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HELENA - The Legislative Fiscal Division has questioned whether Gov. Brian Schweitzer's revised budget cuts funding to a point where it jeopardizes the continuation of some government services.

Schweitzer proposed a two-year budget on Nov. 15, as required by law, but went back to the drawing board because of plummeting revenue projections during the economic downturn. In mid-December, his revised budget cut state general-fund spending by $144 million.

He has proposed $9.6 billion in total state spending for the next two years from all sources of funds. The Legislative Fiscal Division said this amounts to a $666.8 million, or 7.5 percent, increase in ongoing spending over the current two-year period.

Schweitzer has proposed a $3.8 billion general budget for the next two years, funded mainly with state tax revenues. That amounts to a $257.5 million, or 7.4 percent, boost in ongoing spending over the current two-year period, the division said.

The governor's budget now goes to the 2009 Legislature for action.

The Legislative Fiscal Division, headed by Clayton Schenck, recently completed its analysis of the governor's budget proposal, and, as it does every two years, raised questions.

The legislative analysts also suggested that there are "significant budget risks" that legislators should bear in mind while crafting a budget.

"Revenue estimates may have to be revised (downward) in a period of economic volatility and impacts on demands for state services," the Legislative Fiscal Division said. "(The) budget may not reflect the full impacts of an economic downturn."

Another part of the legislative report suggests that in grim economic times, the demand for government services increase.

"In particular, there are several areas where the unknown duration and severity of the economic downturn could significantly increase the demand for government services beyond what was included in the executive budget," the report said.

Schweitzer's budget director, David Ewer, said Friday that he doesn't agree with everything in the legislative fiscal analysts' report, but did not want to discuss it in detail until Tuesday afternoon. That's when he and Schenck will make presentations and field questions from legislative budget committees.

"We have fully submitted a budget that meets the needs of Montanans and is understandable and presented in a way that people can see how programs can be delivered," Ewer said.

The Legislative Fiscal Division, however, pointed to a number of areas where it questions whether "present-law services" could be maintained.

Fiscal analysts said budget projections for Medicaid services, the federal-state health care program for the poor, "are very uncertain" because of the uncertain economy and any additional increases in Medicaid eligibility.

In the Corrections Department, the legislative analysts said the Schweitzer budget has underfunded the more expensive secure-care beds and will have to move more of the projected prison population into less expensive community placements.

Worsening economic conditions could reduce projected interest and income that helps pay for K-12 education. If so, that money would have to be made up with the state general fund, the analysts said.

The Schweitzer budget "effectively reduces state funding for higher education" because there are present-law costs that continue the next two years that aren't funded by state money, the legislative fiscal analysts said. If the proposed budget passes, the University System would either have to raise student tuition or find spending reductions to make up for it, the analysts said.

The analysts said Schweitzer's proposal to increase the vacancy savings rate in state agencies to 7 percent from the original 4 percent "constitutes an across-the-board reduction for state agency operations and the impact on programs will vary widely without regard to prioritization of need."

When legislators complete budgeting, they usually then reduce total budgets of large agencies by 4 percent because of anticipated job vacancies.

The legislative report said Schweitzer's budget failed to provide measurable performance indicators to determine whether budget goals are being met and whether all spending is justified.

Ewer disagreed, saying the Schweitzer administration had submitted a budget that included the necessary documents and proposed goals and objectives for government programs.

The Legislative Fiscal Division called some of the Schweitzer budget proposals "undeveloped" because they lacked sufficient information, accuracy and detail to evaluate. Among them were administration proposals to mitigate the effects of property tax reappraisal, to issue $21 million in bonds to buy additional school trust fund and to provide funding for school facilities.

Legislative analysts also warned of several outstanding potential state liabilities, including whether government employee pension funds need cash infusions after their stock investments plunged the past year. Other potential liabilities are the latest school funding lawsuit and a pending workers' compensation case before the Montana Supreme Court.

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