Governors across the country have implemented statewide lockdowns to stop the spread of coronavirus. However, that very step meant to keep people safe has led to many businesses shutting their doors and millions of lost jobs, all of which means a hit to state budgets with tax collecitons likely to take a dip.
Idaho is in a better position than most to weather a potential economic downturn, but we first have to rewind the clock to last fall to understand why.
Idaho’s economy at the time was red hot. It was among the top 10 states for GDP growth in the country and its unemployment numbers were near record lows below 3%.
But then, Gov. Brad Little (R) did something few expected. He started asking agencies to cut their budgets.
In January, Little’s budget chief, Alex Adams, gave lawmakers on the Joint Finance and Appropriations Committee (JFAC) some insight into how that decision was made.
“The governor was copilot during the last recession [as lieutenant governor],” Adams said. “He saw how painful it was to send out a memo to the agencies and tell them they had 48 hours to come up with a plan for a 1% cut.”
Last fall, revenue was coming in much lower than expected because of recent tax law changes and overly rosy projections. In response, Little sent a memo to state agencies, telling them to cut 1% of their spending for the rest of the fiscal year and to prepare for a 2% cut the following year.
The year before, the governor even foreshadowed his intentions during his first State of the State address – channeling advice from House Speaker Scott Bedke’s grandfather.
“It won’t be the bad years that puts you out of business, it’s what you did in the good years that sets you up for failure or success.”
“Did I get that right?” asked Little, turning around to face Bedke.
“We’ll see,” the House Speaker replied.
With last fall's cuts, Adams said he and the rest of the governor’s team were simply planning for the inevitable next recession. No one at the time could’ve predicted a global pandemic was just around the corner.
“The governor started budgeting pretty conservatively and really focusing on rebuilding the rainy-day funds for those unknown future events and here we are.”
During the Great Recession, Idaho drained its rainy-day funds dry. Just five other states took a bigger hit to their tax revenues.
Sen. Steve Bair (R-Blackfoot) now co-chairs JFAC and was a junior member of it during the 2008 financial crisis. When I reached him on a sunny day last week, he was on a friend’s tractor in the middle of a field.
“We had fits and starts and stops with our budget process trying to find the right amount of money for each agency to keep them afloat and still provide the services that we need,” Bair said.
They tried to contain the cuts as much as possible, “But at the end of the day, we still ended up making deep cuts in a lot of agencies, including [K-12 education],” he said.
In the end, the legislature slashed more than $360 million from the budget in a single year.
It was a hard lesson and one lawmakers have kept in the backs of their minds ever since. They’ve put wheelbarrows full of cash back into Idaho’s reserves. Budget officials say they expect to have about $600 million in those accounts by mid-2021, something that was a priority for Bair.
“Oh, it gives me great comfort. I’m very, very pleased,” he said. “There were a lot of legislators and a lot of pushback. People didn’t think we need that much money in reserve.”
Beefing up rainy-day funds has been a trend for years across the country, but Idaho has one of the largest reserves among states that aren’t heavily reliant on industries like coal or gas drilling.
In Fiscal Year 2018, which includes parts of 2017 and 2018, Idaho ranked 7th in the country for the size of its reserve funds relative to its expenditures, according to the Pew Charitable Trusts.
But the recession was long and deep.
It took a long time for states to recover and some parts of their budgets haven’t fully done so. Idaho’s higher education budget, for example, is still tens of millions of dollars less than what it was in 2008 adjusted for inflation.
And that deficit affects the fiscal health of states, according to Barb Rosewicz, with the Pew Charitable Trusts.
“It means that they have less opportunity now to turn to higher education for cuts to help balance their budget because every cut they make now would be cutting deeper to the bone than it did in the last recession,” Rosewicz said.
On the plus side, she says Idaho’s hefty reserve funds, well-funded pension system and strong growth in recent years puts it in a good position relative to other states. But she says it’s unclear just how big of a hit each of them might take, with hits expected for both personal income taxes and sales tax.
“The virus sets the timetable,” she said, quoting America’s top infectious disease expert, Dr. Anthony Fauci.
For now, Idaho will get $1.25 billion from the federal government to help cover coronavirus expenses, though it can’t be used to backfill state budgets.
Adams said his team is running new fiscal projections every two weeks to anticipate the full cost of the pandemic.
Further federal aid packages have been talked about, so it’s hard for him at this point to say what kind of damage might be dealt by the coronavirus.
“There’s still a lot of cards that just aren’t on the table.”
For now, though, he’s asking state agencies to plan for a possible $200 million hit on top of the recent cuts they’ve already endured.
Follow James Dawson on Twitter @RadioDawson for more local news.
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