September 18, 2008 in Idaho

Otter planning for budget cuts

Tax revenue forecast down nearly 6 percent
Betsy Z. Russell Staff writer

Idaho budget cuts

The most recent midyear budget cuts ordered by Idaho governors:

2003: Gov. Dirk Kempthorne ordered a 3.5 percent holdback on all state agencies except public schools and higher education. He later lowered it to 1.9 percent for the state Department of Health and Welfare.

2002: Kempthorne ordered a 2 percent holdback on state agencies, 1.5 percent for public schools. When shortfalls continued, he ordered an additional 1 percent across the board. It was the first permanent holdback on public schools in Idaho.

1997: Gov. Phil Batt ordered a 2.5 percent holdback in September and recommended offsetting cuts to public schools from the state’s budget reserve fund. Improving revenues in the spring allowed the school funding to be replaced.

1996: Batt ordered a 2 percent temporary holdback on state agencies and schools; lawmakers covered the school funding from budget reserves.

1992: Gov. Cecil Andrus vetoed a legislative decision for a 1.1 percent holdback on agencies other than schools, but allowed the cut to stand for the legislative and judicial branches; he then ordered a 0.3 percent holdback in May when revenues continued to slip.

1986: Gov. John Evans ordered a 2.5 percent holdback, but the Legislature responded with a 4.5 percent cut passed over the governor’s veto. Sales taxes were raised temporarily from 4 percent to 5 percent; the increase later became permanent.

BOISE – Idaho Gov. Butch Otter is drawing up plans to cut the state budget midyear by at least $27 million and possibly as much as $68 million, after an ailing economy forced a rewrite of Idaho’s expected tax revenues for the year.

Under revised forecasts, Idaho now expects to collect $174.3 million – 5.9 percent less in taxes this year than expected. State rainy day funds could cover the shortfall, but Otter has opted to look at budget cuts instead, anticipating that the reserve funds will be needed to offset additional shortfalls in the coming year.

“He chose not to use that rainy day money because, quite honestly … it’s going to be raining for a while, it appears,” said Wayne Hammon, Otter’s budget chief.

The governor Wednesday asked state agency heads to prepare three budgets, cutting their spending this year by 1 percent, 2 percent and 2.5 percent. All cuts would be permanent, except for public schools – which officials would protect from any cuts this year by tapping into the public school stabilization fund.

That fund, designed to offset shortfalls in school funding, now contains $118 million. A 1 percent general fund budget cut for public schools in Idaho would amount to $14.2 million; 2 percent, $28.4 million; 2.5 percent, $35.5 million.

“The good news is it’s enough,” Hammon said.

Idaho also has $140.6 million sitting in its budget stabilization fund, the state’s main rainy-day account, and $66.7 million in what legislators have dubbed an “economic recovery reserve fund.” At this point, neither of those funds would be tapped.

“I think that the governor is taking prudent steps in light of what we see happening with our revenues and our economy,” said state Sen. Shawn Keough, R-Sandpoint, vice chairwoman of the Legislature’s joint budget committee. She added, “I hope things get better.”

If ordered, it would be Otter’s first midyear budget cut, commonly referred to as a “holdback.” But the governor emphasized that a final decision hasn’t been made.

“I am not going to ask anybody to cut their budgets unless it is absolutely necessary,” Otter said. “I am hoping for the best, I am absolutely hoping for the best. But I am planning for the worst.”

Idaho joins several other states bracing for revenue shortfalls.

The problem is much more bleak for state budget-writers in Washington, where lawmakers fear a shortfall of more than $2.5 billion over the next two years. Some lawmakers say they’ll likely tap a newly created rainy day fund as well as the state’s other savings, but even if they drain both, which is unlikely, Washington’s government would still be short hundreds of millions of dollars. A state economic projection – expected to contain more bad news – is due out today.

In anticipation of the budget crunch, Gov. Chris Gregoire recently called for a hiring freeze on nonessential state and higher-education staffers. The state is also curtailing travel, equipment purchases and other costs to try to minimize the financial damage. Gregoire’s challenger, Republican Dino Rossi, says the changes are nowhere near enough.

In Idaho, Otter met with House Speaker Lawerence Denney, R-Midvale, and Senate President Pro-tem Bob Geddes, R-Soda Springs, on Monday before making the announcement Wednesday.

Last year, frugal lawmakers cut more than $40 million from the budget Otter proposed for this year out of fear of an economic downturn, though the state had been piling up surpluses.That budgetary caution plus earlier surpluses make Otter’s proposed holdbacks much smaller than the full $174.3 million revenue shortfall.

Hammon said the proposed holdbacks and the state savings accounts will “get us several years through a bad economy, hopefully – knock on wood.”

When Idaho’s state revenue forecasts were re-examined in August, shortages were identified in all areas – income tax, sales tax, corporate taxes and miscellaneous revenues.

State Superintendent of Public Schools Tom Luna said Idaho’s schools are “fortunate” that the school stabilization fund will cover any cuts.

“I am grateful to the Idaho Legislature for having the foresight to create this fund in 2003 and then to deposit $100 million into it in 2006 to help deal with tough economic times like we are experiencing today,” Luna said. However, he urged local school boards and districts to carefully watch spending, “to ensure that we are spending every taxpayer dollar efficiently and effectively, especially during these tough economic times.”

Staff writer Richard Roesler contributed to this report.

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