Idaho's legislative session gets underway

The 2023 legislative session had an auspicious start due to the festivities surrounding the inauguration of our governor. Every four years the statewide election brings the opportunity for citizens and legislators to gather together on the front steps of the Capitol Building and witness the swearing in of our constitutional officers.

A day prior to the inauguration, a joint committee of senators and representatives met to begin the process of projecting the revenue that the state should expect to receive in the next three upcoming fiscal years. This task is always a challenge, but this year it presented a greater challenge than normal due to the turnover in the Legislature. Because of redistricting and electoral results, 15 of the 18 members on the committee were new to the process. Some were experienced legislators, but the experience of forecasting the state’s revenues was foreign to a majority of the committee. Add to this inexperience a very volatile economy in the throes of a burgeoning recession, and yet still experiencing a growth in population.

For context, and metrics to evaluate future revenue, a number of different groups and economists presented to the committee. Legislative staff, state agency economists, major industry representatives, and state universities all offered their prognostications on the strength of the economy for the next three years.

While there were many differences between the conclusions each reached, one common theme that all repeated was that we are currently in an economic slowdown and that we should continue to expect a downturn in our economy in the next 12 months. The upside to this projection is that Idaho is well-positioned to endure a downturn with only minor effects on our economy and that a major disruption is highly unlikely.

The state revenues received in the past five out of six months have been below the projected amount and are starting to look like a developing trend as we start the second half of our fiscal year. National trends are showing signs of a recession, and there are expectations of increasing interest rates, comparatively higher inflation in the Mountain West, continued low unemployment rates, as well as continued strong job growth. Past eras of high inflation, similar to what we are experiencing, have shown that a prolonged rise in interest rates is needed to eradicate the high inflation and stabilize the economy.

With these factors in mind, the committee was asked to provide a projection for fiscal years 2024, 2025, as well as the remainder of 2023. The committee was given specific projections from the Governor’s Office, the Associated Taxpayers of Idaho, The State Tax Commission, and the universities as points of reference as they digested all the information and attempted to reach some sort of informed estimate about future revenues.

Of the professionals, the lowest overall estimate came from the Governor’s Office, which projected an ongoing decrease of -5.3% and -5.5% for 2023 and 2024, but projected an increase of 8.8% for 2025. The highest estimate was from the State Tax Commission, which had an increase of 4.5% in 2023 and a smaller increase of 2.9% in 2024.

Among the committee members, there was a great range of thought with the committee median showing a decrease of -1.4% in 2023, an increase of 2.3% in 2024, and another increase of 3.5% in 2025. Much of the disparity had to do with how each entity handled tax legislation passed in 2022. Whether or not an entity applied, or omitted, the further reduction of corporate and income taxes, the introduction of a flat tax, and the removal of $410mil from the sales tax revenue stream affected many of the projections.

In the end, the committee chose to recommend the governor’s projections. This was primarily because, after a discussion reconciling the new tax laws, it appeared to be the most viable in an uncertain landscape, and, secondarily, there was a preference to budget to a lower number in order to avoid realizing revenue lower than projected and potentially have a budget shortfall.

Ultimately, the Finance and Appropriation Committees will set the budgets according to their discretion, and both the House and Senate will vote on whether, or not, to accept those budgets. However, this exercise gives them a point of reference from their colleagues that can help frame their perspective when setting the budgets for upcoming years.