Montana budget on ‘high sugar,’ but expected revenue cuts | State

June 17, 2022

Montana Economy

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On a “high sugar,” the state of Montana should have plenty of extra cash in store by the start of the 2025 biennium, but revenues are volatile and a shortfall is already forecast for the fight against fires.

At the end of the 2021 legislative session, the closing fund balance was expected to be $157.2 million higher than the operating reserve at the start of the 2025 biennium, but this figure is expected to reach $1.7 billion. dollars, according to a forecast this week from Parliament. Tax Division of the Montana Legislature.

“We probably shouldn’t think about spending it right now because it’s too unpredictable,” Rep. Mary Caferro, D-Helena, said at the meeting.

At a joint meeting of the Legislative Finance Committee and the Interim Revenue Committee, tax analysts presented the outlook for the 2025 biennium ahead of the next legislature. At the meeting and in their report, they warned that it was difficult to make projections given the unpredictable rates of inflation, uncertain demographic trends and changes in labor economics, such as higher wages. and lower labor force participation.

“Strong collections offer a secure start to the 2025 biennial budget process, but economic uncertainty clouds the future,” reads the budget outlook.

Firefighting costs are rising

On the expense side, however, the cost of firefighting has increased and is expected to continue, according to the outlook. The report estimates that the average cost of wildfire suppression has increased by 31%, from $22.3 million per year to $29.2 million per year over the span of a decade.

The report also notes that while the Department of Natural Resources and Conservation is effective against fires, suppressing 96% of burns under 10 acres over the past decade, those that grow ‘account for most of the expense’. .

Going forward, costs are expected to increase given longer fire seasons and higher costs for labor, fuel and supplies, as well as “an increasing number of large fires”, according to the report. The state sets a formula in law for its fire suppression fund, and based on the last 10 years of average income and expenses, Montana could see a shortfall of $14.2 million for the biennial. , and with extreme fires, a shortfall of up to $81.4 million, the report says.

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Revenues fall in advance

At the meeting, at least a few people called the state budget “high sugar,” and one presenter said every other state was in the same boat. The outlook indicates that the large sums of money in savings are due to the federally stimulated economy and a strong stock market in 2021 as well as inflation, but the tide is likely to turn.

“Projected revenue for fiscal 2023 is expected to fall at least 10% but possibly as much as 20% from fiscal 2022,” the report said. “This represents a reduction of $347 million – $721 million in general fund revenue in just one year.”

However, legislative budget analyst and divisional director Amy Carlson warned lawmakers that the possible 20% drop was an alternative estimate and that the drop could be steeper.

“It shouldn’t be considered the worst case scenario,” Carlson said. “It’s just another forecast at the moment.”

The report also says that recent years of high earnings “provide a cushion to absorb the extreme volatility expected in fiscal 2023.”

Cloud forecast

The outlook was dire for staff, who face more financial uncertainties than usual, Carlson said. For example, she said a market forecast indicates that inflation, at around 8%, will slow in fiscal 2023, but that’s not a long-term datum.

“Clearly the Federal Reserve is doing what it can to moderate inflation, and only time will tell if it’s successful,” Carlson said.

She also said this week’s analysis was by no means refined and that lawmakers would receive more budget information in the fall, before the 2023 legislature. She also said her staff generally takes the presentation budget on the road to Montana.

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