While Montana’s economic growth in recent years has filled state coffers and expanded state agency wish lists, some experts warn that the recession might soon hit the state, forcing what Gov. Brian Schweitzer’s staff is calling a “belt-tightening” legislative session in 2009.
“Clearly, the nation is facing some strong recessionary headwinds,” says David Ewer, the governor’s budget director. While Ewer says he’s seeing a decline in corporate income tax collection, however, he remains optimistic about the growth he’s seen in income taxes on wages and salaries.
Others share optimism about growth, but lament that income tax revenue–the state’s largest revenue generator—will decline in the face of higher energy, food and transportation costs.
“Most of Montana’s revenue comes from income taxes,” explains Paul Polzin, director of the University of Montana’s Bureau of Business and Economic Research. “Unlike other economic indicators,” Polzin says, “the components of Montanans’ incomes are more influenced by national rather than state trends.” Although income tax revenue has grown steadily in past years–for example, a 2006 State Department of Revenue Biennial report showed 7.2 percent growth in income tax revenue—Polzin figures it will soon slow under strain.
Schweitzer has taken note. After Montana’s state agencies submitted $413 million in biennial funding increase requests to the governor’s budget office last month, he outlined in his executive budget recommendations a $1.8 billion spending cap and a $500 million cap on one-time-only spending, among other mechanisms aimed at cutting state spending. What impact will the squeeze have on the session?
“It impacts the whole legislative process,” explains State Senator Trudi Schmidt, D-Great Falls, who chairs the legislature’s Interim Finance Committee. She says the budget weakening will all but forbid legislative pet projects and force the legislature to focus on existing, as opposed to newly created, programs. She also anticipates members will focus on the three highest areas of state spending: health, safety and human services.
“Our lists of priorities will become shorter,” Schmidt observes, “rather than longer.”