Staff outlines program maintenance bills, sales-tax distribution and risks to general fund growth

Keith Bybee, Division Manager for Budget Policy Analysis, briefed the Joint Finance-Appropriations Committee on how program maintenance appropriations are organized and how sales tax distributions affect general fund revenues.

Bybee said program maintenance is organized into 10 functional appropriation bills covering major areas of state government; maintenance bills include the base budget plus adjustments between benchmark 4 and benchmark 5 (personnel benefit cost adjustments, contract inflation, statewide cost allocation, and CEC). He said the legislative intent this year is to include all CEC adjustments in program maintenance bills to standardize practice.

Bybee described why several functional groupings were split out: the Legislative Branch and statewide elected officials are treated separately from general government agencies; the Judicial Branch is separated from Public Safety for organizational clarity; and public school support and higher-education agencies under the State Board of Education are kept distinct.

He explained that other items historically labeled "non-discretionary" (now called population forecast adjustments) and replacement/annualization requests will be considered in enhancement bills rather than program maintenance. Bybee said population forecast items (for example, Medicaid caseload changes or public school support unit updates) have been a major source of year-over-year budget growth and that moving them to enhancement bills provides more transparency and opportunity for legislative deliberation.

Sales tax distributions and implications

Bybee walked members through a new appendix showing how gross sales tax collections are distributed before the remainder reaches the general fund. He said gross collections have grown (about $3.1 billion in 2024, projected higher in 2025 and 2026) but that the general fund share has fallen because statute directs portions elsewhere. The distribution steps reported were: refunds; statutory transfer to the Tax Relief Fund (revenues from online retailer sales tax remitted under the tax relief statute); revenue sharing to local governments (11.5% of net collections); earmarks for transportation and school modernization; Techum allocations (presented as 4.5% of net collections with $80 million identified for bonding and any spillover to local transportation districts); and other state earmarks. After those distributions, Bybee showed that the general fund received a smaller percentage of total sales tax collections than it did before the Great Recession.

Bybee warned that because sales tax has been routed into more statutorily directed programs, the share left for the general fund is smaller and could complicate balancing in a downturn. "What it may mean for this committee is more significant cuts," he said, noting that sales tax is the state's most stable, least volatile revenue source but that the legislature has committed an increasing share to other statutory uses.

Questions raised by legislators included how replacement items (regular vs. IT replacements) would be presented (staff said they would be broken out into separate decision units) and how Techum distributions work; Bybee explained that Techum receives 4.5% of net collections and that $80 million is currently earmarked for bonding, with any excess flowing to local units.

Bybee provided a "general fund daily update" for the committee that compares the governor's budget to legislative actions and identifies items still pending decision; he said staff will update that sheet weekly or biweekly and more frequently during active budget setting.

What this means for JFAC

- Program maintenance bills will be the first set of appropriations the committee considers and will incorporate CEC and other statewide adjustments. - Population forecast adjustments and replacement/IT replacement requests will be considered in enhancement bills to give the legislature more opportunity to evaluate growth items. - The statute-driven distribution of sales tax reduces the percentage flowing to the general fund, increasing the committee's exposure to revenue risk during downturns.

Bybee concluded by noting staff will supply corrected tables and continue to support members before program maintenance hearings next week.