“…Our leaders in Helena need to be evaluating whether our savings rate is evidence-based and whether we are collecting more than we really need from taxpayers.”
Montana’s latest quarterly financial report anticipates state government will face a negative structural balance by FY 2027: ongoing revenues fall $35.8 million short of ongoing expenditures. By FY2029, that gap widens to an estimated $250 million. The talk in Helena is that this coming budget crunch is going to derail further tax relief, potentially jeopardizing the signature goal of Gov. Greg Gianforte’s administration to get us to a flat income tax rate.
But this is just talk, and the projected structural imbalance is largely self-inflicted, the result of policy choices by our leaders in Helena not because of collapsing revenues. And those choices will be used as an excuse to tell taxpayers further tax relief isn’t possible.
LFD’s quarterly report shows exactly how the coming deficit was engineered. Of the $544.6 million in total structural balance decline from present law, 72% comes from tax cuts (federal and state), 17% from mandatory ongoing transfers to the GO Trust ($92M), and 11% from expenditure increases above inflation ($51M). State government simultaneously cut ongoing revenue, diverted $92M/year to a locked trust, AND increased spending above inflation. Here’s the critical fact: without the required $92M annual GO Trust transfer, FY2027 would have a $56M surplus. The deficit didn’t just happen, it was chosen.
This is representative of the ongoing cycle we find ourselves in with state government over the last decade:
- Over-Collect: economy grows, revenue exceeds estimates, surplus accumulates.
- Transfer: Siphon the bulk of the surplus off into accounts committed to on-going funding of new or existing government programs. Call this “savings”, even though it funds a growing scope of government subsidized housing, childcare, infrastructure etc. Do this despite having no evidence to indicate existing savings are inadequate to cover the state’s needs via direct appropriation.
- Lock it away: Once in committed accounts, the money becomes politically untouchable. Constituencies form and redirecting funds from accounts towards tax relief gets framed as attacking services and jeopardizing savings. Structures like the GO Trust take it a step further, adding a 2/3 supermajority lock on principal.
- Swallow The Budget: Committed balances grow, the structural balance tightens. Not because revenue is inadequate, but because ongoing transfers to committed funds consume the surplus.
- Blame The Deficit, Block Tax Relief: Leadership cites the tightening budget as proof the excess savings levels are needed and more substantial tax relief isn’t possible.
- Repeat
Each cycle converts taxpayer money from “returnable surplus” into “committed government resources.” The next surplus gets committed to the next set of accounts, further narrowing the capacity for tax relief, further growing the baseline of government.
The new Moody’s ratings report for Montana sheds some light on this pattern of excessive accumulation. Montana is rated Aa1, one step below the top rating of Aaa. Moody’s reports Montana’s available balance (basically the total savings the state has accumulated) at 87.7% of own-source revenue, nearly double the 50 state median (44.4%) and roughly six times the level of savings Moody’s identifies as a downgrade trigger for Idaho’s Aaa rating (15%) – a state with a very similar economic profile. Idaho’s fund balances actually sit at about 22% of revenues and it earns Aaa comfortably. In fact, the only thing Moody’s cites as holding Montana back from Aaa is pension liability, not our savings levels.
As the state’s structural balance tightens in the coming biennia, driven in part by hundreds of millions in ongoing commitments to the GO Trust and other funds that the state holds, our leaders in Helena need to be evaluating whether our savings rate is evidence-based and whether we are collecting more than we really need from taxpayers.
