Otter orders 1 percent budget cut

BOISE – Idaho Gov. Butch Otter has ordered a 1 percent holdback in the state budget, cutting $27.3 million out of state spending for the fiscal year that started July 1.

“Acting in moderation now is the prudent and fiscally responsible thing to do,” Otter said. He said making the small cut early in the year will be easier than cutting more later – but he also ordered state agencies to hold an additional 1.5 percent of their budgets “in reserve” in case further budget cuts are needed.

Questioned by reporters as to why he wasn’t tapping Idaho’s multimillion-dollar rainy-day funds, Otter said, “We don’t know what’s going to happen six months from now.” With a worsening economy, Idaho could need those rainy-day funds later, he added.

Otter’s budget chief, Wayne Hammon, said Idaho is “very blessed” to have “a number of tools” such as its rainy-day funds.

“It’s definitely raining,” Hammon said. “The question is how long will this storm last?”

Otter did opt to pull $14.2 million out of the public school stabilization fund to make up for the cut to the school budget. The fund now contains $118 million. That means nothing will have to be cut in the school budget to achieve the 1 percent holdback.

Hardest hit will be the state Department of Health and Welfare, which will have to trim $5.4 million from its budget right away, and state colleges and universities, which must cut out $2.8 million.

Otter said the 1 percent cut shouldn’t affect services to the public. Some agencies will hold off on part of their employees’ salary increases or bonuses because of the cuts, he said. “I would tell you that no essential services are going to be hurt.”

The midyear budget cut, Otter’s first, came as state revenues plummeted compared with projections, even though lawmakers set a conservative budget this year more than $40 million below projected tax revenues.

Mike Ferguson, Otter’s chief economist, said, “Basically what we’re seeing is a tremendous amount of turmoil in the financial markets. … We will continue to monitor the situation.”

Last week, Otter ordered state agencies to make plans for budget cuts of 1 percent, 2 percent, and 2.5 percent. Asked why he chose the lower figure Friday, Otter said, “That’s now what it appears, because we got to it early enough.” But he noted that the additional 1.5 percent – $40.8 million – will be held in reserve, “until we give you an all-clear signal.” That might not come until spring, or could be as soon as November, he said.

“We still hope for the best, but we must plan for tough times ahead,” the governor said.

The leaders of the Legislature’s joint budget committee, both Republicans, support Otter’s plan, which Senate Finance Chairman Dean Cameron, R-Rupert, called “a wise step.”

House Appropriations Chairwoman Maxine Bell, R-Jerome, called the move “prudent.”

Minority Democrats on the budget panel said they weren’t consulted; some said they would have favored targeted cuts rather than across-the-board trimming.

“It is time to tighten your belt,” said Sen. Elliot Werk, D-Boise. But, he said, “You’re putting critical services and noncritical services on the same playing field, as if they are the same.”

Some agencies will have an easier time than others making the 1 percent cuts. The Idaho State Police will take its entire $197,500 cut from its personnel budget; nearly half the state corrections department cuts also will come out of personnel. So will many of the cuts at the state’s colleges and universities.

However, most of the savings will come through eliminating or not filling vacant positions, delaying raises and bonuses and the like. Few state workers are expected to lose their jobs.

At Health and Welfare, most of the cuts will come from reducing preventive and rehabilitative services in an array of different programs. Director Richard Armstrong said the agency hopes “to minimize direct impact on critical services for clients.”

The Commerce Department will cut its $76,500 from a grant program for rural communities that often had money left over. Idaho has more than $300 million in rainy-day funds, including $140.6 million in the budget stabilization fund and $60.7 million in the economic recovery fund.

The budget cuts will be made by Oct. 6. Otter’s also encouraging the legislative and judicial branches of state government to make comparable cuts.

The holdbacks affect only the state’s general fund, so they don’t tap agencies such as Transportation, which operates largely with fuel tax funds, and Fish and Game, which is funded by permit fees.

Otter said if the state revenue picture improves, the funds being cut now could be restored.