Revenue concerns linger as legislators prepare for 2019 session

The Legislature’s Joint Economic Outlook and Revenue Assessment received mixed news Thursday, just days ahead of the opening of the 2019 legislative session.

First, the good news:

  • Unemployment rates are low in Idaho and nationally.
  • Idaho wages are up and projected to increase next year.
  • Non-farm personal income in Idaho is up and forecast to rise.
  • Idaho’s population continues to increase.
  • Two of Idaho’s three major sources of revenue, sales tax and property tax receipts, are up.

Now, the bad news:

  • Idaho’s third main source of revenue, the personal income tax, is down — both below projections and below actual collections from the same time a year ago. That has resulted in overall state revenues lagging behind projections by $62.9 million through the first five months of the current budget year.
  • Some experts are predicting an economic slowdown.

Thursday’s meeting was important because it represents one step in gearing up to open the legislative session on Monday, and then begin setting next year’s budget. Next week, the Joint Economic Outlook and Revenue Assessment Committee is also expected to issue a revenue projection to help guide the budget-setting process.

Derek Santos, the chief economist for the state’s Division of Financial Management, said the national economy has been “doing really well lately.” He also pointed to recent federal tax cuts and the removal of budget sequestration as positives.

“The question, though, is can we keep this up?” Santos said. “Really, the short answer is we think no. We think the economy will slow.”

Santos and other economic experts who spoke Thursday weren’t calling for ringing the alarm bells — far from it.

“One thing we don’t see… is a recession within the next few years,” Santos said. “We think the economy will slow down.. a gradual slowdown. It’s not drastic. The economy won’t go negative, which is a recession.”

The economic and financial picture is fluid. On Monday, the state is expected to release new revenue and budget documents as Gov.-elect Brad Little delivers his State of the State address and budget request.

As of Thursday, the state is still projected to end the current budget year with a positive ending balance of $43.7 million, although that estimated ending balance is down from forecasts from March.

It’s too early to tell how the budget and revenue picture could affect education spending. But K-12 public school spending is Idaho’s largest annual general fund expense, so any pressure on the budget could squeeze the share available for schools.

Some legislators, including Sen. Grant Burgoyne, D-Boise, speculate that lagging income tax revenues could rebound after Tax Day, when many Idahoans may realize they owe more in taxes than they had withheld from their paychecks. But legislators won’t have the luxury of waiting until after April 15 to set the 2019-20 budget — and are required by the Idaho Constitution to set a balanced budget.

The budget picture will become clearer on Monday. But this much appears likely  — not every state agency will receive full funding for every spending request next year.

State agencies are cumulatively requesting 10.3 percent budget increase next year. Based on the five-year revenue average, Idaho legislators won’t have enough revenue to pay for everything on those wish lists.

“We’d actually be upside down by $58.5 million,” Legislative Services Office analyst Paul Headlee said.

That leaves legislators with a couple of options.

“You can address it on the revenue side or address it on the expenditure side,” he said.

The Joint Economic Outlook and Revenue Assessment Committee meets again on Friday and Jan. 10.


Clark Corbin

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