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HELENA - Legislators received a cold, hard dose of fiscal reality on Wednesday, learning that the state's economy is not rebounding from this recession as quickly as in the past and that next January, they will face a projected $366 million state budget deficit by mid-2013.

Ninety-five of the 150 lawmakers came to town, giving up a day of legislative pay, to attend a day of training put on by the legislative staff and featuring some national and state speakers.

The news was generally bleak, but not unexpected. It came as Gov. Brian Schweitzer is on the verge of cutting state agency budgets by at least $40.5 million, or nearly 5 percent, because of falling state tax collections.

"We do see some historic challenges," said Legislative Finance Chairman Llew Jones, a Republican representative from Conrad.

In a question to one speaker, Senate President Bob Story, R-Park City, said reports from the recent National Governors Association meeting indicated that states are going to have "resize" their government because of the effects of the recession on their budgets.

"I would agree," said Chris Whatley, Washington director of the Council of State Governments. "The backside of the state fiscal crisis is state government is going to look a lot different than it does today."

Patrick Barkey, director of the University of Montana Bureau of Business and Economic Research, predicted a 1.3 percent growth in the state's economy in 2010, far lower than the average annual growth rate of 3.3 percent rate from 2002-2007 but better than the negative 1.2 percent growth rates in 2008 and 2009. From 2010-2013, he forecast an economic growth rate of 2.4 percent.

"That's a somewhat lower rate of growth than we had coming into the recession," Barkey said. "It's the new normal."

Legislative Fiscal Analyst Amy Carlson told lawmakers, "There's nothing in history going back to 1969 that shows what we're seeing now."

She said current revenue estimates for the two-year period ending in mid-2011 are $350 million less than what the legislators expected last year. State general-fund revenue collections for fiscal 2008 won't be exceeded until 2015, her office projected.

Schweitzer, however, has said he sees the Montana economy and revenues recovering at a faster pace than the legislative forecasters.

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Looking ahead to the 2011 Legislature, Carlson forecast a $366 million budget deficit in mid-2013, or a negative $466 million if lawmakers want to leave a $100 million surplus.

These negative budgets could not be legally adopted because the Montana Constitution requires the Legislature to adopt a balanced budget. What it means is the budget would have to be balanced by more spending cuts, tax and fee increases or some combination. Schweitzer already has said he will oppose any tax hikes.

Legislators also heard updates from both national and state speakers on the $800 billion federal stimulus bill that Congress passed last year at the urging of President Barack Obama.

Whatley said there's increasing pressure on Congress to pass a stimulus bill in the range of $50 billion to $150 billion to address "the unemployment crisis."

While there's growing state support for more state fiscal relief through another federal stimulus, Whatley said the problem is that polls showed "people hate it." He suggested that Americans are upset they don't believe that enough of the money was spent on public works projects such as roads and bridges.

Of the $800 billion total stimulus, he said $300 billion went to tax cuts. Of the remaining $500 billion, $50 billion was spent on public works. Much of the rest of the money went for other needs like social services.

Senate Minority Leader Carol Williams, D-Missoula, said she doesn't understand how people can believe the stimulus didn't work.

"It was supposed to be a jobs bill, and it created millions of jobs (nationally)," she said.

House Appropriations Chairman Jon Sesso, D-Butte, said Montana received roughly $1 billion in federal stimulus money and put up to $350 million in public works spending, a greater emphasis than in the federal bill.

Looking at how all the stimulus money has been spent in Montana, Sesso said, "A person could say the stimulus is getting a bad rap when it is this lifeline."

Barb Smith, a legislative fiscal analyst, said in the last three months of 2009, stimulus money created 4,116 federally funded jobs in Montana and 224 jobs paid for out of the state general fund.

Missoulian State Bureau reporter Charles S. Johnson can be reached at (406) 447-4066 or at chuck.johnson@lee.net.

 

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