BOISE - Idaho is on track for an economic recovery in 2011, according to the state’s latest official forecast - though state lawmakers and the governor set a pessimistic budget for 2011 that requires historic cuts in education.
The newest state forecast, issued in May, says, “Idaho’s economic recovery should be well established after this year, entering a period of modest growth beginning in 2011. … It has been awhile, but it is beginning to feel like a recovery.”
The forecast is considerably sunnier in tone than the last official state forecast, which was issued in January; that one suggested “cautious optimism” and said, “Admittedly, risks to the economy exist, but it appears the worst is behind us.”
The Legislature and Gov. Butch Otter cut their own estimates of state tax revenues far below the official forecast to be on the safe side, even though the decision meant deep cuts in government programs including schools. Public schools saw an unprecedented overall funding cut for next year of 7.5 percent - $128.5 million - along with state authorization to cut pay for teachers and administrators, a statewide declaration of financial emergency for schools, and more.
“The governor has said all along that we expect there to be a recovery - it’s not a matter of if, it’s a matter of when,” said Otter’s spokesman, Jon Hanian. “We’ve gone through this difficult period. … His view is we need to be very frugal, very cautious and conservative in our budgeting. Really, nothing has changed to suggest that isn’t the prudent way to go. It’s Idaho common sense, that’s how he’s built this budget.”
Otter’s Democratic challenger, former non-partisan citizen activist and mediator Keith Allred, has been sharply critical of the budgeting decisions, which resulted in a state general-fund budget for 2011 that’s a total of $143 million lower than the state’s official revenue forecast.
“The economic forecasts confirm two things: First, the Idaho economy is turning the corner,” Allred said. “Second, it’s not recovering fast enough. In response to the first, I’ll say again what I’ve been saying since January: Cutting our kids’ education on the assumption that 2011 would be worse than 2010 was a terrible mistake - Otter’s worst mistake.”
Allred added that he favors “strategic investments in our kids’ education” and eliminating “special-interest tax exemptions that don’t make sense” while lowering overall tax rates to spur Idaho’s economic recovery.
Jana Kemp, a Boise businesswoman and former GOP state representative who’s mounting an independent campaign for governor, sided with Otter on budgeting for 2011. “I think that the legislators and the seated governor did the absolute best they could with the information they had on hand and with caution, looking toward the future,” she said.
In addition to Otter, Allred and Kemp, the ballot for governor also includes another independent candidate, “Pro-Life,” and Libertarian candidate Ted Dunlap.
Worried about continued drops in expected state tax revenues, the Idaho Legislature this year set a revised budget for the current year that’s $69.1 million below the state’s official revenue forecast. Then, the tax revenue numbers slipped even further; as of April 30, Idaho had collected $82.6 million less in taxes this year than forecast. Because the budget had been reduced so far below the forecast, that resulted in a net $13.5 million shortfall, should those trends hold through the final two months of the fiscal year, which ends June 30.
When that shortfall was announced last month, Otter said the state will be able to make it up through transfers from reserve funds and won’t need further mid-year budget cuts.
For fiscal year 2011, which begins July 1, 2010, Otter recommended a no-growth budget that would have totaled about $83.8 million less than the revenue forecast for next year. Lawmakers cut that even further, dropping an additional $59.1 million below the governor’s recommendation. That’s the year in which the state forecasts now show an economic recovery, with employment, personal income and even housing starts beginning to pick back up.
“What we’re clearly in line for is the 2010 number is going to come in much closer to the legislative number than to my number,” said Mike Ferguson, Otter’s chief economist. “That’s pretty much a done deal because of April. … So we end 2010 down roughly $80 million.”
As far as 2011, Ferguson said the outlook is for economic growth, but with the lower starting point, the state would have to see twice the 3.6 percent growth rate he predicted in 2011 to hit his forecast, which he dubbed “not looking terribly likely at this point.”
However, he said, “I think it’ll be a positive growth factor. I haven’t seen anything that leads me to believe it will be flat. … If anything, the economic factors have probably kicked it into a somewhat higher growth rate now. … The economic side of things definitely hasn’t gotten worse.”
So Ferguson figures the state’s tax revenues for 2011 will come in somewhere between his official prediction and the Legislature’s much more austere budget; the next recalculation of state tax revenue estimates comes out in August. If he’s right, Idaho would end up with a budget surplus next year of somewhere between zero and $143 million.