State leaders decided Wednesday which programs and services should be cut if the state doesn’t bring in as much money as expected over the next two years.

Senate Bill 261 establishes a Budget Stabilization Reserve Fund and creates a new set of rules for how the state must react to revenues that come in lower or higher than projected, cutting some spending in bad times and socking away extra cash in the best times. Some of the areas targeted for potential future cuts had been protected from earlier reductions made by legislators as they built the 2018-19 budget.

The goal is to give the governor more guidance on how to react to revenue slumps so the Legislature has a smaller hole to fill as they craft the next two-year budget. It also placed more onus on legislators to decide how those cuts might be made.

“This has not been easy to determine where we go if revenues tank,” Senate Minority Leader Jon Sesso, D-Butte, said during the conference committee meeting to reconcile differences between House and Senate versions of the bill. “We wanted to share in the responsibility to outline that.”

Since January, legislators have had to slow program growth or make cuts to backfill a revenue shortfall of about $200 million over the last two years. For decades, Montana has simply left extra cash in its checking account in case of emergencies. If SB261 ultimately becomes law, it would make Montana the 48th state to develop a formal strategy for smoothing economic fluctuations.

But until the state can build up some cash in the new Budget Stabilization Reserve, any future decline in revenues must be managed with program cuts. Although funding for social services and education had been spared the brunt of reductions in the 2018-19 budget, they could not be ignored in Wednesday’s negotiations about how to handle any additional drops.

“While it cuts a bit deeper than we’d like to see -- it does go into essential services – we tried as hard as we could to make it even across the board and not affect one area more than another where possible,” House Appropriations Chair Nancy Ballance, R-Hamilton, said.

She later told the House GOP caucus that the governor’s office asked about two weeks ago for the Legislature to reopen the main budget bill and to make additional cuts. Instead, she said that request evolved into the budget cut targets and trigger levels in SB261.

“The concern was we had not cut enough,” she said.

Bullock Spokesperson Ronja Abel disputed that characterization of events in a statement she issued in response to a request for Budget Director Dan Villa to comment.

“After Republican legislators refused to raise revenues and instead adopted an inflated revenue estimate, it became clear that the budget in its current form would be unacceptable to the Governor and risked the need for a special session,” she wrote, saying that meeting had been “at their request to mitigate that risk.” She described the details of SB261 as a mutual agreement.

In a written statement issued by Abel, Villa said of SB261 in general: “Given the options, this bill represents the best compromise that could be reached at this time.”

Future budget cuts would be triggered in four waves, each cut going deeper as revenues fall farther.

One of the first places the governor would turn is the fire fund. Up to $30 million of the $73 million cash pot could be borrowed to cover declines. The bill also outlines when the governor could make across-the-board cuts to state spending, reduce provider rates paid for some Medicaid services, cancel contracts to move HELP Act work in-house, eliminate planned pay raises for state employees, and, in the worst-case scenario, cancel or delay several payments to local school districts. The budgets for statewide library services, the Montana Historical Society’s Research Center, tourism promotion, Native language preservation and agricultural marketing also could be on the chopping block.

Sesso tried Wednesday to remove part of possible cuts to provider rates.

The Legislature is poised to pass legislation that would increase over two years the amount the state pays to companies who provide in-home care to people with disabilities and the elderly. It requires that increased Medicaid reimbursement be used to raise the hourly wages of direct care workers. For years, the state has been unable to spend all of the money it appropriated for those services because private companies could not find enough people to work for the wages covered by the reimbursements.

Those indirectly funded wage increases would be delayed if the third trigger level is reached. Because only part of the money comes from the General Fund – which SB261 protects – Sesso said the committee should not cancel the spending supported by a trust fund for elderly services, saying that is “throwing out the baby with the bath water.”

The motion died on a split-party vote. Republicans noted that while the trust monies would pay for the increased provider rates initially, they would have to be paid out of the General Fund in the future, an obligation they did not think was smart to make if those revenues were in decline. 

The final version of the bill received preliminary approval from the House and Senate later Wednesday.

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Lee Newspapers state reporter Jayme Fraser emphasizes in investigative journalism and data reporting.

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