Stormy forecast for Idaho’s economy

BOISE – Two Idaho economists released a report Tuesday saying the state’s budget is suffering from fundamental problems and headed toward big deficits.

“Idaho’s fiscal house is not in order,” said Judy Brown, director of the Center on Budget and Tax Policy. “We have a serious problem.”

She and economist Don Reading noted that in the past five years, Idaho has gone from surpluses and tax cuts one year to holdbacks and budget cuts the next, to temporary tax increases the next.

“Lurching from crisis to crisis does not allow Idaho to plan for the future,” Brown said. “The citizens of the state are not well served by that kind of budgeting.”

The two blamed the permanent tax cuts enacted by lawmakers in 2001 for setting the state on a course toward a “structural imbalance” in the budget. That’s a phrase Gov. Dirk Kempthorne first used in his State of the State address this year to describe a troubling trend, in which Idaho is spending more than it takes in each year in tax revenue, while making up the difference with one-time funding sources such as grants or by draining savings accounts.

Kempthorne said if the economy doesn’t pick up enough by next year to address the problem, he’d recommend major changes in Idaho’s tax structure. But lawmakers have been averse to that idea; a special summer committee to examine sales tax exemptions two years ago arrived at no recommendation at all.

Reading said, “There is an attitude by the Legislature, ‘Cross your fingers that we’re going to grow out of this.’ That is not going to occur, because we continue to use one-time monies to fill the gap.”

Brown said the Legislature and administration are using revenue growth estimates that are unrealistically rosy, but Mike Ferguson, Gov. Dirk Kempthorne’s chief economist, said lawmakers have actually trimmed back Kempthorne’s budget recommendations, which were based on an expected 5.1 percent growth in tax revenues next year. “The bottom line is, as of right now we’re doing a little better than we need to,” Ferguson said.

Brown and Reading, in their report titled, “Idaho’s Structural Deficit: A problem that won’t go away,” recommend major tax reforms, such as expanding the sales tax base and closing corporate tax loopholes, as the solution.

Brown said, “Now the Legislature is once again on the verge of going home without doing anything. … The denial goes on.”