HELENA - The state's general fund budget outlook has improved somewhat over the past six months, but Montana still faces a potential $368 million budget shortfall by mid-2013, the Legislative Fiscal Division estimates in a new report.

In March, the office forecast a $400 million shortfall.

The state's projected total expenses for the next two years are $3.94 billion, the Legislative Fiscal Division estimated, while the mid-range of anticipated revenues is $3.572 billion for the period beginning July 1, 2011.

The projected expenses are based on the assumption that all current programs are extended at their current levels.

These numbers are based on a number of other assumptions as well, including what the 2011 Legislature will appropriate and how much projected tax collections will be. For example, they assume the 2011 Legislature will spend $68.6 million to help bail out the state pension systems.

Members of the Legislative Finance Committee will discuss the report Friday morning.

The 2011 Legislature, which convenes in January, will set the general fund budget for the next two years and send it to Gov. Brian Schweitzer for his approval. The Montana Constitution requires the Legislature to balance the budget, meaning it must set spending that does not exceed anticipated revenues in the next two years.

As a result, lawmakers would have to fill a potential budget shortfall by cutting spending, raising taxes or both. Schweitzer has said he'll oppose tax hikes and that he is far more optimistic about the state's economic future than the legislative forecasts.

"We definitely have some challenges ahead, and we need to look at all options and come up with the best solutions," said Amy Carlson, who heads the Legislative Fiscal Division.

She said the latest report did not update her office's revenue estimates from March. These numbers will change in the future as more tax collection becomes available in the coming weeks, she said.


Schweitzer is required by state law to submit his proposed two-year budget to the Legislature on Nov. 15.

His budget director, David Ewer, said he hadn't read the legislative report yet, but repeated what he's been saying for months.

"We're going to submit a balanced budget," Ewer said. "It will cover essential core services. It will have an adequate reserve and it will not raise taxes."

Meanwhile, the anticipated general fund balance, or surplus, on June 30, 2013, "has improved dramatically," the Legislative Fiscal Division said in the report.

In March, the division estimated the general fund's ending-fund balance could dip as low as a negative $63 million. Now the division believes it's likely to top $200 million.

A number of factors caused the turnaround, the report said.

The big-ticket items are $81.5 million in Otter Creek coal bonus payments received by the state; $41 million in spending reductions by all three branches of government; $34.9 million in higher revenues for fiscal year 2010 than estimated in February; and $30.7 million in federal jobs money targeted for education that Schweitzer instead has directed to replace state general fund money that the Legislature allocated to fund schools in 2010-11.


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