Idaho governor pitches most conservative budget since 2014, plans for economic downturn

Idaho is one of the fastest growing states in the nation, which is experiencing one of its longest economic expansions in U.S. history.

But Idaho’s governor is not looking to capitalize on this economic windfall by boosting spending and ordering big-ticket items.

During the annual state of the state address and budget presentation on Monday, Republican Gov. Brad Little presented the state’s most conservative budget since 2014.

Little’s proposed $4.1 billion budget, a 3.75% increase, that cuts spending, leaves a surplus and bolsters the state’s rainy day funds.

“Idaho has experienced tremendous growth in recent years. But nationally and internationally, the pace of economic growth is expected to slow,” Little said during his address to a joint session of the Idaho Senate and House.

“My budget leaves an appropriate cash balance and shores up our rainy-day funds, which have helped us weather economic storms that forced other states to raise taxes,” he said.

“Idaho is ranked in the top 10 states nationally for the balance of our budget reserves, but a credible stress test showed we have more work to do to prepare for a recession.”

The annual address forecasts the governor’s agenda for the coming year.

“As we enter the year 2020, my priorities are sharp, clear, and in focus. My goal reflects the need for us to make Idaho strong today and prepared for tomorrow,” Little said. “I am committed to working with you to invest in education, continue reducing regulatory burdens, and increase all Idahoans’ prosperity and quality of life.”

Little outlined his spending and policy priorities in many areas.

Education in Idaho

The state spends about half of its budget on K-12 education, or about $2 billion annually. Little’s budget increases that by about 4%. In particular, Little is keen on increasing the reading ability of young students.

“My budget keeps the foot on the gas and makes our historic investment in literacy ongoing,” he said.

He is also recommending $7.7 million for the second year of funding increases for starting teacher pay, which would rise to $40,000. Another $30 million will be aimed at increasing pay for experienced teachers. Performance criteria will ensure accountability, he said.

Prison, jail overcrowding in the Gem State

With the state prison system at capacity, Idaho is forced to house about 650 of its inmates out of state and about 900 in county jails across the state.

Little said he plans to add more capacity and reduce the burden on county jails by sending an additional 500 inmates out of state and adding 146 beds through a remodeling project at Idaho State Correctional Institution south of Boise. He said he also proposes adding 160 new beds when the new Twin Falls re-entry center opens in October.

But adding more capacity is not a long-term solution, nor does it address the real problem Idaho faces: recidivism, Little explained.

“We must also acknowledge that our communities are put at risk when we simply warehouse those who break the law,” Little said.

“Two-thirds of Idaho inmates are in prison because of probation and parole violations – more than any other state in the country. Idaho taxpayers pay $110 million per year to incarcerate this population.”

Little is calling for a new program, called Connection and Intervention Stations, that “will offer support, treatment and accountability for the people on community supervision who need it most.” The program will identify 2,000 highest risk offenders under IDOC supervision and connect them with such resources as transitional housing and drug testing to help them avoid re-offending.

Grocery tax credit changes

Idaho’s sales tax on groceries has long been a source of contention. Opponents say it places an unfair burden on low-income people; proponents say the grocery-tax credit alleviates that and the grocery tax is a needed revenue source. Eliminating both the sales tax on groceries and the grocery tax credit would leave the state with about a $100 million annual shortfall.

Recently, though, the state started putting its online sales tax revenue into a tax relief fund.

“Online sales tax money has been coming in strong at about $6 million a month,” Little’s budget chief, Alex Adams, told reporters Monday.

Little announced he wants to put $35 million from the tax-relief fund toward grocery tax relief.

“One of the staples of conservative governing is to put money back into taxpayers’ pockets,” Little said. “I have long supported tax relief for Idahoans on the most basic of needs – groceries.”

The details of how the grocery tax relief will work is something the governor and lawmakers need to work out this session, but “all options are on the table,” Adams said.

Rainy day funds and budget surplus

When the Great Recession hit, Idaho tapped into its rainy day funds to keep the state afloat. While some of that money has been replenished, Little said it is not enough.

“That is why I am also calling for us to raise the cap on our main rainy-day fund, so that we can better position our state for any economic condition,” he said.

In addition to bolstering rainy day funds by $102 million, Little’s proposed budget includes a surplus of $60 million this year and $61 million next year, ensuring a cushion for economic uncertainty.

Little also said issues with the state’s tax revenue projections last year should be resolved.

Following President Donald Trump’s tax changes and Idaho’s conformity with those changes, Idaho was unsure of the full effect it would have on tax revenue. That’s why state tax-collection revenues last year ping-ponged above and below monthly projections, prompting Little to do some mid-year holdbacks and call for future agency budget cuts.

Now that analysts have a full cycle of tax collection data, they can re-calibrate monthly and annual tax collection projections, and, hopefully, this year will be more even keel.

Fraud and abuse hotline for state employees

In the last decade, the state has spent millions of dollars defending and settling whistleblower lawsuits. Little said he thinks the state “can do a better job.”

Little said he is “borrowing a page from the private sector and creating a new hotline where state employees can turn to report instances of fraud, waste, or abuse within state government. “

The Division of Human Resources would be in charge of implementing a new state employee hotline this year, which should give state employees a secure, anonymous outlet to report concerns.

Republicans respond

Each year following the state of the state address, Republican and Democratic legislative caucuses give their response to the governor’s proposals.

House Speaker Scott Bedke, R-Oakley, said the governor’s plan is “well received” — especially the proposed budget.

“It has been since 2014 that we have had a governor who pitched a budget that is at that level of 3.75% and, quote, without gimmicks,” Bedke said.

Bedke has said he has been leery of messing with the grocery tax and its credit because the state budget is built with that revenue. Currently the state receives about $270 million annually from its sales tax on groceries, Bedke explained. The cost of the grocery tax credit — $100 per person and $120 for seniors — is about $157 million.

“So if we just walked away from it, the gap is more than $110 million,” Bedke said, referring to simply ending the grocery tax.

Given an already tight proposed budget, walking away from $110 million would mean additional cuts must be made.

But Bedke liked the idea of putting money toward grocery tax relief.

“What if we took that $35 million and raised the grocery tax credit? Bedke asked. By bumping the tax credit to $125, it would “shield about $175 of grocery purchases every month.”

Additionally, Bedke explained taking this first step of reducing some but not all of the grocery tax revenue lessens the gap next year “and you get closer to being able to remove the grocery tax credit and the sales tax at the same time and not have impact to state revenues.”

Increasing capacity for state inmates also met with House GOP caucus approval, but Bedke said, “I would just as soon we house them in Idaho,” Bedke said. “I think long-term Idaho needs to house its own prisoners.”

One issue House GOP leadership has declared a priority was missing from Little’s speech.

Little’s address “was a little light on property taxes and what the state could do policy-wise that would give some property tax relief,” Bedke said.

Last week during the Associated Press legislative preview, Bedke commented on rising property taxes, which has prevented some people from buying houses and pushed out homeowners who can no longer afford the taxes.

“If someone who has had their home paid off for 15 or 20 years has watched their property taxes more than double in the past eight years, something is wrong,” Bedke said.

“There is no justification for this doubling,” Bedke said. “If we point to growth as being the cause of this person’s taxes going up from $2,000 to $5,000 in the last eight years, then growth is not paying for growth.”

Property taxes are collected by local governments, like cities and counties. The state does not collect property taxes.

House Majority Leader Mike Moyle, R-Star, said Monday he attributes burgeoning property taxes to growth not paying for itself and local governments’ “bloated budgets.”

Democrats respond

New House Minority Leader Ilana Rubel, D-Boise, said the caucus is glad the governor is finally addressing prison overcrowding and criminal justice reform.

The Democratic caucus said it disagrees with the GOP caucus’ assessment that excessive local government spending is to blame for steep property tax increases.

“We do not believe it is bloated local government,” Rubel said, adding that she believes local governments are operating as lean as they can.

“We feel, by far, the greatest culprit is the state’s failure to fund education and other critical needs at the state level, which is where it should be funded, which has been driving, as we all know, high levels of bonds and levies at the local level,” she said.

“Across the state, so many districts have to pass these supplemental bonds and levies to be able to function with any kind of reasonable school system and that all lands on people’s property taxes,” Rubel said.

Rubel also noted the “past, perhaps reckless, tax cuts” that benefited the wealthy — not working Idahoans — has left the state “facing pretty severe agency cuts.”

In October, Little announced a 1% budget cut for this year and 2% for next year for all agencies except K-12 public schools.

“When you consider the state (population) has grown 2% in the past year,” Rubel said, “one of the things we are very concerned about is making sure those cuts do not result in unmanageable reductions in needed services when we are looking at a larger population that has to be serviced with a smaller pool of resources.”

Senate Minority Leader Michelle Stennett, D-Ketchum, said she is pleased to hear the governor propose increased funding for all levels of education.

“Underfunded, our schools struggle to pay a competitive wage, attract teachers to their communities, and have adequately trained teachers in the classroom. Quality educators head to other states where they receive better wages and benefits for their background, education, and hard work,” she said.

Stennett also said she was “surprised and pleased” that Little is putting $100 million toward transportation, a 7% increase over last year.

“By the (Idaho) Transportation Department’s own standards, we are a quarter of a million dollars behind on maintenance and we are not even beginning to address the amount of pressure we are going to have from new growth,” she said.

Additional reporting by The Associated Press.

This story was originally published January 6, 2020 at 6:11 PM.