House Bill 449 — Budget stabilization fund

Fred Birnbaum 2020 House spending bill ratings Leave a Comment

The Idaho Spending Index examines appropriation bills on several fronts to add some important context to lawmakers’ discussions as the spending bills are considered on the House and Senate floors. As we look at the budget, we consider the following issues:

Does the agency requesting these funds serve a proper role of government? Has wasteful or duplicative spending been identified within the agency, and if so, has that spending been eliminated or corrected? Have budget-writers reviewed existing outlays to look for opportunities to contain spending, e.g., through a base reduction? If there is a maintenance budget, is that maintenance budget appropriate? Are the line items appropriate in type and size, and are they absolutely necessary for serving the public? Does the budget contemplate adding new employees or programs? Does the appropriation increase dependency on the federal government?

Our analysis is intended to provide lawmakers and their constituents with a frame of reference for conservative budgeting, by summarizing whether appropriation measures contain items that are truly  objectionable or legitimate and worthy of support.

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Note: The update of this bill from the earlier version, H374, does not change the analysis.

Bill description: The bill raises the cap for the Budget Stabilization Fund (BSF) from 10% to 15% of the previous year’s General Fund reserves and repeals the Economic Recovery Reserve Fund and transfers the remaining fund balances to the BSF.

Idaho’s BSF is currently capped at 10%, but the projected total for all reserve fund balances for FY20 is 13.6%, which comes out to about $540 million. This total is found on page 31 of the FY21 Legislative Budget Book. The total also includes the $20 million transfer in, as recommended by the governor for Fiscal Year 2020.

The National Association of State Budget Officers, or NASBO, provides comparative data on state finances. In its Fall 2019 report, Fiscal Survey of the States, NASBO compares the reserve fund balance of all 50 states to each other (Table 31). According to NASBO data, only 14 states (FY20 data not available for a few states) had higher reserve balances than Idaho. About half of these states are dependent on the energy industry, with their economies fluctuating along wth energy prices: Alaska, New Mexico, North Dakota, Texas, Wyoming, etc. 

Therefore, given the overall position of Idaho, there is not a compelling case to bring our reserves in line with more energy-industry reliant states, notwithstanding what we hear from bond-rating agencies, whose interest is to protect bondholders, not taxpayers. Excess money should be returned to taxpayers and not be squirreled away by governments. 

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This legislation has a positive feature in that it repeals the Economic Recovery Reserve Fund, which is not a capped fund, and transfers the money to the BSF. Starting the process of consolidating funds is a good idea, as there is no economic reason to maintain six reserve funds. For example, the Public Education Stabilization Fund is now being used as a backstop and supplemental account for K-12 spending, with withdrawls of $32.7 million and $16.6 million in FY 20 and FY19 respectively.

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