Governor Little: “Idaho will further improve government efficiency and reduce government spending”

Changes are coming to Idaho’s current budget with Governor Little acting swiftly to focus on government efficiencies in response to changing revenue projections.

As we previously highlighted, Idaho’s balance sheet when the budget was adopted had very strong fundamentals, leaving a $345 million (6.2%) ending fund balance, $880 million (14.8%) in unrestricted general fund reserves, with a total reserves balance of $1.307 billion (22.1%). Most states couldn’t show a balance sheet this strong when adopting their budgets.

It is because of the state’s strong fiscal management that Fitch recently reaffirmed its top AAA credit rating for Idaho. Fitch noted:

“Fitch believes the state is well positioned to absorb multiple rounds of recent tax cuts and dedicated spending allocations from the general fund, given Idaho's prudently managed budget with significant one-time spending that rolls off to create fiscal capacity.”

Although the economic fundamentals for the state continue to trend in the right direction, consumers and businesses have been more cautious with spending money. According to the latest revenue projections for the state, forecasted sales tax collections are softening. Showing that the state’s economic fundamentals are still trending in the right direction, however, forecasted income tax collections are still good.

As noted by the Governor’s press release:

“Idaho’s economy is strong, resilient, and growing rapidly, fueled by smart fiscal management, a strong labor market, and record-setting gains in personal income, jobs, and GDP . . .

Idaho’s personal income is projected to grow 32% over the next five years and wages are expected to grow 15% over the next five years.”

In response to the softening in consumer spending, Governor Little issued an Executive Order on August 15 saying that “Idaho will further improve government efficiency and reduce government spending.”

While holding K-12 education spending harmless, the Governor is also ordering holdbacks of three percent for other parts of the budget. From the Governor’s Executive Order:

“To ensure that state government continues to administer its business efficiently and effectively, all executive departments, offices, and institutions of the state (agencies) must follow the steps outlined below: review all current operations and determine if consolidation or reduction of services, offices, bureaus, or agencies could improve efficiency and reduce overall spending . . .

My administration will collaborate and partner with the Legislature to continue to identify and implement more efficiencies in state government. I commend the Legislature and agencies for identifying obsolete, outdated, and unnecessary statutes pursuant to the Idaho Code Cleanup Act passed by the Legislature this year, and I look forward to working with the Legislature to streamline Idaho Code and further Idaho's efforts to reduce regulatory burdens.”

While Idaho continues to focus on spending discipline and government efficiencies, states like Washington are instead considering even more tax increases in response to changing revenue projections.

Despite the state’s strong fiscal management, it hasn’t been able to escape the impact of ever-changing and unpredictable federal economic policy. This is true for other states as well. Sales tax collections have been softening nationally as businesses and consumers try to navigate the impact of tariff tax increases and increasing prices.

Some of this uncertainty about the tariff tax increases may clear up soon. In May, the U.S. Court of International Trade ruled that the unilaterally imposed tariffs are unconstitutional. The U.S. Court of Appeals for the Federal Circuit heard the appeal in that case in late July. A ruling is expected soon. Mountain States Policy Center joined an amicus in the case.

While all states are impacted by economic decisions at the national level outside of their control, Idaho policymakers shouldn’t second-guess the budget decisions they made this year.

A budget is adopted based on the economic data available at the time. Had lawmakers prioritized more spending instead of returning revenue to taxpayers, the same challenges would exist. Leaving an even larger ending fund balance on top of the very large existing reserves would have led to accusations of hoarding taxpayer dollars.

Realizing that a 10% reserve is considered healthy, Idaho has significant capacity to draw from its nearly 15% unrestricted savings account (22% in total reserves), without imperiling its budget stability. These strong reserves provide lawmakers with alternative ways to address the softening sales tax collections should consumer confidence not rebound soon. If the revenue forecast improves, the three percent holdbacks can be rescinded or reduced.

By taking action early in the fiscal year to right-size the budget and focus on government efficiencies, while not reducing K-12 education appropriations, Governor Little is taking decisive action to avoid a potentially larger problem in the future while providing time for sales tax collections to stabilize.

The “Idaho Way” is one that other states can learn from to manage their budgets.