Governor Steve Bullock

Gov. Steve Bullock speaks at a press conference on the Yellowstone River.

CASEY PAGE, Gazette Staff

HELENA — Montana Gov. Steve Bullock will deliver his third State of the State address Tuesday to a combative Republican-led Legislature during a shaky economic time for the state due to energy production declines and a corresponding drop in state government revenue.

The Democratic governor is expected to highlight his plans to fund public works projects across the state, promote early childhood education and increase worker training programs. Bullock will renew his call for bipartisanship, his office said, which the governor also stressed in speeches after his re-election in November and when he was sworn in for his second term earlier this month.

But fixing the state's budget shortfall has already become a sharply partisan issue between Bullock and the Republican legislators who hold majorities in both the House and the Senate.

GOP legislative leaders are resisting Bullock's plan to raise some taxes and they object to the governor's proposed use of one-time fund transfers from other accounts to ensure enough money is in the state's general fund to balance the budget.

They held a news conference Tuesday ahead of the governor's speech, the second time they gathered this month to criticize the governor's spending plan and accuse him of downplaying the state's financial situation during his re-election campaign.

"What we're hoping to hear from the governor tonight is a plan," said Senate President Scott Sales, R-Bozeman. "Maybe he'll address how we got here, because the reality doesn't match what we heard during the campaign."

The state's economy has slowed since 2015, which was Montana's strongest year of growth since the Great Recession.

A decline in oil, natural gas and coal production led to a nearly 20 percent drop in worker wages in the state's energy sector in 2016, and it had the effect of slowing wage growth in other industries, according to an economic report released Tuesday by the University of Montana's Bureau of Business and Economic Research.

Montana depends heavily on income tax to pay for state government operations, but income tax collections were flat last year as a result of the stagnant wages. In addition, oil and natural gas production taxes dropped $34 million and corporation income taxes fell $54 million.

That left the state in a situation where it was collecting less money than it is spending on government operations, and officials relied on Montana's cash reserves to make up the difference.

State economic forecasts show revenues and spending evening out again by 2019. But that still forces governor and Legislature to come up with a two-year spending plan now that gets the state to that point with a balanced budget and replenished cash reserves.

The governor has proposed doing so with a mix of new and higher taxes, transfers from other special accounts and funds and cuts in state government spending. Republicans have said they are opposed to tax increases, and they are proposing even deeper spending cuts in their initial plans.

Those budget negotiations are expected to take most of the 90-day legislative session.

Bullock budget director Dan Villa has previously said that he expects the partisan rancor of the early days of the legislative session to give way to compromise as the session nears its climax.

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