and gas at the start of usage, which means these oil companies receive this tax break during the most profitable period of extraction. While some argued these tax holidays attract developers and increase revenue, the data clearly shows such tax holidays only suppress potential state revenue and does little to increase developer interest.
Montana, despite its lower tax policies, is not outperforming neighbors with higher tax policies. Wyoming, New Mexico, and North Dakota all have higher taxation rates for oil companies. All three states have consistently out produced Montana in terms of barrelage. Oil and gas companies do not seek to drill based upon the tax policy of that area. They drill where there are natural resources available.
Montana has lost millions of dollars in revenue due to this tax policy. From 2008 to 2014, the tax holiday cost the state and counties $265 million in revenue. This money could have been used to pay for public services, such as schools and roads. In oil-producing counties, especially those near the Bakken region, they have been forced to deal with increased demand on their infrastructure, but no increased revenue to update such necessary services.
HB 215 proposes to increase in Montana’s production tax would to 4.5 percent, which is still lower than the national standard of 9.26 percent. But even this small step is crucial in insuring our legislature can make strategic investments in Montana communities.
The increased revenue could be used to assist in failing infrastructure, public services, and our schools and universities. Oil and industry should not get a free ride in this state. We all need to pay our fair share especially when so many Montanans are struggling with significant budget cuts.
This week, MBPC released a new report providing an overview of early actions so far on the state budget, and the damaging cuts that have already been proposed. In the first couple weeks of the session, Legislators took early steps to make significant cuts to the state budget, representing more than $449 million in total funds. A good portion of these cuts will be in federal matching funds in critical programs for the state.
Montana’s budget and economy rely heavily on federal funding that assists us in our collective efforts to pave our roads, build and maintain our bridges, prepare our national guard, train our workforce, and help keep vulnerable Montanans safe and healthy in their homes and communities. The bulk of the federal dollars that get appropriated through the state budget fund infrastructure, programs, and services in the Department of Transportation (DOT) and the Department of Public Health and Human Services (DPHHS). These funds are usually under the condition that the state meets certain program requirements and matches the federal funding with a state share. Overall, the state budget is supported by over $4 billion of federal funding, roughly 42% of the entire state budget.
As we’ve written previously, this year state legislators and the governor are facing a short-term but significant drop in state general fund revenue. To deal with this decline, the governor’s proposed budget included a combination of difficult cuts to state services and targeted revenue increases that bring more fairness to our tax system and ensure adequate levels of revenue. Unfortunately, some legislative leaders have indicated a dangerous unwillingness to accept this balanced approach and have instead started the budget process by imposing additional deep, unnecessary, and harmful cuts.
Relying entirely on cuts, preliminary actions by the legislative joint subcommittees have slashed over $190 million in state spending ($114 million general fund; $77 million state special revenue) on everything from services for seniors and people with disabilities to our tribal, two-year, and four-year colleges and universities (likely resulting in doubled-digit tuition increases).
What do these state cuts have to do with federal funding flowing into the state and our communities?
Well, in key portions of the budget, like DPHHS and DOT, a lack of state funding means even more dramatic cuts in federal funding – much deeper than many people realize. So in making their unnecessarily severe cuts to state spending of over $190 million, legislators and Montana will lose out on an additional $254 million in matching federal funds. In total, this hit to the state budget is nearly half a billion dollars.
We know that this is more than just dollars to the state. If not restored, these unnecessary cuts will impact people and communities in every corner of Montana.
For example, DPHHS partners with community providers to run a Medicaid program called Community First Choice, for seniors and people with disabilities who need assistance with daily living in order to stay in their homes and avoid institutional settings like nursing homes. Through Community First Choice, Montanans can get help with activities such as eating, bathing, taking medicine, and getting to medical appointments. When Montana provides these services to the seniors and people with disabilities who need them, the state only has to pay 29% of the cost. The federal government pays for the other 71%. It’s a good deal for seniors who get to stay in their homes and a good deal for taxpayers as people avoid costlier institutional care.
The division responsible for running Community First Choice and other programs and services for seniors and people with disabilities is facing over $17 million in state funding cuts that would be accompanied by almost $34 million in lost federal funds for a total loss of $51 million dollars. These cuts are irresponsible to seniors, the state budget, our communities, and our economy.
This is just one of many examples of essential state services being cut so severely in an attempt to balance the budget. You can read a summary of total cuts adopted by the Legislative Committee in starting motions here.
We know that some cuts will be inevitable. However, as the legislature continues to evaluate the budget, they must look at ways to responsibly raise revenue and minimize unnecessary losses of federal funding.
An Early Look at the 2019 Biennial Budget: Montana Needs a Balanced Approach to the State’s Revenue Challenges.
Montanans care deeply about the well being of their families and communities. They want a hopeful and prosperous future for their children and neighbors, safe communities, and a strong state economy that supports quality jobs and thriving businesses. As Montanans, we have come together at many pivotal moments in our state’s history to collectively build toward these goals. Together, we have considered not only what we can afford to accomplish today, but also the investments we must make
to protect our future.
During Montana’s 2017 legislative session, elected officials should be focused on wisely increasing and using the state’s resources to help build opportunities and a path to prosperity for all Montanans through the budget creation process. A recent, but short-term, decline in state revenue, caused primarily by declines in corporate income and oil and natural gas taxes and slower than anticipated growth in individual income taxes, has created significant challenges for the state’s elected officials.
The proposed executive budget creates a responsible blueprint for addressing these challenges through a balanced approach that includes a combination of difficult cuts and targeted revenue enhancers that bring more tax fairness to our system and ensure adequate levels of revenue. Unfortunately, key legislative leaders have indicated a dangerous unwillingness to accept this balanced approach and have instead started the budget process by imposing additional deep, unnecessary, and harmful cuts.
To shed light on the depth of these cuts and the programs and people they will impact, MBPC wrote a report – An Early Look at the 2019 Biennial Budget: Montana Needs a Balanced Approach to the State’s Revenue Challenges.
Supporting information can be found in two supporting documents.
For the past few months, Montanans have been hearing about the current shortfall in revenue in this past year than the legislature previously projected. This reality will make this biennium’s budget debate tougher than the past few sessions. While targeted cuts are likely in the face of this leaner revenue projection, it is also important to remember that the investments we make – from quality schools, improved roads, and public safety – help create thriving communities where we can all live and work.
As the budget moves forward, we will walk through some of the terms and what legislators are considering during the debates.
One budget cutting measure often used is “vacancy savings.” Vacancy savings is the difference between what it would cost to fully fund all of an agency’s approved positions and what is actually spent for personal services because positions were vacant for part of the year.
The Legislature can mandate a certain amount of vacancy savings by appropriating less than the amount needed to fully fund all of an agency’s positions. When vacancy savings are higher than naturally occur because of turnovers, agencies must leave positions open for longer than normal or decide not to rehire.
Since 2003, most agency budgets have included a four percent vacancy savings rate. This rate has fluctuated in past sessions. In this session, the Governor’s proposed budget reflects a four percent vacancy savings for most agencies. However, the joint Appropriations and Finance & Claims Committees are considering even further cuts from the Governor’s proposed budget, including an additional two percent vacancy savings.
While some will argue vacancy savings as a harmless cost cutting measure, the reality is that vacancy savings results in the loss of state jobs and potential of services to be cut or reduced in communities. State agencies that we all rely upon must continue to do more with fewer resources and fewer staff. The effects of these cuts are seen across the state, in both small and large communities.
However, there is something the legislature can do about our current financial position – we can bring in more revenue. There are a variety of ways we can make our tax system fairer and raise much needed revenue for our public schools, higher education, health care, infrastructure, and public safety. We can close loopholes and stop the unfair tax breaks that benefit the super wealthy and out-of-state corporations. We can make sure that we are all pulling our weight and have enough revenue to invest in our communities.
The significant but short-term reduction in revenue levels over the past two years is going to be a challenge for the 2017 Legislative session in Montana. It will require tough choices balancing budget cuts and new revenue.
Unfortunately, the legislature’s plan to start the new budget with almost $50 million in additional cuts beyond those in the Governor’s balanced budget proposal will make matters worse by hurting the economy and families.
If the legislature continues with their plan, they will begin the session by automatically implementing hundreds of cuts hidden in procedural decisions without a transparent discussion of their impacts. We don’t know where these cuts are coming from or whom they will impact. Montana has seen time and time again that cuts this dramatic hurt vulnerable children, students, local communities, and seniors.
What is happening?
The Joint Committees charged with debating the budget (the Senate Finance and Claims Committee and House Appropriations Committee) are discussing moving the starting point for budget decisions to make additional reductions to all state agencies below the Governor’s budget.
This is unnecessary.
The Governor’s budget, which already includes over $73 million in cuts to the state budget is a transparent starting point. It has pages and pages of detail that have been available to the public for weeks, and it was widely publicized. Second, the Governor’s budget is structurally balanced and restores the ending fund balance (effectively Montana’s rainy day fund) to $300 million by the end of the biennium. It is a good starting place for the Legislature to make modifications.
Last, cuts are not the only way to balance the budget. The Governor created his budget that does not rely on only budget cuts, but also addresses the current lack in revenues, by closing tax loopholes used by special interests and ensuring everyone is paying their fair share. The Governor found several new sources for revenue that make sure we are all pulling our weight and can bring in additional revenue available to fund state priorities.
It is not fair to ask college students to pay more for school while the super wealthy get massive tax breaks. It is not fair to cut funding to local schools already struggling to find quality teachers for the classroom when out-of-state corporations take advantage of tax loopholes.
While some cuts are inevitable, this Legislative plan ignores an opportunity to build toward a better economic future. We need a balanced approach to our economic challenges –one that includes new revenue to meet today’s needs and starts planning for our future.