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Montana Viewpoint
MONTANAS BUDGET CRISIS: WHOSE FAULT?

July 8, 2002

A recent statement by a legislative leader absolving the Montana Legislature from blame in creating our current financial crisis begs the question. “If the legislature didn’t cause it, who did?” The legislature didn’t create the recession, I’ll give you that for nothing: but neither did the legislature, through a decade of Republican leadership, guard against the impact of a recession on public services provided for the people of Montana.

There are three elements of this irresponsibility: failure to provide a “rainy day fund,” reckless tax giveaways to multi-national businesses at the expense of local small businesses, and failure to fix a long-standing “structural imbalance” of the budget. If the legislature were an investor for the taxpayers, which in a sense it is, it would be required to follow the “prudent investor” rule, which requires safeguards against the unexpected. It hasn’t.

The rainy day fund concept is a simple principal found in personal financial planning. Investment counselors recommend that a household investment portfolio try to keep enough cash in its account to protect them against unexpected economic hardship, like losing a job. It can be as simple as keeping a cash reserve to cover six months of living expenses. Forty-six other states use this tool, and are now relying on that fund to help maintain the level of services to their public.

The tax giveaways have been well documented. Instead of giving targeted property tax breaks just to the businesses that can most use them—small Montana businesses—the legislature has given tens of millions in across-the-board tax cuts that needlessly benefit major Wall Street corporations. Every year, for instance, these out-of-state corporations each get an enormous property tax break:

The list goes on, but the $19 plus million listed above represents a sizable portion of our budget deficit.

Most important though, is the legislature’s willful disregard of what’s called a “structural imbalance” in Montana’s finances. Loosely translated, that means we’ve been as guilty as Enron at cooking our bottom line to look good in the short term, and hoping that the long term takes care of itself. The legislature has expanded programs and increased expenditures, at the same time cutting taxes. It has used gimmicks such as “accelerated accruals” to record revenues due in a future year into the current year. That makes the current year’s bottom line look good, but ignores the hole created in the next year’s income.

It has used windfalls called “one-time revenues” to pay for ongoing costs. That is like someone winning $2000 in a lottery and using it as a down payment on a new car, but not having the monthly income to make the payments.

The Legislative Fiscal Analyst’s office has been warning the legislature about structural imbalance for years, with no appreciable effect. Now, the bill has come due, and the people of Montana, for whom the Legislature manages the finances, are the ones who will suffer from this fiscal irresponsibility.

The aged poor, the infirm, the mentally disabled, and the children of Montana are the ones who will pay for unnecessary tax breaks to big business–tax breaks which will not be reinvested in Montana, but will only help pad the salaries of corporate America‘s top executives.

Jim Elliott
Phone: 406-444-1556
Mail: State Senate Helena, MT 59620

jim@jimelliott.org