Federal spending drives Montana budget

HELENA — Montana lawmakers approved about $16 billion in spending during the 2021 legislative session, more than $17,400 per Montana resident. That’s money for everything from plowing highways to paying district court judges and administering COVID-19 vaccines over the state’s next two-year budget period, which started at the beginning of July.

It turns out that more than half the money flowing out of Helena this budget cycle won’t be collected by the state Department of Revenue. A majority of the spending allocated by the Legislature, nearly $9.25 billion of the $16 billion total, will come to the state as federal dollars courtesy of the U.S. Treasury.

Those and other figures in this piece are based on a Montana Free Press analysis of final bill texts and data from the Legislative Fiscal Division, a nonpartisan office that produces a comprehensive report on the state budget following each legislative session.

The spending approved by the 2021 Legislature can be sorted into four distinct buckets. The first and largest is the $12.6 billion lawmakers allocated to support two years of state agency operations through the main state budget bill, House Bill 2. That bucket, which includes routine federal support for human services programs, highway maintenance and K-12 education, is about half supported by federal dollars.

The second budget bucket contains the state’s suite of routine infrastructure programs, which cover investments ranging from energy conservation upgrades on state buildings to grants to help small towns upgrade their sewer systems. Lawmakers authorized $456 million in routine infrastructure spending across nine different bills, a total that excludes portions of infrastructure program budgets that were backfilled with federal stimulus funds.

The remaining two budget buckets come courtesy of the U.S. Congress, which passed two coronavirus relief measures that put money at the discretion of Montana lawmakers. (Funds from earlier stimulus packages, including the March 2020 Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, were allocated by former Gov. Steve Bullock.) The first of the pandemic relief buckets that came before the Legislature, a portion of the December 2020 Consolidated Appropriations Act sometimes referred to as the CARES II package, passed $754 million through state government. That package was followed by the $2.18 billion provided to the state through the March 2021 American Rescue Plan Act, or ARPA.

Portions of the federal stimulus buckets are essentially pass-through funding, with the state relaying money for purposes that have been narrowly defined by Congress. Other portions give state officials wider latitude for deciding how to put the federal money to work. Montana lawmakers, for example, have allocated $275 million in federal relief funds to a broadband expansion effort. They’ve also piped about $88 million in ARPA money into the routine state infrastructure programs and set up new programs to route money toward local water and sewer projects.

The figures presented here for those two stimulus packages exclude spending made directly from federal agencies, such as stimulus checks delivered to taxpayers by the Internal Revenue Service. They also exclude federal relief payments made directly to local governments.

Similarly, the Legislature’s routine two-year budget bill doesn’t include either direct federal spending or property taxes collected and spent by towns, counties or local school districts. The Montana University System budget is also managed separately, though the legislative budget does include state support for universities passed through the Office of the Commissioner of Higher Education.

While the federal government can and routinely does run budget deficits, Montana’s Constitution requires the Legislature to pass a balanced budget. According to the Legislative Fiscal Division, budgeted 2022-2023 agency spending is up 3.3% over the 2020-2021 biennium.  

The largest piece of the state budget by far is the Montana Department of Public Health and Human Services, a sprawling agency that, among other things, tracks disease outbreaks, manages the state foster care system and administers Medicaid and public assistance programs. Because many state-administered assistance programs rely on federal support, much of the agency’s budget — $4.4 billion of $6.1 billion — comes from federal dollars.

Other large agencies are also reliant on federal money. The Montana Department of Transportation, for example, expects more than $1 billion of its $1.6 billion budget to come from federal accounts. The Office of Public Instruction, which supports the state’s K-12 school system, expects to spend $347 million in federal money.

Federal dependency is nothing new for Montana, which as a large-but-sparsely-populated rural state has for decades received more federal spending than its taxpayers have sent to Washington, D.C. The dynamic actually gets a mention in an official history posted on the state website, which traces the trend back to the 1930s and President Franklin Roosevelt’s New Deal-era expansion of the federal government.

The New York-based Rockefeller Institute of Government estimates that, as of 2019, Montana received $1.47 in federal spending for every dollar of federal revenue collected in the state.

Reliance on federal spending is, however, an occasional source of heartburn for Montana leaders, particularly Republicans who sometimes worry aloud that the federal government will eventually have to rein in spending in order to manage its deficit. Even as Gov. Greg Gianforte looks to spend money from the American Rescue Plan Act, for example, he has repeatedly criticized the measure as a “fiscally irresponsible” addition to the national debt.

When the 2021 budget bill passed the Legislature in April, Gianforte and legislative Republican leaders praised it as a responsible-but-restrained spending plan. As he signed the bill in May, Gianforte called it “a fiscally conservative, pro-jobs budget.”