Cautious optimism, at best
Characteristically, Gov. Brian Schweitzer had an upbeat, optimistic view of Montana’s economic outlook in his state-of-the-state address last week, challenging Republican lawmakers on their more pessimistic view for state revenues over the next two years.
Schweitzer is talking the same talk as Republican lawmakers when it comes to some policies that will spur economic growth and create jobs. He wants to eliminate the business equipment tax and is pushing for energy and natural resource development, and while there are some differences with GOP plans in those areas, the chances appear good for some form of compromise.
The governor may have been a bit off-base in suggesting that Republicans down-talk Montana’s business environment, considering that when they talk about Montana having the highest workers’ compensation rates in the country or call attention to the punitive business equipment tax, their purpose is to bring about reforms.
They sound no different than the governor when he said that Montanans expect lawmakers “to reform a bloated, unworkable workers’ comp system that (will be) fair to workers and can help small businesses start and grow in Montana.” For that, he drew cheers from Republican lawmakers.
The biggest difference between the governor and the Republican majorities appears to be in their perceptions of future state revenues, and Schweitzer made that disagreement an issue in his speech.
So far, the Legislature is calculating a budget that is about $300 million less than Schweitzer’s $3.8 billion budget, based on a Legislative Fiscal Division forecast that there will $3.58 billion in revenue over the next two years. The governor’s revenue forecast is about $104 million higher, and Schweitzer also points to the state’s $330 million cash reserve:
“... even if the estimates of declining revenue are incorrect, and they’re not, we can write a check from the savings that we have, not raise taxes, and still fund the critical priorities of Montana,” he said.
But Republican House Speaker Mike Milburn has a different take: “No matter how you spin it, we are spending more than we are taking in and although the future looks promising, the recovery is expected to be slow.”
So who’s right? According to a graphic posted on the Legislative Fiscal Division website, the governor’s budget office forecasts have been in error of actual revenues an average 7.3 percent over the decade, but the legislative forecast has had an average error of 7.1 percent as well.
So they’re both off every biennium. More importantly, they both overestimated revenues in the last four years. In the last biennium, the legislative forecast overshot actual revenues by more than $250 million while the governor’s budget office overestimated revenues by just under that amount.
In light of that track record, and because unemployment is now over 12 percent across Northwest Montana, we think it is prudent to err on the side of caution in crafting the state budget.
After all, you can’t spend optimism.