Montana budget on a ‘sugar high,’ but revenue declines projected
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On a “sugar high,” the state of Montana is projected to have a lot of extra money in reserve by the start of the 2025 biennium, but revenue is volatile, and a shortfall already is forecast for firefighting.
At the end of the 2021 legislative session, the ending fund balance was expected to be $157.2 million above the operating reserve by the start of the 2025 biennium, but that figure is estimated to hit $1.7 billion, according to a forecast this week by the Legislative Fiscal Division of the Montana Legislature.
“We probably shouldn’t think about spending it yet because it’s too unpredictable,” said Rep. Mary Caferro, D-Helena, at the meeting.
At a joint Legislative Finance Committee and interim Revenue Committee meeting, fiscal analysts presented the 2025 biennium outlook in advance of the upcoming Legislature. They cautioned at the meeting and in their report that projections were difficult to make given unpredictable inflation rates, uncertain population trends, and changes in the work economy, such as higher wages and lower labor participation.
“Strong collections provide a secure beginning for the 2025 biennium budget process, but economic uncertainty clouds the future,” reads the budget outlook.
Firefighting costs grow
One the expense side, however, the cost of fighting fires has been going up and is expected to continue, according to the outlook. The report estimated the average cost of wildfire suppression increased 31 percent, from $22.3 million per year to $29.2 million per year in the span of a decade.
The report also notes that even though the Department of Natural Resources and Conservation is effective on fires, suppressing 96 percent of burns fewer than 10 acres in the past decade, the ones that do grow large “account for most of the expenditures.”
In the future, costs are likely to go up given longer fire seasons and higher costs of labor, fuel, and supplies, as well as “an increasing number of large fires,” the report said. The state sets a formula in statute for its fire suppression fund, and based on the last 10 years of average revenues and expenditures, Montana could see a $14.2 million shortfall for the biennial, and with extreme fires, a shortfall as high as $81.4 million, said the report.
Revenue drops ahead
At the meeting, at least a couple of people referred to the state budget as being on a “sugar high,” and one presenter said all other states are in the same boat. The outlook said the big money in savings is 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 revenues in FY2023 are expected to drop at least 10 percent but possibly as much as 20 percent from FY2022,” the report said. “This represents a reduction of $347 million – $721 million in general fund revenue collections in just one year.”
However, legislative fiscal analyst and division director Amy Carlson cautioned lawmakers that the possible 20 percent drop was an alternative estimate, and the dip could be sharper.
“It’s not to be considered a worst-case scenario,” Carlson said. “It’s just an alternate forecast at this time.”
The report also said recent years of high revenue “provide a cushion to absorb the extreme volatility projected for FY2023.”
The outlook was a heavy lift for staff, who are dealing with more financial uncertainties than usual, Carlson said. For example, she said one market forecast indicates inflation, at some 8 percent, will slow in FY2023, but it’s not a given by a long shot.
“Obviously, the Federal Reserve is doing what they can to moderate inflation, and only time will tell as to whether they are successful,” Carlson said.
She also said the analysis this week was by no means fine tuned, and lawmakers would receive more budget information in the fall, prior to the 2023 Legislature. She also said her staff typically takes the budget presentation on the road in Montana.
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