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State budget could fall into the red, according to budget chief

State budget could fall into the red, according to budget chief

Idaho Freedom Foundation staff
July 20, 2010

Idaho’s state budget could topple out of balance due to potential gaps in funding, according to Wayne Hammon, the administrator of the governor’s Division of Financial Management (DFM).  Hammon identified several spending programs, including Medicaid, that could need more funding in the next state budget.

“Right now, the 2011 budget is balanced, and we’re watching very closely,” Hammon said.  “When you factor in these other things, we may not have even cut enough yet.”

Hammon posted a short presentation updating the state budget situation on DFM’s website.  He said he will be speaking to local service clubs and business groups about the state budget, which is why he prepared the presentation.

Hammon said that the current spending levels in the current budget, with many agencies seeing reductions from previous budgets, are now the new normal for state agencies.  “For at least the forseeable future,” Hammon told IdahoReporter.com, “that’s the maximum sustainable level.  It’ll be years before we have the ability to restore the cuts that were made in 2009 and 2010.”

Aside from showing looming budget issues, the presentation also reflected past spending decisions, including showing that many state agencies received a larger proportional spending reduction than public schools, which will see a $128.5 million, 7.5 percent spending reduction in the current budget.  Another slide shows the state’s step-like approach using spending holdbacks to reduce the state’s budget from close to $3 billion annually in 2008 to just over $2.3 billion in March.

One reason for those gradual spending reductions is that the state’s revenue forecasts have projected that the state would bring in more tax dollars than were actually collected during past two years.  In the recently completed budget, tax revenues were 14 percent less than a forecast from December.  The year before, collections were 18 percent less than projections.

Those overestimates could continue this year.  Hammon said the methodology for projecting tax revenues, which is built on a historic model, won’t change, though there could be different adjustments from the state’s chief economist, Mike Ferguson.  The slideshow quotes Ferguson from last month saying, “It is fair to say that the 2011 forecast that I made last December may be too optimistic.”

Lawmakers set the current budget $142.9 million below Ferguson’s December forecast, so if tax collections don’t completely rebound, more spending reductions may not be necessary to keep the budget balanced.

The presentation could have implications for the November election.  Gov. Butch Otter and lawmakers have received criticism for cutting education funding for the first time in state history.  Otter’s Democratic opponent, Keith Allred, has said the tax revenues in the current budget are set too low, which led to unnecessary spending reductions.

Hammon’s budget update offers some responses to Allred’s claims.  One slide said that, instead of making spending cuts, the state could have relied on unrealistic high expectations for revenues.  Another slide Hammon prepared offered a takeaway message from the last two years of budgeting and the potential for additional spending reductions in the next year, saying “The best approach is the conservative approach.”

Read Hammon’s full presentation at DFM’s website.

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