State Budgets

State of the State: Montana

Governor Steve Bullock’s third State of the State had both good and bad news for Montanans. The governor’s plan to once again leave a $300 million ending balance for the state (nearly 5 percent of the state’s annual budget), demonstrates fiscal restraint. However, returning these funds to taxpayers in the form of a tax cut rather than maintaining such a slush fund could prove more beneficial to economic growth. At any rate, disagreement exists over whether this plan will accomplish this goal. By one estimate, the two-year budget would have a $91 million budget shortfall through 2018. In addition, the governor’s $102 million in spending cuts are offset by calls for spending on infrastructure, education and health services. Unfortunately, the governor also called for an increase in the income tax.

While Governor Bullock paid lip service to fiscal restraint, he also proposed new infrastructure spending (through “Build Montana”), including $292 million for bridges, roads, sewer systems, water systems and schools. The proposal plans to create 1,900 jobs. On education, the governor proposed increasing K-12 spending by $30 million. Although he rightly advocates for an education system of excellence with results, more funding increases may not be the best solution. From 2013 to 2015, Montana increased per-pupil spending from $10,625 to $10,859. During that time frame, the average National Association of Educational Progress (NAEP) score for eighth and fourth grade reading and math declined. Instead of merely funneling more funding towards public schools, student, centered reforms—like the ones highlighted in the ALEC report Report Card on American Education—are a much more promising place to start.

The governor proposed a wide variety of tax changes, including increasing the local tax abatement for new business equipment up to 75 percent for the first five years of purchase. Governor Bullock also proposed a property tax deduction for increasing energy efficiency and a tax credit for businesses that utilize apprenticeships. However, these targeted tax changes yield little, if any, growth.

Unfortunately, the governor announced a sought-for increase in the top income tax rate for so-called high income earners. These tax hikes would make Montana even a less attractive place for hard working taxpayers and their families. He also expressed support for other “modest revenue proposals.” Presumably, this includes his prior calls to levy cigarette taxes on vaping devices, merely intensifying discriminatory taxes to other products. In a further blow against businesses, the governor also announced his support of the Paycheck Transparency Act. This Act would force employers to disclose wages paid to other employees. Tilting the “playing field” in negotiations in favor of one party over the other could further hinder business competitiveness. Montana already suffers from a dismal economic outlook of 40th according to the ALEC report Rich States, Poor States. Neighboring states of Wyoming, North Dakota, South Dakota and Idaho have far more competitive economic outlook rankings at 4, 3, 11 and 15 respectively.

With unemployment almost as low as it has ever been in Montana at 4 percent and household incomes on the rise, Governor Bullock should consider allowing this growth in income to drive increases in the state’s revenue instead of increasing the tax burden on Montanans. Given that there are “over 6,500 listed job openings” throughout the state that businesses are struggling to fill, Montana’s employers cannot afford tax hikes. As Rich States, Poor States explains, the best job creation plan is to reduce economic burdens on job creators. Over the past decade, states without a personal income tax had a higher job growth rate than the national average. While there are many factors impacting job growth, the tax code is an important component. Pro-growth reforms, such as reducing income taxes for all businesses and taxpayers, could brighten Montana’s economic outlook.

In Depth: State Budgets

Smart budgeting is vital to a state’s financial health. The ALEC State Budget Reform Toolkit offers more than 20 policy ideas for addressing today’s shortfalls in a forthright manner, without resorting to budget gimmicks or damaging tax increases. One way to stabilize budgets over time is to embrace…

+ State Budgets In Depth