Why Idaho's fiscal health remains strong

Is Idaho about to fall off the fiscal cliff due to irresponsible budgeting? No. The Gem State’s current budget has a decent ending fund balance, substantial budget reserves on hand, and many important fiscal tools available should the economic outlook for the state and country change. Unfortunately, there’s a false narrative going around that Governor Little’s prudent use of budget planning tools means the state is on the wrong path.

Here are the current details for the state’s budget framework:

• 2026 adopted spending: $5.62 billion 

• Ending fund balance: $345 million (6.2%)

• Unrestricted general fund reserves: $880 million (14.8%)

• Total reserves: $1.307 billion (22.1%)

Due to a softening of the forecasted revenue growth, the Division of Financial Management sent a memo to state agencies on May 29 requesting they identify potential spending “holdbacks.” From the memo:

“Governor Little will prioritize critical investments in essential areas while ensuring a conservative and balanced budget for Idaho. Although we understand that there are still many initiatives and challenges that impact your agency and operations, we must submit a balanced budget, and Idaho’s current revenue projections only allow for slight growth in appropriations for FY 2027. Governor Little will still work with your agencies and the Legislature to identify priorities and critical investments that solve problems and prepare Idaho for a successful future.

Also, as we continue to watch revenue projections for FY 2026 and FY 2027, it is important that State agencies are prepared to manage budgets and maintain conservative spending. We are asking all state agencies to internally prepare 2%, 4%, and 6% budget holdback scenarios to have in place as we continue to watch economic trends at the national level. This exercise not only helps us be prepared for uncertainty but also allows agencies to look internally at priorities and operations and ensure critical operations are prioritized.”

I recently had the opportunity to talk with Idaho’s Division of Financial Management Administrator Lori Wolff about the state’s budget outlook. She expressed confidence in the budget balance sheet and told me that the Governor’s request for agencies to identify possible spending holdbacks isn’t all related to changing revenue growth projections. She said:

“Sometimes holdbacks are not due to revenue but to reduce future spending pressures.”

Some have interpreted the May memo to claim that lawmakers were irresponsible to prioritize tax relief or invest in the new education choice tax credit (HB 93) this year. Instead, it shows the Governor is taking advantage of a rational budget management tool to provide options if the economic outlook deteriorates in the future. Remember, revenues are still growing, and there is a $345 million ending fund balance for FY 2025 and $880 million in unrestricted reserves ($1.3 billion in total reserves).

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.”

Should the economic outlook deteriorate significantly, however, Governor Little has the option of using the aforementioned holdbacks, budget reserves, or a combination of the two. 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) if needed, without imperiling its budget stability. 

As Administrator Wolff noted in June:

“Idaho also has 22% of general fund revenues in rainy day funds, greater than almost every other state. While we continue to watch revenue closely, we feel good about the strength of the state budget and our economy.”

A July 11 press release from Governor Little highlighted this positive economic growth for Idaho:

"Withholding collections – reflecting job and wage growth – are up 5.9% over last year. Gross sales tax revenues are up 3.7%, and online sales tax collections are tracking 13.2% above last year. Idaho’s GDP has grown 150% in the last five years. Adjusting for inflation, Idaho’s real GDP is up more than 21% in the past five years alone, demonstrating exponential, resilient growth. In addition, Idaho ranks third in the nation for the largest increase in average weekly wages."

Just to illustrate how prudent Idaho’s budget balance sheet is, let’s compare it with our neighbors in Washington State. Despite imposing the largest tax increase in state history this year, the Evergreen State has only a fraction of the budget discipline Idaho has demonstrated. For example:

• Washington’s ending funding balance is only $33 million (or 0.04%) compared to Idaho’s $345 million (or 6.2%).
  

• Washington’s total budget reserves are only 2.7% compared to Idaho’s 22%.

There is no denying that there are economic headwinds facing state budgets across the country, driven primarily by unpredictable fiscal policy at the federal level. The good news for Idaho is that the state’s balance sheet is sound, with a 6.2% ending fund, more than a billion dollars in total reserves, and state revenues are still projected to grow overall.