No budget surplus expected as Idaho begins new fiscal year today

After state budget projections missed the mark by more than $120 million in May, budget officials were not expecting the state of Idaho to end its fiscal year on Sunday with a budget surplus — a departure from record surpluses in recent years.

Idaho runs on a fiscal year calendar that begins July 1 and ends June 30. Fiscal year 2024 just ended, and fiscal year 2025 is just beginning. 

Lori Wolff, the new administrator for the Idaho Division of Financial Management, said it was still too close to tell what exactly the state’s ending balance will be for fiscal year 2024. 

As of the state’s most recent monthly revenue report, which was released to the public June 20, year-to-date revenues were behind projections by more than $35 million with just one month to go in the fiscal year. 

On Thursday, Wolff told the Sun in a phone interview that June revenues are looking better than April and May.

“Do we need to be nervous? Not necessarily, where June looks so far,” Wolff said. “June is looking pretty good so far.”

Final year-end numbers for fiscal year 2024 may be available by late July, once June’s revenue is calculated and year-end reconciliations and data entry is complete, Wolff said. 

Wolff said Gov. Brad Little and the Idaho Legislature set aside an unspent ending balance of about $200 million in the fiscal year 2024 budget to guard against missed revenue projections like the state experienced this spring. 

The state also bolstered its rainy-day savings accounts in recent years, Wolff said. The state has an estimated $1.3 billion — an amount equal to 22% of the general fund budget — between its major reserve funds, Wolff said.

“These reserves, along with a healthy balance of $200 million on the bottom line, ensures Idaho has a structurally balanced budget to weather revenue misses or economic changes,” Wolff wrote in a follow up email to the Sun on Friday.  

In terms of impact to Idahoans, the state will have less money to put toward property taxes if there is no state budget surplus this year. House Bill 292, the Idaho Legislature’s property tax reduction bill from 2023, was written so that the first $50 million of any state budget surplus at the end of a fiscal year would automatically be transferred to homeowner’s property tax reduction. If there is no surplus, the transfer will not take place.

The prospect of no budget surplus is a change for the state, which was breaking state budget surplus records in recent years. The 2021 fiscal year ended with a state budget surplus of about $900 million, a record at the time, the Sun previously reported. A year later, the 2022 fiscal year ended with a $2 billion budget surplus, setting another new record. 

The state used its previous surpluses, in part, to cut income taxes and issue tax rebates, increase education funding, pay for $600 million in road and bridge repairs spread across three years and more.

As a result of those tax cuts, state revenues are reduced. 

Why were Idaho revenues down this spring?

State revenues fell short of projections in both April and May.

For April, revenue came in $60.3 million below projections, the Sun previously reported. For May, revenue came in about $124.3 million below projections, according to the Idaho General Fund Revenue Report. 

Missed individual income tax projections accounted for much of the shortfall. For May, individual income tax accruals were $65.1 million, falling short of the $184.8 million forecast. Meanwhile, individual income tax refunds paid were $127.5 million, above the forecast of $77.1 million. The state also missed the projection for corporate income tax refunds, paying out $10.6 million in refunds against a forecast of just $4.4 million. 

“Those misses were disappointing because I was hopeful that we would have a surplus for our homeowners property tax reduction,” said Sen. Scott Grow, R-Eagle, in a phone interview Friday. 

Grow is the co-chair of Idaho Legislature’s Joint Finance-Appropriations Committee — a powerful committee that sets each element of the state budget. Grow was also a co-sponsor of House Bill 292, the property tax bill. 

Even if there is no state budget surplus this year to automatically transfer to property tax reductions, Grow said a portion of sales tax collections is being directed toward property tax cuts. Under the 2023 bill, a share of sales tax collections is directed to the homeowners property tax relief fund and another share is directed to the public school facilities fund, which is intended to trickle down as property tax relief, Grow said. 

Overall, the state’s tight revenue situation affects more than just the amount of money available for property tax reductions, Grow said. 

State budget requests for the next fiscal year are due on Sept. 1. When it comes time for the Idaho Legislature to set the fiscal year 2026 budget, Grow expects the state to shift from record budgets to budget-tightening now that big budget surpluses are in the past and the infusion of COVID-19 stimulus funds from the federal government is spent down.

Grow said legislators will build their budget projections out 18 months into the future, and he is worried the state will experience a recession within that time period. A recession could place stress on Idaho families and businesses and reduce the amount of revenue available for the state, said Grow, a retired certified public accountant.

“I don’t anticipate any great increase in revenues,” Grow said. “If we’re moving into a recession in the next year or so, that would likely adversely affect the income taxes for individuals and for businesses and the amount of revenue we receive from them would likely be reduced.”

“With my experience and over 40 years as a CPA, I am very conservative (in my approach to budgeting),” Grow said.