State’s economic outlook remains optimistic
BOISE — The outlook for Idaho’s economy remained positive Monday, but a revised financial estimate from state financial managers did little to dispel future budget concerns of key lawmakers.
Administration analysts reported that the economy should hit the earlier projected growth rate of 6.2 percent during the fiscal year that ends next June, a comparatively strong showing against the previous three years.
“While the nation was still in the throes of the jobless recovery, Idaho actually added jobs,” economist Derrick Santos reported.
The state recovered all the jobs it lost in the downturn by last year, something few other states could claim, he said.
Even though those jobs were not as lucrative as the high-technology and manufacturing paychecks they replaced, the expansion of the employment base kept the economy rising — even if at a relatively slower pace.
At the same time, the update from the Division of Financial Management cautioned that the stimulative effect of the federal tax cuts has run its course and the decision by the Federal Reserve Board to begin raising interest rates will test the national economy’s ability to support itself.
“They can be cautiously optimistic,” House Appropriations Chairwoman Maxine Bell of Jerome said. “I’m just grateful it didn’t go the other way. I’m still very sensitive to getting very excited about a total recovery.”
The state’s employment strength was reflected in a slightly higher forecast for personal income tax collections, while the effect of rising interest rates was seen elsewhere in the revenue mix. Higher interest rates will likely rein in purchases of big-ticket items, while they will boost the earnings the state realizes on the money it puts in short-term investments.
Overall, the revised projection for tax collections through June is only fractionally above the one lawmakers used in writing the current budget. This summer’s light fire season further reduces pressure on revenues although administration officials believe they may have to pump up to $13 million more into the budget financing health care for the poor.
Still, the anticipated surplus at the close of the current spending year in mid-2005 should be over $80 million, more than Kempthorne pegged his multi-year budget plan.
Under that plan, the governor would use the surplus cash and money from other reserves and special funds to cover the loss of the cash from the temporary penny sales tax increase that expires on June 30. Even with that supplement, the budget would be extremely tight, limiting cash for schools and employee pay raises.
The state cut spending 10 percent and cleaned out all of its reserves two years ago to get through the initial economic downturn and still had to resort to the temporary tax hike to avoid additional cuts.
A number of lawmakers have warned against clearing out the reserves again to finance the 2005-2006 budget because it leaves nothing for the following year. They fear the relatively slow economic recovery will mean revenue falling short of needs, forcing another round of spending cuts in the 2006-2007 budget.