Returning to Fiscal Sanity after COVID
Last December, Idaho Freedom Foundation (IFF) released a Conservative Budget Plan for Idaho. The plan returns sanity to Idaho’s budgets and reverts government to a reasonable baseline after the explosion of COVID related spending. Specifically, the plan brings state agency budgets to pre-COVID spending levels (allowing only for inflation and population growth since 2020). This avoids distortions caused by massive federal spending during COVID.
As usual, this year’s budget cycle began in the fall. Warning signs became apparent when nearly all Idaho government agencies requested spending amounts outpacing the Conservative Budget Plan standard, as we showed in our budget release. In November, Idaho’s Legislative Services Office noted the sustained growth of government exceeding the inflation and population adjusted basis by 23% over the last two decades. This is unsustainable.
Background on the Budget Process
Two years ago, the Idaho legislature started a new budget process for setting spending across Idaho government. Agency budgets were separated into packages of “maintenance” budgets with the view that those budgets would sustain current government operations, while additional budgets termed “enhancements” would be considered to potentially add new positions and increase spending across programs. During the first two maintenance budget cycles, the Idaho Freedom Foundation rated all maintenance budgets as neutral, essentially non-rated.
This Year is Different
Of course, circumstances rarely stay unchanged. Last year, after rating the maintenance budgets neutrally, IFF clarified, “We may view maintenance budgets more critically should more egregious examples present themselves in the future.” Which brings us to this legislative session. With the state facing budget deficits in Fiscal Year 2027 (FY27) and FY28, now is the time to survey these budgets with a more critical lens and in a more thorough manner.
Unfortunately, neither the Governor nor the Joint-Finance Appropriations Committee (JFAC) saw the urgency of the state’s current budget deficit and the accompanying out-of-control spending growth as a call to seriously restructure the budget. Instead, they chose across the board cuts of 5% for most agencies’ General Funds. These reductions were a combination of making the Governor’s 3% temporary holdback ongoing (permanent), with an additional 2% ongoing reduction to all budgets excluding Public School Support, Idaho Department of Correction, Idaho State Police, and the Department of Health and Welfare’s Division of Medicaid. Note federal and dedicated funds were not subjected to any holdbacks. These make up the vast majority of many budgets, including the state’s largest: DHW.
Clarifying Budget Distortions
It is important to note that in each maintenance budget package, the topline summaries compare the FY26 original (final) appropriations to the FY27 maintenance appropriations. This comparison is distortive. It may seem like many agencies have taken very large reductions, but adjusting out the “one-time” spending after FY26 is simply the process required to calculate FY27’s normal base budget. So, when budget bills are comparing FY26 original appropriations (which include this year’s enhancements and onetime expenditures) against the new FY27 maintenance budgets (which don’t include these), the large decrease is simply a mirage. While many agencies indeed took base reductions, those were typically much smaller. IFF makes note of these distortions where they are particularly large in our individualized maintenance ratings.
JFAC has the discretion to cut budgets by either reducing the ongoing base in the maintenance budgets or pursue reductions known as recissions during the enhancement cycle. Moving beyond the maintenance budgets, the process of considering “enhancement” budgets means JFAC can either grow or shrink individual agency budgets. Enhancements are generally thought of as discretionary, but in many instances are actually statutorily mandated. A notable example are benefits payments in the DHW’s Division of Medicaid, which is further detailed below and in our individualized rating. This makes the concept of a maintenance budget unwieldy or even illusory for some agencies.
IFF’s Standard for Maintenance Budget Ratings
Despite our objections to the propriety of many of the programs funded by the state government, IFF recognizes the purpose of a maintenance budget is to support the operations of government at its current base operational level. Regardless of which programs are budgeted, any fiscally responsible maintenance budget must start from the correct baseline before a positive or negative rating would be meaningful and accurate.
In accord with our budget plan, IFF uses an inflation-plus-population baseline indexed from FY20 (pre-COVID) to be the reasonable standard by which to judge maintenance bills.
IFF’s Spending Index includes a metric asking “Is the continuation or growth in ongoing spending, if any, inappropriate for the changes in circumstances, scope of the agency, or current economic environment?” For maintenance budgets, growth in excess of what the above mentioned inflation-plus-population standard would prescribe is deemed inappropriate in context of the metric. Further, IFF believes reductions are the bare minimum warranted in a deficit year, with the ultimate goal of returning budgets to their correct baseline.
Accordingly, IFF’s analyses on the maintenance budgets include notes as to whether or not each group of agencies grew faster or slower than the inflation-plus-population standard would have prescribed. Spoiler alert: they almost all grew faster!
In general, the points of emphasis regarding IFF maintenance budget ratings are:
- Maintenance budgets for groups of agencies that took overall budget reductions and did not outpace the inflation-plus-population standard get a positive rating.
- Agencies that took budget reductions but also outpaced the population-plus-inflation standard are rated as neutral, a zero. Agencies that had overall budget growth but did not outpace the inflation-plus-population standard also receive zero.
- Agencies which had overall budget growth and outpaced the inflation-plus-population standard will receive a negative rating.
- Agencies that have very large statutorily mandated enhancements will have their maintenance budgets scrutinized with extra rigor and be rated accordingly.
We will briefly explain each maintenance package here, with its bill number, and summarize the rationale behind its rating. More detail is provided in the individual bill rating.
Budget package summaries will appear here as bills are printed.
Senate Bill 1361 — Public Safety (0):
This budget package has grown faster than the inflation and population metric would allow, but did take a base budget reduction to most agencies. Idaho State Police was spared from the additional 2% JFAC reduction. It therefore receives a neutral rating.
Senate Bill 1362 — Public School Support (-1):
This budget package has grown faster than the inflation and population metric would allow and did not take a base reduction. It therefore receives a negative rating.
Senate Bill 1363 — Natural Resources (0):
This budget package has grown faster than the inflation and population metric would allow, but did take a base budget reduction to all agencies. The large drop in appropriations is due to one-time spending not being a part of the maintenance budget. It therefore receives a neutral rating.
