In fiscal year 2020 (FY20), the total appropriation (including federal money) for Idaho’s state government was $9 billion. The 2020 fiscal year ended at the beginning of the “COVID emergency.” For the fiscal year that starts on July 1, which is fiscal year 2024 (FY24), it will be $13.9 billion. That’s greater than a 50% increase in four years.
This coming fiscal year (FY24), the state General Fund appropriations — those dollars derived from income taxes, sales taxes, and product taxes — are up 12% from last year. These funds are generally considered the state portion of the budget picture and include spending for K-12 schools and the general functions of government, such as legislative operations and the criminal justice system.
This increase was the largest single-year increase in General Fund spending in 22 years. Students of Idaho’s finances might interject and say that in FY07, the General Fund increase was larger. However that year, in a special session, an ongoing school levy using property taxes was eliminated (except for the Boise school district) in exchange for a $250 million increase in state General Fund school spending — in other words, a shift instead of an increase. So the claim that FY24 represents a generational spending increase milestone is accurate.
Even as we entered “COVID,” Idaho had been growing state government spending faster than the combination of population growth plus inflation. That overall spending growth over the last two decades was 29% greater than would be expected adjusting for inflation and population growth. Our hope was that with COVID ending, we might see a return to a slower growth rate. But appetites whetted with federal money are not easily satiated.
How did we get to this place and what are the implications?
With Congress and the Presidency changing hands from one party’s control to the other, it’s hard to keep track of who is most culpable of increasing federal deficits.
But I will let you in on a secret: the states are the conduits for much of this deficit spending. Most states have gladly taken the money and the strings that are attached. While we would expect as much from states dominated by Democratic party governors and legislators, this is a bi-partisan phenomenon. And some Republican legislators in Idaho have offered a number of excuses over the years.
The most frequently used recent excuse is, “If we don’t take the COVID money it will just go to other states.” However, those legislators don’t see the moral hazard with this approach. For example, state and local governments are not only Idaho’s largest employers, but they are demanding more and more resources to provide pay and benefits to entice more private sector workers to join the government. Governments are competing for resources to build new buildings, fund projects, pay higher salaries, and generally increase their footprint. Programs like Medicaid and Medicare now provide the majority of the revenues for our larger hospital systems.
In short, Idaho’s economy is increasingly dependent on federal money and behaves as an administrative unit of the federal government.
Don’t be fooled by the governor’s boasting about balanced budgets and record tax relief. In a March 31, 2023, press release, the governor highlights the return of over $2.7 billion in tax relief since he took office in 2019. It sounds impressive until you realize that much of the tax relief was one-time rebates.
And during the COVID emergency, which ran roughly parallel with this period, Idahoans and Idaho governments received nearly $23 billion (data from Federal Funds Information for States) in transfer payments from the federal government. It takes little talent to balance budgets and cut taxes when billions of dollars of federal funds flood the state. Borrowing from our grandkids to grow the government and cut taxes while, admittedly, putting some money into needed infrastructure projects is not something to brag about.
There are a couple of things that need to be highlighted about the recent session and the 2024 budget.
This was the first budget year impacted by the 2022 special session bill H1. This bill directed $330 million from General Funds to a dedicated public school income fund. In addition to blunting a ballot initiative, the governor sought to use this bill to give cover to a massive increase in public school spending. By shifting the money, the governor could both tout his increase to public schools in press releases but claim that his overall General Fund increase was only 5%.
A nod must be given to the Joint Finance and Appropriations Committee (JFAC) Co-Chairs, Sen. Grow and Rep. Horman, for not going along with this charade. They insisted that the expenditure be properly reflected as an increase in General Funds, which resulted in an overall appropriation increase of 12%. And this increase does not include over $700 million transferred directly from revenues to cover the cost of many projects not included as General Fund spending.
And then there was the Medicaid budget fight. In an unprecedented action, two freshman legislators and members of the JFAC, Rep. Tanner and Sen. Herndon refused to accept the conventional narrative that Medicaid spending must always increase and all that legislators should do is wring their hands about it. With the end of the COVID “public health emergency,” federal law requires the redetermination of the eligibility of those added without appropriate qualifications to the Medicaid program.
This was a big deal because nearly one-third of the entire population on Medicaid is of questionable eligibility. But the Medicaid division’s forecast for FY24 didn’t reflect removing any significant number of ineligible people, even able-bodied adults. Rep. Tanner used his floor debate to highlight the glaring oversights in the Medicaid budget bill, H334, and it died on the House floor. The replacement bill, H369, cut $152 million from the budget to reflect removing only about 10% of those ineligible. And during his floor debate, Sen. Herndon cataloged such a long list of problems and overspending that even the bill’s floor sponsor was forced to concede that the budget is not sustainable.
This fight demonstrated that the conventional wisdom on big programmatic spending is not on solid ground, and fiscal conservatives must continue to assert themselves with a view to regaining fiscal sanity in Idaho.
Let’s hope that the Medicaid budget fight rolls into more scrutiny of other budgets in the coming years because the governor has adopted the Democratic party narrative that growing big government is simply making investments. And only the Legislature is in the position to counter this narrative before the whole budget picture becomes unsustainable.
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