‘Hoarded’ Idaho dollars? Why analyst says $1.4 billion state surplus may be overrated
Idaho ended the 2022 fiscal year with a $1.4 billion surplus, and Republican Gov. Brad Little intends to use the cash for a third tax cut in as many years along with greater investment in public education and infrastructure. It’s the second consecutive year Idaho flew past revenue forecasts.
But the state isn’t spending enough, critics say. It’s hoarding cash that could improve Idaho’s low ranking in per-pupil spending and ease housing costs, which remain a barrier to many Idahoans.
“There is a bottomless list of what we could have done with that money that would have materially helped the people of Idaho and the children of Idaho,” House Minority Leader Ilana Rubel, D-Boise, told the Idaho Statesman by phone.
What Idaho’s AAA credit rating means
The state continues to bolster reserves, setting aside $1.1 billion, nearly a quarter of projected revenues in 2023. Idaho’s savings, combined with its relatively low debt obligation compared to other states, recently earned the state government a AAA credit rating for the first time.
Achieving the highest rating, which only a handful of states have earned, was one of Little’s “biggest priorities,” the first-term governor said in a news release this year.
“This achievement may not grab headlines the way politically charged issues can, but let me tell you — this will have an impact on your wallets,” he said. “This is what good government is all about.”
Put simply, the rating is a credit score, and it means a municipal borrower, like Idaho, presents less risk to bondholders who loan money. A high rating will translate to cost savings with lower interest rates.
But for Idaho, which doesn’t have many loans, the difference in the cost of borrowing money between a AA and AAA rating is “negligible,” said Matt Fabian, a partner at Municipal Market Analytics, a Massachusetts-based research firm.
“It’s not a proxy for good government in the sense of what people are actually elected to do: educate, protect, invest, etc.,” Fabian told the Statesman by email. Scrooge McDuck, the frugal business magnate cartoon character, is the archetypal AAA rating, Fabian said. Lots of money gets “hoarded instead of spent,” he said.
Rubel said the state has neglected to adequately fund education, which is evident in the state’s teacher shortage, its declining literacy rates and the shrinking percentage of high school students who go straight to college.
“I think in the big picture, we are not paying our bills — the bills that matter, the bills that we’re constitutionally obligated to pay for our children,” she said.
Alex Adams, administrator of the Idaho Division of Financial Management, said the high credit rating is a sign that Idaho is prepared for an economic downturn.
“The AAA rating is a signal to taxpayers that they can have confidence that we’re taking those steps necessary to prepare for any future economic outcome,” Adams said by phone.
Unexpected revenue benefits education, infrastructure
Most states saw year-over-year revenue growth and surpluses in fiscal year 2022, according to the National Association of State Budget Officers. It was the second consecutive year states experienced rapid growth in tax collections after pandemic-related declines in 2020.
Tax revenues bounced back in 2021 and grew again this year thanks to an influx of federal COVID-19 relief funds. The federal government has spent about $4 trillion in response to the pandemic, including stimulus checks to citizens, assistance for businesses and aid to state and local governments.
Additionally, employment growth, higher business profits, strong consumer spending and inflation, which is raising salaries and the cost of goods, has bolstered state tax revenues, according to the National Association of State Budget Officers.
Adams said the effects of pandemic relief funds were difficult to forecast, which is why state projections were well short of actual revenues in 2021 and 2022.
In fiscal year 2022, which ended June 30, the state saw a 24% increase in tax revenue. Income tax revenue was $300 million higher than forecast, sales tax revenue was $35 million more than expected and corporate income tax exceeded projections by $650 million.
Since 2020, Idaho’s tax revenue climbed from $4 billion to $6 billion.
“That’s back-to-back years with pretty substantial growth that I don’t know that anyone reasonably would have expected,” Adams said.
Buoyed by last year’s surplus and $1 billion in federal pandemic aid, Little and the GOP-dominated Idaho Legislature this year allocated $200 million for one-time infrastructure projects, and they gave public school staff one-time bonuses.
They also boosted teacher pay by 10% and set aside an additional $200 million in ongoing funds for infrastructure. The largest expense was a $600 million income tax package, which gave Idaho residents a one-time rebate and lowered the ongoing income tax rate for individuals and corporations. The tax cut will provide the most benefit to wealthy Idahoans.
“Combined with years of fiscal conservatism, reining in state spending, and our status as the least regulated state in the country, we will be able to provide Idahoans even more tax relief and make key investments where they count,” Little said in a recent news release.
Heading into next year’s budget planning, Little’s administration has not shared specifics on what he’ll propose with the extra $1.4 billion. But the governor plans to target the same areas.
“It gives him a chance, and the Legislature a chance, to reevaluate, determine one-time versus ongoing and make another slate of investments next year,” Adams said. “The governor’s already put his cards on the table about some of the things he wants to see.”
Budgeting subject to political forces
Ultimately, the Legislature holds Idaho’s purse strings. While lawmakers approved most of Little’s budget recommendations this year, the Legislature is expected to be even more conservative in 2023, following a strong showing by the hard-right in the May GOP primary election.
If recent legislative sessions are any indication, political battles over state budgets should be expected again. Public education, in particular, has been targeted by conservative Republicans.
One “heartbreaking” example, said Rubel, came this legislative session when GOP lawmakers denied Little’s request to boost funding for Head Start, a federal program that provides early childhood education for low-income families.
Little asked that $3 million in federal COVID-19 relief money go toward reducing Head Start’s waiting list. But the Legislature’s budget-setting Joint Finance-Appropriations Committee removed the funding from the state’s budget, because committee members didn’t believe the budget would pass the Idaho House, the Idaho Press reported at the time.
Idaho lawmakers have fought preschool funding in recent years, due to doubts about its effectiveness and unsubstantiated claims that federal pre-kindergarten programs push a political agenda.
“Where are you going to get a higher return on your dollar than helping the most in need children in poverty?” Rubel said. “And we easily had the money 100-fold over, and they just wouldn’t put it in. So we’re dealing with ideologies…that are completely independent of whether we have the money and whether we have logical high yield places to put the money.”
The Legislature OK’d record investment in public education — a 12.5% increase from fiscal year 2022 to 2023. Pay and benefit boosts for teachers were meant to improve recruitment and retention, Madison Hardy, Little’s spokesperson, told the Statesman by email.
But school districts still are struggling to find qualified candidates. A recent survey highlighted 700 teacher vacancies around Idaho, as state officials say they’re at a disadvantage due to higher pay in neighboring states, Idaho Education News reported.
Teachers are seeing larger pay checks, but long-term teacher pay strategies don’t account for “destructive policies” at the federal level, which have led to 40-year-high inflation, Adams said.
“You can control what you can control at the state level. You can’t control what Washington, D.C., does,” he said.
Idaho’s housing costs, property taxes rise
Idahoans increasingly want the Legislature to address housing, according to this year’s public policy survey from Boise State University’s School of Public service.
The percentage of survey respondents who said housing is an important policy issue climbed eight points from 2021 to 2022. It ranked fourth, behind education, the economy and health care. And Democrats and affordable housing advocates have called on Republicans in the Legislature to do more with robust tax revenues to address the housing crisis.
Lawmakers this year passed bills to alleviate property taxes for homeowners, including one that expanded income eligibility for a tax break known as the circuit breaker — the total savings for property taxpayers will be $1.1 million. But lawmakers rejected the only bill targeting costs for renters that gained any traction. It would have barred landlords from overcharging application fees at no cost to the state.
Idaho is spending $50 million in federal American Rescue Plan Act funding on workforce housing. The fund will provide gap financing to developers building homes for workers. Estimates on how many housing units it will fund range from a 300 to 1,000, but that number likely will shrink as inflation drives up costs.
“I was pleased to see the state dipped its toe in the water and for the first time ever put something toward affordable housing,” Rubel said. “But it was a fairly minimal amount in the grand scheme of things. And given the amount of money we have on the bottom line right now, I don’t see any reason why we can’t make a much more substantial investment into that.”
The program is a one-time investment, using federal funds. The state will be able to recoup interest on loans to generate ongoing funding in the future, Adams said.
Legislation on housing has struggled in the past to garner support from the Idaho House. Legislation creating the workforce housing fund passed the Idaho House by just three votes.
