Where does the money come from? Here’s why Idaho’s $1.9 billion surplus keeps climbing

On Monday, Idaho Gov. Brad Little laid out an ambitious plan for investing state revenues in education, infrastructure and tax cuts. In total, the governor proposes increasing spending by 8.1% in the next budget cycle.

That boost is backed by a record budget surplus. The state is projected to go into the next fiscal year, which starts July 1, with a $1.9 billion surplus, the largest in state history.

How does the state have so much extra cash during a global pandemic? The short answer: a strong economy, despite the pandemic, and conservative spending.

Revenue forecasts continue to climb

At the end of the last fiscal year, which ended June 30, the state’s general fund had a balance of about $960 million. That includes about $70 million in unspent appropriations, and $890 million in revenue carryover.

“That is the difference between what we thought we’d bring in and what we actually collected,” Keith Bybee, a budget and policy analyst for the Idaho Legislature, told a legislative budget panel on Tuesday.

The three largest revenue sources for the general fund are individual income taxes, sales taxes and corporate income taxes. Those, and other revenue sources, grew — thanks largely to increases in population and personal income — 24% in the last fiscal year.

It was equivalent to four years of growth, and it was the largest revenue take in state history, said Alex Adams, head of Little’s budget-writing Division of Financial Management.

The second piece of the surplus puzzle is revenue forecasts for the current fiscal year, which started July 1, 2021, and ends June 30. Revenue is expected to grow by another 3.6% this budget cycle, on top of the 24% growth in 2021. In November, revenue was expected to increase $721 million, but that number has since been upped to $936 million.

Net revenue and the beginning balance are expected to total $6.12 billion by June. That’s before any money is spent.

Idaho spending less than other states

During a Tuesday budget presentation, Adams told lawmakers that Idaho isn’t alone in collecting higher-than-forecast revenues. In the last fiscal year, 47 states reported that general fund revenue collections came in above original budget projections, according to a survey by the National Association of Budget Officers.

Spending in those 47 states is expected to grow 9.3% on average in the current fiscal year, the survey said. But Idaho kept spending at a “relatively conservative” 4% in 2022, Adams said.

“So when people ask, ‘Why do we have a surplus?’ the answer is pretty simple,” Adams said. “Idaho’s economy is red-hot, and revenue is growing faster than the size of government.”

The governor’s proposed budget would allocate $1.7 billion of the $1.9 billion surplus. Some of that money will be used as one-time funding and go toward deferred maintenance, tax rebates and savings accounts. Meanwhile, ongoing expenditures will boost spending on education, transportation and tax relief, among other things, starting in the next fiscal year.

Despite the surplus, the budget is designed to hedge against uncertainty, Adams told lawmakers. In years past, the state would target about a $50 million remaining balance, or “cushion,” at the end of each fiscal year. But Little is proposing a $214 million carryover at the end of 2022 and 2023.

His budget also bolsters savings, or rainy-day funds, to 22% of next year’s projected revenues.

Not everyone is sold on the surplus. Democratic lawmakers say the excess money is the result of under-funding state-controlled agencies and programs.

“We have cash on hand, you may say, by virtue of not funding our schools, not funding our universities, not funding our roads and bridges, not funding our emergency services,” House Minority Leader Ilana Rubel, D-Boise, recently told the Idaho Statesman.

Ultimately, the Idaho Legislature’s Joint Finance-Appropriations Committee — which has 16 Republicans and four Democrats — will consider Little’s proposals but craft its own budget bills.

How COVID-19 federal relief factors into surplus

While Idaho’s surplus likely benefited from the influx of federal COVID-19 funds spent by individuals and corporations during the pandemic, the state’s total surplus excludes about $1.2 billion from the American Rescue Plan Act, or ARPA.

Again, the state has been slow to spend the money. While other states, combined, have spent 53% of federal COVID-19 relief funds, as of November, Idaho spent just $50 million of that money last year, Adams said.

However, the governor’s budget makes a number of recommendations to spend the state’s ARPA funds, which must be dedicated by 2024, in the coming years. Those recommendations include projects to improve water infrastructure, water recharge and raising dams, among other things.

Adams described the proposals as long-term investments that will “ripple for the state for decades to come.”