“I’m proud of the fact that we did go forward with what we needed to do,” Otter said Tuesday.  “There were some tough decisions, but those decisions were made in concert with the Legislature, and we’ve gone forward.”

Idaho took in more than $200 million less in taxes in the just-ended fiscal year than in the year before, thanks to a weak economy.  The state saw a $6.9 million tax revenue shortfall in June, which put it $17.4 million below the budget approved by lawmakers earlier this year.  The state balanced the budget by shifting $8.26 million from the Permanent Building Fund, and by having agencies hold the line on spending during the last month of the budget.

Idaho’s Medicaid program is also carrying over approximately $20 million in June payments to July, which is the first month in the current state budget year.

Otter said it was crucial that, unlike in other states facing similar circumstances, Idaho lawmakers didn’t raise taxes.

The governor said he will meet with leading GOP lawmakers before the next legislative session, and see if they bring forward proposals to raise or lower tax rates, including possibly removing some of Idaho’s sales tax exemptions.

Sen. Shawn Keough, R-Sandpoint, said she’s heard from families in Idaho who are thankful that lawmakers balanced the budget without raising taxes.

Rep. Darrell Bolz, R-Caldwell, who serves with Keough on the legislative panel that writes the state budget, said lawmakers didn’t have easy decisions, but came to the right conclusions.

Otter said tough decisions and difficult economic times often spur criticism of elected officials.  “When you have good years, it’s easy to govern,” he said.  “When you have bad years, it’s more problematic and it gets a little tougher.”

Public schools will see a $128 million reduction in the new state budget, though Otter said he and lawmakers prioritized school funding over other state agencies, which have seen a high percentage of their spending disappear.

The governor’s office issued a news release showing support from other Republican lawmakers.  Sen. Dean Cameron, R-Rupert, one of the leading budget writers, said GOP leaders made the correct call on the budget.  “While the armchair quarterbacks, pundits, and the minority party criticized us, the fact is they were wrong,” he said.  “Public schools, public health and public safety would have been in even more dire straits under their misguided approach.”

“Today’s budget numbers confirm that the Democrats were wrong,” said House Majority Leader Mike Moyle of Eagle.  “If left unchecked, they would have spent us into financial ruin.”

The governor said that while there are signs that the state economy is turning around, including a lowering unemployment rate, the economy could be slow to recover.  He recently told state public employees that he can’t promise that the next two years will be better than the last two years.  Tuesday, Otter said it’s important to let state workers and state agencies know as early as possible about shifting state finances

Democratic candidate for governor Keith Allred criticized Otter’s work on the budget.  “The governor was wrong to build next year’s budget based on the assumption that it will be as bad economically as this year,” Allred said in a news release. “ Butch Otter has shown us that he’s out of ideas for
how to lead Idahoans out of this economy.  Instead of building fiscal year 2011′s budget based on sound evidence and good planning, he’s chosen to go down in history as the first governor to cut funding to our schools.”

“In accordance with law, Idaho’s budget is balanced,” Jones said in a news release.  “Our governor’s and our Legislature’s commitment to fiscal responsibility has enabled Idaho to meet the constitutional requirement of balancing our state budget.”

Jones followed a plan from the Board of Examiners, which includes Gov. Butch Otter, Secretary of State Ben Ysursa, and Attorney General Lawrence Wasden, to shift money from funds including the Permanent Building Fund to pay for the state’s spending.  Last month, the board expected to transfer $7.5 million from the building fund, but Jones said $8.2 million was shifted.

Gov. Otter and other state officials will speak about the state budget on Tuesday.  The full list of fund shifts is available below.

Idaho Division of Financial Management Director Wayne Hammon told IdahoReporter.com that incomplete preliminary numbers show the shortfall is close to $6.7 million, a total that was circulated by legislative staff.  Hammon said the final tax numbers should be available next week, along with the state’s plan to balance the budget for the fiscal year that ended on June 30.

“By sometime early next week or mid-next, we should have that finalized and out,” Hammon said.

The $6.7 million June shortfall and a preliminary report for the Idaho tax revenues was posted online by Wayne Davis, the executive director of the Idaho Association of School Administrators.  If that total holds, Idaho revenues would be $17.2 million below the amount used by lawmakers to balance the state’s budget.

Hammon said that Gov. Butch Otter still plans to balance the previous budget without pulling money from the current budget.  The state would empty the Budget Stabilization Fund, which had less than $1 million in June, according to Hammon, then take money from the Permanent Building Fund.  The building fund normally pays for constructing and maintaining state buildings.

Lawmakers gave the governor the power to draw from those funds, and the State Board of Examiners, which Otter sits on, approved the plan last month.  At that time, the shortfall was expected to be $7.5 million, so the June shortfall would mean more money coming out of the Permanent Building Fund.

“Our focus is on growing our economy, not growing our budget,” Otter said in a news release.  “We’re determined to put taxpayers’ dollars to the best possible use while maintaining a stable tax and regulatory climate.”  Otter has said that not raising taxes contributes to that stability.

Idaho state economist Mike Ferguson also said in the news release that his most recent tax revenue forecast, which was higher than the projections lawmakers used to set state spending, may not be as accurate as he once thought.  “It is fair to say that the 2011 forecast that I made last December may be too optimistic,” he said.  Ferguson also said he expects state revenues in the current budget year, which ends June 30, will be close to the $2.28 billion lawmakers used.

“Budgeting based on the rosiest possible projections is bad public policy,” Otter said.  “It’s a lot wiser to under-promise and then over-deliver when the time is right than to over-promise and leave folks in the lurch.”  Democrats, including Otter’s opponent in the November election, Keith Allred, have criticized lawmakers and the governor for using lower tax revenue projections, which led to spending reductions in the current and next state budget.

Wayne Hammon, Otter’s budget chief, said the new report from the National Governors Association and National Association of State Budget Officials shows that Idaho is better off than other states.  “By keeping our spending in check and planning carefully for the future, Idaho has avoided the worst of the recession mostly intact and is better prepared for quicker recovery than many other states,” Hammon said.  Every state in the country except Vermont is required to balance its budget every year.  The report showed that 18 states balanced their budget by raising taxes and fees, and that across the country, states approved a net $3.1 billion increase in taxes and fees.

Read the governor’s full news release here.

The report released Thursday by the National Governors Association (NGA) and National Association of State Budget Officers (NASBO) showed that, on average, states have reduced their spending in the current and previous budgets, and will only increase spending slightly in the next budget.  Idaho, which lowered its tax revenue projections earlier this year, follows the national pattern.

“States are still reeling from the downturn after the unprecedented declines in year over year spending in fiscal 2009 and 2010,” said NASBO Executive Director Scott D. Pattison.  ”States face significant fiscal challenges going forward with the federal Recovery Act funds ending, revenues not expected to be returning to pre-recession levels, and higher demands for many services like health and education.”

The report said many states are reaching similar spending decisions as the Idaho Legislature did this year, including making mid-year spending reductions, drawing down reserve funds, and reducing spending on public education, Medicaid, and other programs.

Idaho differed from other states by not raising taxes and fees on its citizens.  The study didn’t include user fees like those imposed at state parks or courts.  Nationwide, state legislatures approved raising taxes and fees by a net $3.1 billion, with 18 states, including Washington, recommending net increases, while nine proposed tax decreases.  States mostly lowered sales and income taxes while raising state cigarette taxes and other taxes and fees.  Washington and New York lawmakers added a tax on soft drinks, while other states raised taxes on physician services and motor vehicles.

More than 20 other states joined Idaho state agencies in using furloughs and layoffs to meet budget shortfalls.  Twelve states opted to reduce the salaries of state employees, while five opted to privatize some state functions.  Nine states tried to raise revenues by expanding gambling or the state lottery.

The report said that because state tax revenues tend to lag behind national revenues during an economic recovery, Idaho and its fellow states could remain sluggish through early 2013.  Idaho’s general fund tax revenues peaked during fiscal year 2008 at $2.9 billion, and are at $2.28 billion for the current budget, fiscal year 2010.

NGA Executive Director Raymond Scheppach said earlier this year that he thinks state governments could be in the middle of a “lost decade” and that by the time state revenues return to their peak, new federal Medicaid requirements that were part of new health care laws approved by Congress will kick in.  “The bottom line is that states will continue to struggle over the rest of this decade because of the combination of the length and depth of this economic downturn, the projected slow recovery, and the additional Medicaid responsibilities,” Scheppach said.  “The fact is that the biggest impact on states is the one to two years after the recession is over.  With states having entered the recession in 2008, revenue shortfalls persisting into 2014, and a need to backfill deferred investments into core state functions, it will take states nearly a decade to fully emerge from the current recession.”

Not everyone shares Sheppach’s view on states’ Medicaid burden under new health care laws.  A study by the Kaiser Family Foundation found that, through 2020, the federal government will cover 96 percent of the cost of expanding Medicaid, and that states will need to pay $20 million to expand health care to people living above the federal poverty line.

Read more about the new report at the NGA website.

Gov. Butch Otter and several state lawmakers expressed disappointment about the shortfall when the early revenue numbers were released, but he and lawmakers said it’s unlikely that a special session will be needed to bring the state budget back into balance.  Lawmakers gave the governor several tools, including dipping into reserve funds and limiting state agency spending, to meet tax revenues.  Otter and Democratic candidate for governor Keith Allred also said the higher-than-expected sales tax collections could be a sign that the state economy is picking up steam.

The $500,000 change in tax revenues from the preliminary report to the finished report was fueled by a $900,00 drop in the collection of miscellaneous revenues, which include the tax on health insurance premiums, interest earned from idle funds in the state treasurer’s accounts, and other fees and revenue sources.  Derek Santos with the Idaho Division of Financial Management (DFM) said many of the revenue sources in the miscellaneous category are difficult to predict.

Revenue numbers from DFM shows that final collections from the personal income tax and sales tax were slightly higher than preliminary figures.  Personal and corporate income taxes, which were at their yearly high due to the April 15 income tax filing deadline, remained well below projections and fueled the $56 million shortfall.

“We didn’t meet it,” said director Susan Renfro.  “We’re just working on them and trying to get them out as quickly as we can, and we’ll just continue to do that.”  The three-member Board of Tax appeals, part of the Idaho Department of Revenue and Taxation, received 995 appeals on the tax burden and land values of property as assessed by counties in 2009.  Nearly one of every four appeals, 247 in total, wasn’t decided by the May 1 deadline.

The backlog may leave property owners with higher-than-expected tax bills in the lurch, but it’s unclear what kind of recourse there is.  Renfro said the state law mandating the May 1 deadline doesn’t include a penalty if the board issues an appeal late.  “There’s no repercussion in there,” she said.  Renfro told state lawmakers in February that the board would miss its deadline and told IdahoReporter.com that the decisions could be finished by the end of May.

A high number of appeals and a smaller budget for the board to handle those claims are leading to the delay in property tax appeal decisions.  Claims are up from 929 last year, and have exceeded 800 since 2007.  The three years before that, claims were less than 300.  Renfro speculated that increasing land values, which bump up property taxes, led to more appeals.

The board’s budget, funded entirely by state tax dollars, dropped 5 percent in the current budget, and will go down 11 percent in the next budget year, which begins in July.  The tax appeals board will operate with a budget of $450,800.  Renfro said the board met its reduced budget for the current year in part by laying off an administrative assistant who helped write tax appeals decisions.

State Rep. Shirley Ringo, D-Moscow, called the board’s budget bare bones, and said the combination of more appeals and less state funding is a double-whammy.

Photo credit: © David R. Frazier Photolibrary, Inc.

Allred calls the website’s claims “flat wrong.”  “This dirty game of misinformation plays on Idahoans’ fears,” he said in a news release criticizing the website and telephone calls associated with it.

The website claims Allred’s budget proposals would lead to more debt and more taxes, though Allred said he’s opposed to raising taxes.  The $82 million claim likely comes from the amount state tax revenues for the current fiscal year are below projections from Idaho state economist Mike Ferguson, who works for Gov. Butch Otter’s Division of Financial Management.  Lawmakers set a revenue target $69 million below Ferguson’s projection, leaving the state $13.5 million below its target with two months of revenue collection left in the current fiscal year.

According to Allred, that $82 million claim is inaccurate because it mixes up budget years.  Earlier this week, Allred criticized the revenue target for the next fiscal year, not the current fiscal year.  For the next year, which starts in July, lawmakers set a revenue target predicting only a slight turnaround in the state economy.  The two revenue projections from lawmakers led to the state budget, which included cuts to state agencies and public schools.

Allred sent out news releases in January and February opposing low revenue estimates by the governor and lawmakers for the next fiscal year budget.  “My hope is that the Legislature’s budget writers don’t follow Otter’s reckless lead,” he said February.  “We don’t need to be mortgaging our kids’ future by cutting education.”  Allred repeated his criticism the budget for next year is set too low, leading to reduced education spending.

Allred, along with the governor, said the early reports of April tax revenues showing a $55.5 million gap in collections contained good news because sales tax revenues were higher than expected.  However, a lawmaker central to the budget-writing process, Sen. Dean Cameron, R-Rupert, said it’s unclear if those sales tax figures will lead to a swing in Idaho’s economy, and said he thinks Allred has a lack of understanding about the state budget.

IACI could not be reached for comment about website or its claims.

“Our projections are showing to be accurate,” Cameron told IdahoReporter.com.  Including the incomplete April numbers, tax collections are $13.5 million below lawmakers’ forecast.  “We took quite a bit of criticism when we adopted a lower number to budget to … Now we’re being proven accurate.”  Cameron co-chairs the Joint Finance-Appropriations Committee, which sets the state budget.

Cameron also said that if revenues don’t worsen much more, Gov. Butch Otter could manage state finances without additional reductions in the current or next fiscal year.  “They can easily handle it without the need for additional holdbacks or a special session,” Cameron said.  The added savings could be found at the end of the budget year by limiting encumbrances, which is when state agencies purchase something in the current budget year, which ends June 30, that they don’t expect to need until the next budget year.  “Just by the governor minimizing encumbrances, you can cover the $13.5 million, in my opinion.”  Cameron said last year, holding off on year-end spending saved $25 million in the budget.

Like Otter and Democratic candidate for governor Keith Allred, Cameron said the higher-than-expected revenues from sales tax and income tax withholding are a good sign for the state economy.  “Those are positive signs that we are at least sort of edging to the bottom,” Cameron said.  It’s the second straight month sales tax revenues have bested projections, but Cameron warns that things could turn around.  “Two months does not yet make a trend, and even these numbers do not show dramatic growth.  All they show is a flattening.”  Idaho’s tax revenues for the current year still lag behind last year’s totals.

Cameron said he disagreed with Allred’s statements that lawmakers made unnecessary reductions to public schools and other state programs in the next budget.  “I was disappointed in the lack of understanding and misinformation that Mr. Allred possesses on the state budget,” Cameron said.  He said Democrats have been critical of the majority Republican Party’s budget setting for years, including policies to set up reserve funds and spend them down over several years, as well as ideas to raise revenue and set a larger state budget this year.  “Their track record is dismal.  If we’d’ve followed the minority’s plan at any step of the way, we’d be in the same bowl of soup that Oregon, Washington, California, and all these other states are in.”  Oregon and Washington have both raised some taxes this year, while California lawmakers are still working on a state budget.  “We believe the decisions we made this session will stimulate the economy,” Cameron said.  “Hopefully the fact that the state showed fiscal restraint … will provide additional stable footing for businesses.”

“I have no doubt that our economy is headed in the right direction,” Gov. Butch Otter said in a news release accompanying the revenue numbers.  “However, April’s tax filings largely still reflect what was happening with the economy last year, not over these past few months of marginally improving conditions.”

If the gap in April holds, the state will be $82.6 million below projections for the current fiscal year, which ends in June.  The budget approved by lawmakers earlier this year expected less tax revenue than Idaho state economist Mike Ferguson predicted.  The current budget has a $69 million cushion, which the current shortfall exceeds.  The Legislature  gave the governor a contingency plan that would allow him to draw up to $107 million from next year’s budget to ensure that the current budget is balanced, so the current low tax revenues will likely not require a special legislative session, but could force additional spending reductions in the next fiscal year.

“Now it’s clearer than ever that we are doing the right thing by remaining prudent and cautious in our approach to using taxpayers’ money,” Otter said.  “I’m grateful that legislators recognized that and gave me the tools to balance the budget in Fiscal (Year) 2010.  The Legislature deserves a lot of credit for working with me to ensure Idaho’s state government lives within the people’s means.”

Otter also said that both sales tax receipts and personal income tax withholding were up for April.  “That means more people are earning money and feeling better about their prospects,” he said.  “That’s good news, but it doesn’t make up for other tax receipts remaining well below projections.”

Ferguson predicted Idaho would bring in $373.5 million in tax revenues in April, largely from people and businesses filing tax returns by the April 15 deadline. Final April tax revenue numbers will be available on May 15. Read the full news release below.

STATE’S APRIL REVENUE WAS BELOW PROJECTION

(BOISE) – The Idaho Division of Financial Management issued preliminary, incomplete April tax revenue data today that shows the State took in $55.5 million less than projected during the past month. The numbers will be complete and “official” on May 15. Governor C.L. “Butch” Otter was briefed on the shortfall and issued the following statement:

“Sales tax receipts were up in April. So were receipts from individual income tax withholding. That means more people are earning money and feeling better about their prospects. That’s good news, but it doesn’t make up for other tax receipts remaining well below projections. I have no doubt that our economy is headed in the right direction. However, April’s tax filings largely still reflect what was happening with the economy last year – not over these past few months of marginally improving conditions. There is a lag between private economic activity and its public benefit. We must keep working to create career-path job opportunities for more Idahoans. If we do that, the revenue will come. But for now it’s clearer than ever that we are doing the right thing by remaining prudent and cautious in our approach to using taxpayers’ money. I’m grateful that legislators recognized that and gave me the tools to balance the budget in Fiscal 2010. The Legislature deserves a lot of credit for working with me to ensure Idaho’s State government lives within the people’s means.”