BOISE, ID – Idaho state agency directors were told this week to submit plans to cut their budgets by up to an additional 2% for the current fiscal year to balance the state budget, according to a new budget memo released Monday.
In an interview Tuesday morning, Sen. Scott Grow, R-Eagle, said the memo about planning for new budget cuts was sent to state agency directors because of uncertainty over how the Idaho Legislature’s new federal tax conformity bill, House Bill 519, will impact the amount of revenue available to spend in the state budget.
“The big issue right now is tax conformity,” Grow told the Idaho Capital Sun. “And I don’t know where we are, but you saw a bill that came up Friday from the House that essentially conformed (with federal tax changes from the One Big Beautiful Bill Act).”
In the new budget memo, Keith Bybee, budget and policy analysis division manager for the Idaho Legislative Services Office, gave agency directors until noon on Friday to submit budget reduction plans.
Under the memo, state agency directors must submit two plans – one for cutting an additional 1% and another plan for cutting an additional 2% from their budgets in both this year’s fiscal year 2026 and next year’s fiscal year 2027.
Those new cuts would be in addition to the 3% budget cuts that Gov. Brad Little announced last summer in response to state revenue shortfalls, which could bring the total impact of the cuts up to 5% for both this year and next.
“While JFAC is working through the current budget cycle for FY 2026 and FY 2027, it is evaluating options to balance the state budget,” Bybee wrote in Monday’s memo. “One of those options is to further reduce budgets in FY 2026 and FY 2027.”
Senate Minority Caucus chairwoman says she doesn’t support additional cuts, calls on Legislature to dip into rainy day funds
Idaho Education News first reported on the additional new budget reductions Monday.
Bybee sent the memo on behalf of the co-chairs of the Idaho Legislature’s Joint Finance-Appropriations Committee, or JFAC for short.
JFAC is a powerful committee of the Idaho Legislature that sets all of the state budgets for every state agency and department. Grow and Rep. Josh Tanner, also R-Eagle, are the two co-chairs of JFAC.
Senate Minority Caucus Chair Janie Ward-Engelking, a Boise Democrat who serves on JFAC, said she strongly opposes new budget cuts, which she said will hurt the state coming this late in the fiscal year.
Idaho runs on a fiscal year calendar that begins July 1 and ends June 30 each year. That means that the current fiscal year 2026 is a little more than halfway over.
“We are already cutting into the bone on some of these agencies,” Ward-Engelking said in an interview at the Idaho State Capitol. “Half of the year is already done, so half of their budget or more has been expended, depending on if it is personnel, and we could be talking about massive furloughs. I am not in favor of this.”
Instead of cutting state agency budgets deeper, Ward-Engelking said the state should dip into its rainy day reserve funds or make implementation of the federal tax changes effective as of January 2026, not retroactive as currently proposed.
“We have rainy day funds,” Ward-Engelking said. “That’s taxpayer money that is sitting there. We seeded the clouds. We made it rain. But we can fix this.”
After the Legislature cut state revenue by approving $450 million in tax cuts and tax credits in 2025, Ward-Engelking blamed the Idaho Legislature for the budget issues dominating the 2026 session. Ward-Engelking said legislators cut taxes too deeply, which already reduced state revenue too much.
Idaho’s tax conformity bill has big implications for the state budget
Bybee circulated the memo about planning for additional budget cuts shortly after the Idaho Legislature introduced a new bill. House Bill 519, that is designed to fully adopt the federal tax changes President Donald Trump championed in the federal One Big Beautiful Bill Act.
Rep. Jeff Ehlers, the Meridian Republican who sponsored House Bill 519, estimated it would cost $155 million per year to comply with the federal tax changes. The $155 million estimate is identical to the estimate Little provided for tax conformity earlier this month when he delivered the State of the State address.
But there is a key difference between Little’s proposal to comply with the One Big Beautiful Bill Act and the plan in House Bill 519. Little structured his budget proposal so that Idaho would comply with the tax changes effective Jan. 1, 2026. But Ehlers’ bill calls for adopting the tax changes retroactively – with personal changes going back to 2025 and business changes going back to 2022.
Idaho state lawmaker proposes full adoption of ‘Big Beautiful Bill’ tax changes
That retroactive compliance could have an additional budget impact compared Little’s plan to begin compliance in 2026.
“If the Legislature is going to go ahead and put (conformity) back in 2025, that’s at least $155 million, and that wipes out that increased revenue that we tried to have,” Grow said Tuesday.
The state budget is built around revenue collections, and the largest sources of state revenue are tax collections. Cutting taxes reduces the amount of money that individuals or businesses pay and reduces the amount of revenue collected by the state to pay for programs and services in the state budget such as funding for roads and bridges, funding to fight wildfires on state land, funding for the state’s K-12 public school system and funding for the pay and benefits of more than 20,000 state employees.
The state budget has faced a revenue shortfall for fiscal year 2026 and fiscal year 2027 following five years of income tax cuts approved by the Idaho Legislature that reduced state revenue by a combined total of $4 billion, according to the nonprofit Idaho Center for Fiscal Policy.
Revenue collections rebounded in December thanks to strong corporate income tax collections that reversed the projected budget deficit for fiscal year 2026.
Grow said Friday’s deadline for agency directors to identify new cuts of 1% and 2% represents a quick timeline. But Grow said tax conformity has a big impact on the state budget, and he wants to understand the revenue impact before JFAC moves forward setting maintenance budgets for state agencies or begins cutting budgets through recissions.
Grow said approving new, additional budget cuts could allow the Idaho Legislature breathing room in the budget to conform to the federal tax cuts and still pass a balanced budget that leaves a positive ending cash balance.
“(Fiscal year) 26 has got to be strengthened as far as the bottom line,” Grow said.
The federal One Big Beautiful Bill Act includes about 39 tax changes, Idaho House Speaker Mike Moyle, R-Star, said. Some of those tax changes for individuals include no tax on workers’ overtime pay, no tax on workers’ tips, an expanded deduction for senior citizens and not interest on borrower’s car loan interest.
Additional Budget Reduction Plan IDLEG 1-26-26
Idaho Capital Sun is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Idaho Capital Sun maintains editorial independence. Contact Editor Christina Lords for questions: info@idahocapitalsun.com.
