General Fund Expenditure Holdbacks — A Twenty-eight Year History

Due to economic factors over the years, it has become necessary from time to time for state agency budgets to be reduced during a fiscal year to bring spending in line with lagging revenue collections. There are two ways authorized by statute to reduce spending when the Legislature is not in session; one is temporary and one is permanent.

Temporary Reduction of Spending Authority:

Idaho Code 67-3512A states in part “…Whenever the governor as chief budget officer of the state may determine that the expenditures authorized by the legislature for the current fiscal year shall exceed anticipated moneys available to meet those expenditures, the governor by executive order may reduce the spending authority on file in the office of the state controller for any department, office or institution of the state…”

Reduction of Legislative Appropriations:

Idaho Code 67-3512 states in part “…Any legislative appropriation made for any department, office or agency may be reduced in amount by the state board of examiners upon investigation and report of the administrator of the division of financial management; provided that before such reduction is ordered the head of such department, office or institution shall be allowed a hearing before said state board of examiners...”

Secretary of State, have the authority to reduce appropriations, in almost all cases over the last thirty years, spending reductions were initiated through executive order early in the fiscal year, allowed to expire with the start of the legislative session, and then were taken up as budget cuts by the Legislature. The Board of Examiners’ authority provides a tool to ensure the state budget can be balanced late in the fiscal year after the Legislature has gone home.

As the following historical summary indicates, the decade of the1980s was the decade of the holdback. State agency budget growth accelerated during the 70s largely due to steep inflationary rates during that time. That house of cards collapsed in 1980 with a deep recession and restructuring of the U.S. economy. Between 1981 and 1986 there were General Fund holdbacks in five of six years.

FY 1981: Initially a 3.0% holdback was ordered by Governor John V. Evans, then increased to 3.85% for all agencies. By June the revenues had improved and the holdback was released for public schools.

FY 1982: The shortfall did not materialize until April, at which time Governor Evans directed General Fund supported state employees to go to a four-day work week for the last seven weeks of the fiscal year to make up $8.0 million.

FY 1983: Governor Evans ordered a 9.0% holdback, followed by an additional 1.5% shortly thereafter, as the national recession hit Idaho hard, creating a $69 million shortfall in a $374 million budget. The Legislature passed bills to reduce agency budgets by 12%, and public schools by 3.6%, but both were vetoed. Eventually a temporary one and one-half cent sales tax increase was passed (from 3 to 4.5 cents) to fund a tax anticipation note designed to cover the shortfall. The sales tax became permanent at 4 cents the following session.

FY 1985: Governor Evans ordered a 3.0% holdback that expired January 31. Appropriations designed to make the holdback permanent were vetoed, and the deficit was covered with a transfer from the Budget Reserve Fund.

FY 1986: Governor Evans ordered a 2.5% holdback that expired on January 31. The Legislature enacted a 4.5% budget reduction over the Governor’s veto, and passed a temporary one cent sales tax increase (from 4 to 5 cents), which later became permanent.

FY 1992: A mid-year shortfall developed that prompted the Legislature to cut agency budgets across the board by 1.1%, and covered public schools with a transfer from the Budget Reserve Fund. Governor Cecil Andrus vetoed the budget cuts (except for the Legislative and Judicial branch reductions), believing revenues would improve. On April 16, however, the Governor ordered a 0.3% holdback on state agencies, and on May 21, after reviewing April revenues, delayed the final $10.9 million public school payment to PERSI into the next fiscal year to cover the shortfall.

FY 1996: In September, Governor Phil Batt ordered a 2.0% holdback on state agencies and public schools that expired on January 31. The Legislature covered the schools portion from the Budget Reserve Fund, and authorized the Governor and Board of Examiners to reduce appropriations, if necessary, in the spring.

FY 1997: Governor Batt ordered a 2.5% spending holdback in September on state agencies and recommended covering the public schools portion of the holdback with the Budget Reserve Fund. The latter transfer turned out to be unnecessary because of slightly improved revenue collections in the spring.

FY 2002: In August, due to declining revenues as a result of high tech industry-driven economic problems, Governor Kempthorne ordered a 2% holdback on state agencies and a 1.5% holdback on public schools. That holdback was increased two months later in the aftermath of 9/11 to a total of 3% on state agencies and 2.5% for public schools, which would save an estimated $54 million. Eventually the Legislature increased the spending cuts to $64 million and authorized the transfer of another $120 million in cash balances from the Millennium Fund, Capitol Endowment Fund and Permanent Building Fund (HB 701).

FY 2003: Governor Kempthorne ordered a 3.5% holdback on all state agencies except for public schools and higher education. He later reduced the holdback for Health and Welfare to 1.9%. The Legislature enacted these holdbacks into budget cuts during the 2003 legislative session, along with transferring the remaining cash reserves to cover a $214 million budget gap. With cash reserves gone and further budget cuts facing vetoes, a two-year temporary sales tax increase of one cent was put into effect beginning in May, capping off the longest legislative session in Idaho history.

FY 2009: In September, Governor Otter ordered a 1% holdback on state agencies and public schools, covering the public schools portion from the Public Education Stabilization Fund. On December 1, Governor Otter increased the holdback to 4% total, with directions to state agencies to hold another 2% in reserve should further cuts be necessary. Again, the public schools portion of the 4% holdback would be covered by the PESF.

Staff Contact: Jeff Youtz