Montana Viewpoint©


You canít criticize the Republican budget if you donít have an alternative plan


May 5, 2003

I’ve been extremely critical of the budget solutions passed by Montanas Republican-controlled Legislature, so to be fair, I have to say what my proposal would have been. First, I would have recognized that there were two causes of Montanas recent $230 million budget deficit; one beyond our control, and one we created and can fix. Beyond our control was the national financial meltdown caused, in part, by the terrorist attacks, but primarily by the self-inflicted financial collapse of companies like Enron and Worldcom. Within our control was the spate of tax breaks Montana has given to similar national and international corporate giants.

Paul Polzin of Montana’s Bureau of Business and Economic Research said early on that Montana’s economy was performing well, and that what we were facing was not a statewide economic downturn, but a “revenue problem.” In short, we spent more money than we got through taxes. In addition, the influential independent State Policy Reports carried an article pointing out that states which had made the deepest tax cuts were the most severely hurt by the national economic crisis.

They were hurt the most because they had lost their revenue “cushion.” Every government expects revenue downturns and expects to have to make budget cuts to respond to them, but there is a level of state services below which you cannot go without public outcry. We have to take care of the disabled, jail criminals, and educate kids. When you loose your cushion, and are already near that minimum level of services, your choice is limited to making extremely deep and unpopular cuts in basic services or raising taxes. The fact that the Republicans did a little of each, but only a little, underscores their recognition that we are at a minimal level of providing services.

Republicans balanced the budget mostly by using $140 million of “one-time” money—that’s money taken from sources that won’t be available in the next budget cycle. Realizing that one of the reasons were hurting is because of a downturn in the national economy, I would have used some of that one-time money, too; but not $140 million. Since we lost about $42 million in Capital Gains Tax revenue because of the economic downturn, that would be a more appropriate amount to use, and would not make the next legislature have to scramble so hard to fund the next budget.

I would have rolled back some, if not all, of the $82 million in property tax cuts given to mega businesses. Why? There are several reasons. First, when big business asked for help in the form of tax cuts, we accommodated them. Now our people need help, and we have to call in the favor. Second, tax cuts to international businesses generally don’t stay in the local economy, but go out of state. Third, the property tax yields the most consistent and predictable income flow from year to year. Fourth, recovering $82 million a year for each of the two years in our budget period would offset $164 million of the $230 million deficit.

I would have cut spending, too, but in different areas than social services, where cuts now will cost much more later on. We have some programs of dubious worth but with strong political support, such as the Governor’s Office of Economic Development; at the very least they should be audited to determine that they are doing what they were set up to do. In fact, the idea of “performance-based budgeting” should be applied to all agencies and programs.

Some things I would not have done. Not giving the income tax cut, or at least delaying it until the national economy recovers would put $16 million back in the budget (and some $90 million in the next budget). Nor would I have raised selected sales taxes nearly as much. It might be fair to raise taxes on cigarettes to keep up with inflation, but it’s not fair to raise taxes $62 million on one group of citizens to pay for services that benefit everyone. I have no problem with raising the accommodations tax, and imposing a rental car tax is long overdue.

Well, that’s what I would have done if I could have. It’s not beautiful, either, but it would have treated continuing needs for services with continuing revenue, and one-time economic problems with one-time money. I believe that to do less is to saddle the next Legislature with insurmountable problems and is irresponsible government. Time will tell if I’m right.

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