Idaho officials are addicted. The standard dictionary definition of addiction is “a strong inclination to do, use, or indulge in something repeatedly,” and there is nothing that matches this description more than the Idaho state government’s inability to curb the growth of spending. 

Mind you, it is not just Idaho. The shutdown of the federal government in D.C. is about spending, but at least they have the excuse of a closely divided government. Don’t get us wrong — we wouldn't trade Idaho's budget issues for D.C.’s woes. However, there comes a time when a change of course is needed, and that time is now for Idaho. 

A recent Legislative Council review of the current 2026 Fiscal Year (FY26) and a preview of FY27 agency budget requests reveal problems that can no longer be avoided. They must be addressed come January.

Please look at our previous research, which goes into great detail about revenues and historical spending. We won't rehash all those issues here.

Let’s start with FY26. Because FY25 ended about $62 million behind in revenue projections, and thus far, FY26 revenue is behind both the prior forecast and revised forecast by a cumulative $470 million, Idaho is over $500 million behind where forecasts projected back in April. 

Controlling spending is a necessity. 

Additionally, when we review the current year’s spending projections, we see that requests for supplemental spending and other requests outweigh the governor’s recent 3% General Fund holdback (spending reduction for the current year). This means that if the Legislature approves the FY26 supplemental spending and sticks to its modest reductions, the FY26 ending balance will be about $154 million in the red. 

And if Idaho conforms to the federal tax cuts under the “One Big ‘Beautiful’ Bill,” those costs for the remainder of FY26 (half the tax year) would be about $142 million. While these numbers may not align exactly because of a lag in withholding changes, the FY26 deficit could approach $296 million — that’s Idaho operating in the red. 

Unless revenue trends reverse, the FY26 holdback will need to be increased and will need to include public schools, which have been excluded thus far from cuts. Or the governor will have to tap “rainy day” funds. We expect to see some combination of holdbacks and rainy days to close the FY26 budget gap because we have not seen the political will to cut spending. It would be great for us to be wrong.  

To understand the FY27 picture, let's look at two tables from the recent Legislative Services Office presentation. The one below is the growth for the maintenance budget from the base. The maintenance budget is to keep the lights on. Two things stand out:

1. The placeholder pay raise (called the CEC) is 1%. Is this tiny (by historical standards) increase really what the governor and the Legislature intend to do? Or is more coming in January? 
2. Look at the health and benefits piece for state employees with a $75.8 million price tag. This is a 57% increase from the $48.4 appropriation for FY26.

Below is a table with the additional items and enhancements that roll up to the total budget request. There are a few things to keep in mind. This comprises the agencies’ requests, and the governor has already asked agencies to go back and make additional reductions. So, these are preliminary numbers.

This is what is alarming! We see the federal government plans to provide $409 million less in funds in FY27 than FY26, but the state wants to more than make up for that with an additional $1 billion of General Fund and Dedicated Fund spending. This equates to a 12.6% increase in the state spending portion of the budget compared to FY26. 

Embedded in this huge increase is $355 million of state funds for “population adjustments.” Meaning more people seeking services required by current law under Medicaid. 

But that’s not all! There is another piece. It is $181 million in population forecast adjustments for public schools. This is puzzling because the population “support units” (essentially classroom-size units) are up only 1%. We were told that $94 million is just for public school health care benefits provided by the state, of which $91 million is just the rate increase. This represents a 26% increase in the cost of state-provided healthcare benefits to school districts. Last year, the increase from FY25 to FY26, by contrast, was 9%. So, healthcare costs are exploding at all levels.

It is premature for us to project FY27 General Fund revenues. The revenue projections provided in the presentation are for $5.682 billion. If you assume a minimal ending balance of $20 million for FY26, which may require a rainy day fund infusion, that will bring the total to about $5.702 billion. This number will just barely cover the FY27 maintenance budget if a 2% CEC is provided. This means there is no room for replacement items or growth in any of the budgets.

It may take a while to absorb all of this, but one thing is clear: the addiction to generous, annual, spending increases must end. The Legislature will need to take bold action in January, because if FY26 looks like a hard landing, FY27 will likely be rockier.