After revenues came in $75 million lower than projected, the state Tuesday announced severe cuts that will deeply affect the way government serves Montanans, including lost jobs and reduced or terminated programs.
About 20 people will lose their full or part-time jobs and many unfilled posts will remain that way. Other cuts include pulling about half the money in the state fire fund out to beef up reserves and ending a contract with the insurance company that administers Medicaid expansion. The Montana State Historical Society and the state library also saw their budgets gutted, which will result in a vast drop in services.
Dan Villa, Gov. Steve Bullock’s budget director, met with reporters to discuss the cuts, which are required under a law passed during the this year’s Legislative session.
The governor has long insisted on an unofficial rainy-day fund to tap in case of emergency. Lawmakers established such a reserve fund this year, but it was designed to build up during years with faster-than-expected growth. With no money yet in the fund, budget shortfalls can only be managed with cuts.
In case that happened, legislators and the governor’s office negotiated pulling money away from state programs whose funding could be redirected to patch holes in the broader budget.
State agencies were told to prepare for severe cuts and were asked to send the governor's office the measures they would take to comply.
House Appropriations Chairwoman Rep. Nancy Ballance, R-Hamilton, said Villa briefed her about the cuts and generally thought they matched legislative intent. She described the third tier of cuts, in particular, as non-essential services.
“The library, Historical Society, promotions for tourism, agricultural marketing. Those to me are much different than funding schools or funding Medicaid," she said.
Villa said the deep cuts could have been avoided if Republicans were willing to pass revenue measures like increasing the tobacco tax and closing tax loopholes for corporations.
“It means they’ve made the decision to implement cuts,” Villa said.
Now it’s unclear how the state could see revenue growth if Republicans maintain a majority in the 2019 Legislature and again reject a budget from the governor’s office that will likely include tax increases.
“We left $300 million in the bank. We called on the Legislature to implement the best financial practices,” Villa said. “Really at this point the voters need to speak.”
Outside organizations echoed Villa in pointing a finger at the Legislature.
"This latest round of cuts come on top of already deep budgetary cuts that will devastate the services that many Montana families rely upon and, in many instances, put more pressure on communities and local property taxpayers to pick up the tab," said Heather O’Loughlin, co-director of the Montana Budget and Policy Center. "The Legislature had a choice. Instead of asking the super wealthy and multinational corporations to pay their fair share, a majority of legislators chose to cut life-saving services for older Montanans and people with disabilities and to ask middle-class families to pay more for college."
If all the taxes proposed by the governor’s office at the start of the session -- such as increasing the tobacco tax, upping taxes on the most wealthy Montanans, altering the capital gains credit, eliminating the so-called “Water’s Edge” corporate tax loophole, bumping up a tax on alcohol and changing taxes on wealthy estates -- an estimated $204 million in revenues could have been generated.
Ballance defended the hard line against tax increases held by most Republicans.
“From my perspective, tax increases that go on forever for something that looks like a short-term problem is not the right answer,” she said. “I would always take the spending cuts first.”
Senate Majority Leader Fred Thomas, R-Stevensville, reframed the governor's tax increases as hitting poor Montanans hardest rather than the wealthy, pointing to a hard-fought legislative battle over an increase to the cigarette tax.
"The fact is their No. 1 priority was to raise taxes on the poor in the state," he said. "They got that cigarette tax out of the Senate and into the House. That was their main priority. It would have raised taxes on the poor that smoke to the same level of our state income tax of 6.9 percent."
Thomas also zeroed in on cuts within the Department of Public Health and Human Services, including Medicaid provider rate reductions, as proof of the Democratic governor's priorities. It also reflects a conservative view within the GOP that state government is too big.
"The bureaucracy will decide not to reduce its costs and will take it out on the public who's getting less services," Thomas said. "The governor can focus these cuts where he wants to."
Senate Finance Chairman Llew Jones, R-Conrad, was less critical of the governor's cut choices than Thomas, saying painful reductions are unavoidable.
"They're working hard to make it fit within a difficult situation. I'm certain that I would have made different choices but I would have gotten the same pushback," he said, noting he shares Thomas' concerns about cuts to health and social services that could affect clients. "Government spends in three major areas and a bunch of minor ones: health and human services, education and corrections. That's 80 percent of our state fund spending. To think we cannot impact those areas somewhat when our revenues decline to this level is unrealistic."
Ballance and Jones suggested the triggered cuts might not have been necessary at all if it weren't for ongoing federal discussions of tax reform. They said states around the country have seen collections decline from personal income and corporate gains taxes as financial advisers recommend that their clients delay reporting a year to see if President Donald Trump will make good on a promise to reduce those federal tax rates.
"We should see a bump in calendar year 2018 when that is reported," Jones said.
Whatever the cause, some state programs will be hit harder than others by the cuts.
An expected $30 million will be taken from the state fire fund, out of roughly $65 million in the reserve, even as Bullock over the weekend issued an executive order declaring a fire emergency.
John Tubbs, director of the state Department of Natural Resources, said last week there could still be enough left in the fund to pay for this summer’s blazes. But a dry spring and hot summer have made for an active fire year, including one complex the size of New York City burning and barely contained in eastern Montana.
The fire fund was established after an especially bad fire year hit state finances hard and forced legislators to return in a special session. That year, 2013, the cost of fighting fires exceeded $71 million. Other years, like 2015, have been more mild, with costs at $7.4 million. An average year runs about $22 million.
DNRC has spent $18.8 million on firefighting so far this year, Tubbs said Tuesday.
General fund reductions will most readily impact DNRC’s water resources and forestry divisions, Tubbs said.
For example, a drought task force cut means a position will not be filled, and an update to the state’s drought response plan goes on the back burner.
More than $500,000 in general fund reduction and pay raises amount to about a 7 percent vacancy savings, with duties spread to other employees, Tubbs said.
“We will provide the requirements of statute but we will not do the level of work with the public as we otherwise would,” he said, adding that the agency is trying to minimize the impact to the public.
Montana State Library will reduce services for vision-impaired people who use the Talking Book Library to read books and access important documents.
A 5 percent reduction at each state agency and 6 percent vacancy savings already requires the library to make $309,178 in cuts each year of the biennium. On top of that, this year the library will be forced to make $681,000 in reductions.
The library approved a plan to close a reading room to save $100,000 in rent per year. The agency will lose 12 of 44 positions, including elimination of the Talking Book Library’s director and one of the reading advisers. The advisers build relationships with patrons, make recommendations for people who can’t traditionally browse aisles of book, and help choose the 7,000 books sent out each week.
“In terms of our ability to provide that level of contact, that will be impacted,” Jennie Stapp, the state librarian, said.
The Montana Historical Society released a plan in mid-July to reduce its budget by 16 percent. The $600,000 per year in cuts triggered by a shortage of revenue is in addition to cuts already established by the Legislature for $400,000.
The plan released by executive director Bruce Whittenberg would go into effect on Aug. 18. A total of 24 staff members would be asked to retire, reduce hours or see a change in responsibilities. The plan eliminates eight full or part-time positions.
Program offerings will also be scaled back, including no guided tours of the Capitol building, no public programming on Thursdays, shorter hours and fee increases for certain services.
Each state agency will be responsible for making a 0.5 percent reduction out of its general budget. While legislators originally set aside $22 million to provide state employees with a 1 percent pay raise in February 2018 and a second one a year later, the fourth level of cuts requires agencies to absorb the first year of pay raises within existing resources for a total of $7.6 million.
Public schools will see their funding reduced by $19 million over the biennium. All of the $3.1 million appropriated for data achievement payments, which go toward any operational costs, will be eliminated completely. A new appropriation of $500,000 for secondary vocational education will also be cut.
Schools will lose a state payment of $2.8 million in combined fund block grants, but schools could strategically shift money and levy their local tax bases to make up the difference.
A memo sent to schools by the Office of Public Instruction regarding SB261 says “everyone should be aware that similar reductions will occur in fiscal year 2019 regardless of what happens with revenues.”
The memo also says a $5.8 million Natural Resource Development K-12 Facilities payment will be canceled in fiscal year 2019. A new law taking effect in 2019 will allow districts to levy up to 10 mills and get some matching state funding, if available, from the facilities payment.
The Department of Public Health and Human Services, the largest agency in the state, could lose about $14 million this year from its two-year budget of just over $1 billion.
It will have to terminate its agreement with Blue Cross and Blue Shield of Montana to administer Medicaid expansion, as well as end a program that would have created 200 more nursing home openings to help reduce a waiting list of more than 500.
Programs that help manage the cases of adults and children with severe health issues will see a $1 million drop in funding, and the state watchdog group that monitors institutions like the Montana State Hospital in Warm Springs will lose one of its three employees.
In a cut providers are calling unexpected and unfair, the health department also proposes to pass on some of the burden to Medicaid service providers in the form of a 3.47 percent decrease in the rate they are reimbursed. A hearing on this proposal set for Thursday is expected to be contentious.
Decisions about what to cut have been simple at some of the state’s smallest agencies.
“We have a really tight budget. There are not a lot of choices,” Commissioner of Political Practices Jeff Mangan said.
The office tasked with ensuring political campaigns follow disclosure laws and investigating ethics complaints about executive branch employees will leave its only investigator position unfilled for several months and cut contracting spending on maintenance for its databases that make information available to the public.
One position will be cut from the Department of Agriculture, which also will cut its general fund spending on marketing by half.
The Department of Corrections will cut nearly $3 million from its budget over two years. It will do that through 0.5 percent reductions in its contracts with pre-release and treatment centers, as well as the prison in Shelby.
The Department of Commerce will cut money for the Native Language Preservation program by $250,000, as well as reduce support for grants it administers.
The Department of Military Affairs will delay hiring, maintenance and updating equipment. The VA program will reduce its outreach and travel.
The Department of Labor and Industry anticipates having to leave positions open in the Human Rights Bureau.
The Department of Justice avoids significant cuts because most of its programs are paid for by special revenues, such as vehicle registration fees. Most its reductions will focus on non-essential costs, like sending investigators or prosecutors to conferences or non-critical training.
Montana Fish, Wildlife and Parks will not be impacted by the latest cuts as nearly all of its funding comes from license sales and federal excise taxes on firearms and fishing equipment.
The Montana Department of Environmental Quality does not expect unmanageable cuts from Tuesday’s general fund cut – less than $100,000 over the biennium – but faces other revenue challenges.
Director Tom Livers said about 8 percent of DEQ’s budget is general fund, which may mean keeping some positions open longer. His main concern centers on the cumulative effects with other potential cuts in revenue from extractive industries and uncertainty about federal funding from EPA and the Department of the Interior.
This story will be updated. Watch reporters @eeloranger, @hollykmichels and @JaymeKFraser on Twitter for updates.