State Prepares for “Do More With Less” Era Amid Projected Deficits
BOISE, Idaho – Idaho’s legislative leaders are preparing for major spending cuts as the state faces a growing revenue shortfall triggered by deep tax reductions and the winding down of federal pandemic-era funding.
At this week’s Associated Taxpayers of Idaho Conference in Boise, Lt. Gov. Scott Bedke and members of the Joint Finance-Appropriations Committee (JFAC) warned that the upcoming legislative session will center on aligning spending with reality—marking a departure from years of record surpluses.
Key Budget Pressures
The 2025 passage of the One Big Beautiful Bill Act (OBBBA), a sweeping tax relief measure, cut income, sales, and property taxes by over $400 million—quadruple the size of Gov. Brad Little’s original $100 million proposal.
Now, officials must address:
- A $58.3 million projected deficit for Fiscal Year 2026
- A potential $550 million gap for FY 2027
- An estimated $284.4 million loss in 2026 from federal tax conformity
- Growing mandatory costs, including a $133.7 million increase in state employee health insurance
COVID-Era Boom is Over
Rep. Wendy Horman (R-Idaho Falls), JFAC co-chair, described FY26’s shortfall as a “rounding error” in a $14+ billion state budget—but cautioned that future gaps will be harder to manage.
She noted that general fund revenue ballooned from $4.03B in 2020 to $6.19B in 2022, largely due to federal COVID stimulus. That surge, she said, was never sustainable. “The ‘COVID cash bubble’ is behind us,” Horman added.
Lori Wolff, Administrator for the Division of Financial Management, said recent shortfalls stem primarily from underperformance in corporate tax filings, while individual income and sales taxes remain strong.
Tax Cut Impacts and Conformity Costs
Idaho is among the states that automatically conform to federal tax changes unless new legislation is passed. Without adjustments, Idaho will implement multiple costly federal provisions in 2026, including:
- New personal deductions for tips, auto interest, and senior income
- Enhanced business expensing for factories and small business equipment
- Expensing rule changes for research and experimentation costs
The Tax Foundation estimates these could cost Idaho $284.4 million in 2026, and up to $435.4 million depending on whether the state re-couples with certain past exemptions.
Lt. Gov. Bedke warned that failing to conform could put Idaho businesses at a competitive disadvantage compared to neighboring states. However, he acknowledged that drawing from the state’s $1.4B in reserves may be necessary to offset near-term costs.
Governor: No More Surplus Cushion
Gov. Little struck a more optimistic tone in his keynote address, highlighting Idaho’s low unemployment, property tax relief, and strong job creation. But he acknowledged that the state must now live within its means.
“Tax cuts undeniably contribute to economic growth—that is a proven principle of conservative budgeting,” Little said. “But in FY 2027, we will have to do more with less.”
Little emphasized the need to “right-size” government and said Idaho’s days of historic surpluses are likely over as the economy normalizes and federal aid recedes.
What’s Next
The 2026 legislative session will require lawmakers to make hard decisions on spending, revenue forecasts, and whether to modify Idaho’s automatic tax conformity. Agencies have already been directed to prepare for 3% budget holdbacks, but further cuts may be required to balance the books.
Sen. Scott Grow (R-Eagle) noted that costs like state employee healthcare alone will require early session decisions so agencies can adjust accordingly.
JFAC members say the upcoming session will feel more like “the old days”—when budget requests regularly exceeded revenues and reductions were routine.
Related Coverage
- Idaho News – https://idahonews.co/idaho-news-3/
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