Holdbacks, Deficits and the Balanced Budget Rule

Idaho's state government cannot run a deficit the way a household can run up a credit card, and the reason is a sentence in the Constitution. What happens when revenue comes in below what the Legislature counted on is a set of tools with different owners: the Legislature, the governor, and the State Board of Examiners. This lesson lays them out, then follows the 2025-26 holdbacks from the first memo to the latest revenue report.

What the Constitution says

Two short sections of Article VII (Finance and Revenue) do most of the work.

Section 11, "Expenditure not to exceed appropriation." It says no appropriation shall be made, nor any expenditure authorized by the Legislature, whereby the expenditure of the state during any fiscal year shall exceed the total tax then provided for by law and applicable to such appropriation or expenditure, unless the Legislature making the appropriation provides for levying a sufficient tax, not exceeding the rates allowed in section 9 of the article, to pay it within that fiscal year. The section does not apply to appropriations or expenditures to suppress insurrection, defend the state, or assist in defending the United States in time of war.

Section 13, "Money, how drawn from treasury." The whole section is one sentence: no money shall be drawn from the treasury, but in pursuance of appropriations made by law. Spending requires an appropriation.

Read together, the first limits how much the Legislature may authorize, and the second makes the Legislature's authorization necessary. Statute adds guardrails on the executive side. Idaho Code 67-3516 says appropriation acts are fixed budgets beyond which state officers, departments, bureaus and institutions may not expend. Idaho Code 67-3521 says no officer or department may encumber appropriations or make expenditures in excess of the spending authority provided by the chapter.

What the text does not say

The constitutional text does not use the words "balanced budget," does not mention the General Fund, and does not say who forecasts revenue. It speaks of the "tax then provided for by law." How cash carried in from a previous year, transfers from reserves and revenue forecasts count toward that is a matter of the Legislature's and the Division of Financial Management's (DFM) practice. Public officials describe the rule as requiring balance. Executive Order 2025-05 says Idaho balances its budget "because it is required by Article 7, Section 11," and the Economic Outlook and Revenue Assessment Committee's 2026 report says the section requires balancing appropriations and expenditures with revenues. The sources checked for this lesson did not include a court decision interpreting section 11 on these points, so this lesson does not state how a court would treat reserves or carry-in cash.

In practice, "balanced" shows up on a page. LSO's General Fund Budget Update adds beginning cash, forecast revenue and transfers, subtracts appropriations and other spending, and prints an estimated ending balance. A positive ending balance is the working definition. DFM Administrator Lori Wolff told the Idaho Capital Sun in November 2025 that the state tries to keep $200 million on the bottom line when it budgets, and after the 2026 session the reported goal was an ending surplus of about $150 million. These are targets set by people, not constitutional numbers.

Three ways a gap gets closed

Who	Tool	What it does	Legal source
Legislature	Appropriation bills, supplementals and rescissions; revenue changes; cash transfers	Writes lower or higher numbers into law. A rescission lowers the appropriation itself. Passage needs both chambers and the governor's signature or a veto override.	Const. Art. VII, secs. 11 and 13
Governor	Executive order lowering spending authority (holdback)	Temporarily lowers the amount agencies may spend. Leaves the appropriation untouched. Can be reversed by the governor.	Idaho Code 67-3512A
State Board of Examiners	Reduction of an appropriation after hearing; end-of-year transfer from the Budget Stabilization Fund	Can reduce a legislative appropriation after investigation and report of the DFM administrator, with a hearing for the agency head. Can transfer reserve money to close a fiscal year.	Idaho Code 67-3512; 57-814A

Idaho Code 67-3512A, piece by piece

The statute is one paragraph, added in 1981 and amended in 1994 and 1995. Its title is "Temporary reduction of spending authority." Taking it in order:

• Trigger. "Whenever the governor as chief budget officer of the state may determine that the expenditures authorized by the legislature for the current fiscal year shall exceed anticipated moneys available to meet those expenditures." The determination is the governor's. The statute does not set a dollar threshold, a percentage, or a required forecast.
• Instrument. The governor "by executive order may reduce the spending authority on file in the office of the state controller for any department, office or institution of the state." Executive orders are public and are posted on the governor's website.
• Protected offices. No reduction for the elected officers in the executive department may go to a level that prohibits the discharge of constitutional duties. No reduction for the legislative and judicial departments may be made without the written permission of the head of that department. That is why recent orders invite those officers to find their own savings and do not command them.
• Appeal. The head of any executive department, office or institution may appeal to the state board of examiners. After hearing and consideration of evidence, the board may restore the authority to its original level or to such lesser level as may be required to assist the state in maintaining a balanced budget. By Article IV, section 18 the board is the governor, the Secretary of State and the Attorney General.
• Floor. The governor may not temporarily reduce spending authority "to a level lower than that required to insure that state expenditures do not exceed revenues." In other words, the statute allows a cut as deep as it takes to avoid overspending, and no deeper than that.
• Not a rescission. A temporary reduction "shall not result in a reduction of appropriation." The governor "at any time" may restore the authority to its original level.

A neighboring statute, Idaho Code 67-3512, covers a different tool: reduction of a legislative appropriation by the Board of Examiners on investigation and report of the DFM administrator, with the agency head allowed a hearing. In July 2020 DFM invoked that section to ask the board to cut the public schools appropriation (see the case below). Holdbacks under 67-3512A and reductions under 67-3512 are separate tools, and news stories sometimes blur them.

The 2025-26 holdbacks, step by step

Date	What happened	Source
May 29, 2025	DFM's FY 2027 budget guidance memo (Lori Wolff) tells agencies to submit maintenance-only General Fund budgets and to prepare internal 2, 4 and 6 percent holdback scenarios for FY 2026 and FY 2027 as a contingency.	DFM budget development manual page; Idaho Capital Sun, June 18, 2025
Early June 2025	Revenue is $141.5 million below the Legislature's projections for FY 2025 (the gap was about $97.7 million through April and $141.5 million through May, per the Capital Sun's June 12 report). The 2025 session had cut revenue by about $453 million through tax cuts.	Idaho Capital Sun, June 12, 2025; Idaho Capital Sun, June 18, 2025
August 15, 2025	Executive Order 2025-05: except for K-12 public schools, all agencies reduce FY 2026 General Fund spending authority by 3 percent under 67-3512A; reviews of operations, vacant positions over six months, contracts, boards and travel; the order invites other officers to evaluate their own budgets.	EO 2025-05
September 2025	DFM tells agencies to make the 3 percent permanent in their FY 2027 plans; revised plans due to DFM October 3; vehicle and equipment replacement requests paid from the General Fund removed. Reported as needing legislative approval in January.	Boise State Public Radio
November 4, 2025	LSO tells JFAC one scenario shows a FY 2027 deficit of $555.2 million (including the holdbacks made permanent); Rep. Wendy Horman called the figure "just a projection." LSO's November budget monitor, reported by the Sun on November 14, put the FY 2026 deficit at $58.3 million.	Idaho Capital Sun
January 13, 2026	Executive Order 2026-01 repeals and replaces 2025-05, repeating the 3 percent and adding the DFM exemption authority.	EO 2026-01
January 19, 2026	JFAC adopts a $5,665.1 million FY 2026 revenue number, $152.5 million above the governor's.	JFAC minutes (lesson 4)
February 6 and 13, 2026	On Feb. 6 JFAC approves a new 1 percent cut for FY 2026 (14 to 6) and a permanent 2 percent cut for FY 2027 and beyond (13 to 7); on Feb. 13 it passes ten FY 2027 maintenance budgets with 5 percent cuts for most agencies, each by at least 12 to 8.	Idaho Capital Sun
March 2 to 16, 2026	Senate Bill 1331, the rescissions act, passes the Senate 18 to 17 (March 2) and the House 48 to 22 (March 6); the governor signs it on March 16. It cuts the FY 2026 General Fund by $131.3 million and eliminates 110 full-time positions.	Idaho Capital Sun
April 2, 2026	Sine die after 81 days. LSO's Sine Die packet estimates a FY 2026 ending balance of $106.2 million and a FY 2027 ending balance of $230.0 million. LSO's later monitors restate the Sine Die figures as $67.3 million and $148.8 million (lessons 4 and 6). The $38,873,000 FY 2026 difference equals the packet's Twenty-Seventh Payroll Fund transfer line (106,167,700 minus 38,873,000 is 67,294,700, this lesson's arithmetic), a transfer H.B. 968 allowed only if necessary and which the governor's April 8 line-item veto of that bill left in doubt (lesson 6).	LSO packet
July 17, 2026	DFM reports FY 2026 General Fund revenue of $5.684 billion against a $5.512 billion forecast.	DFM report
Late summer to October 9, 2026	LSO's August monitor projects a $657.0 million FY 2027 ending balance if revenue follows DFM's August forecast; its September monitor, dated October 9, projects $696.0 million, with first-quarter revenue $90.3 million ahead of that forecast.	LSO monitors; DFM report

What the money looks like in LSO's table

LSO's 2026 Sine Die packet shows two columns for FY 2026: the governor's revised recommendation and the legislative action. The difference between them is the holdback story in numbers. In the governor's column, line 25 shows "Temporary Reduction in Spending (Executive Order 2025-05)" as a negative $46,951,700. In the legislative column that line is zero, and the cuts appear instead as supplementals and rescissions: the FY 2026 Idaho Budget Rescissions Act at $79,357,700 below, a public schools support unit decrease of $22,366,500, and a State Board of Education "Empowering Parents" reduction of $29,597,600. Adding those three (79,357,700 + 22,366,500 + 29,597,600) gives $131,321,800, the $131.3 million that press reports used for the 2026 cuts. The addition is this lesson's arithmetic from LSO's table. The legislative column then shows an estimated FY 2026 ending balance of $106,167,700 (net revenues of $5,753,538,900 minus total estimated expenditures of $5,647,371,200). The governor's column ended at $32,175,300 (5,694,867,100 minus 5,662,691,800).

Two lessons come from that table. A holdback shows up in the budget documents as a line, so you can look it up. And the Legislature, when it acts, replaces the temporary reduction with a permanent change in the bill. The 2026 rescissions act is that step.

Earlier holdbacks: 2008, 2009 and 2020

The 2025 action was not Idaho's first. Three earlier episodes show how the tool has been used, and what changed.

When	Governor	What was ordered	Schools and others
September 26, 2008 (FY 2009)	C.L. "Butch" Otter	A 1 percent state budget holdback plus a request to hold 1.5 percent of appropriated budgets in reserve. Reported revenue forecasts pointed to a possible shortfall of more than $174 million below the winter's projections.	The Idaho Transportation Department was not affected because it is funded by dedicated sources, mainly fuel taxes and fees. JFAC co-chairs Sen. Dean Cameron and Rep. Maxine Bell supported the action.
December 5, 2008	Otter	An additional 3 percent holdback, plus 2 percent more held in reserve, for a total 4 percent holdback for the year. Agencies told to prepare FY 2010 budget requests accordingly.	The announcement called it a necessary step to meet a constitutional requirement to balance the state budget. Agency plans due Dec. 8.
September 25, 2009 (FY 2010)	Otter	A 4 percent across-the-board cut announced for the current fiscal year, covering about two thirds of a $151 million shortfall, with agencies sorted into tiers: critical and constitutionally required services mostly 2.5 to 5 percent, essential services mostly 6 percent, others mostly 7.5 percent.	Public schools were protected: $49.3 million was taken from the Public Education Stabilization Fund to cover what would have been a 4 percent mid-year cut to schools. The Spokesman-Review reported the state had $274 million in reserves, and the Senate minority leader argued that more of it should be used.
July 1, 2020 (FY 2021)	Brad Little	Executive Order 2020-14 cut each agency's FY 2021 General Fund spending authority by 5 percent under 67-3512A, citing Article VII, section 11 and COVID-19. Agencies notified the State Controller and DFM by July 15. No dollar total in the order.	DFM anticipated an FY 2021 revenue decrease of $350 million to $595 million. For public schools, DFM asked the Board of Examiners on July 16 to reduce the FY 2021 appropriation by 5 percent under 67-3512, $98,707,300 moved to the General Fund until the Legislature could convene. The Superintendent and the State Board of Education supported that plan as the least disruptive. $91,177,935 in federal CARES Act money was allocated to schools to offset reductions.

Sources: ITD Transporter pages (Sept. and Dec. 2008), Spokesman-Review (Sept. 25, 2009), EO 2020-14, State Controller Board of Examiners publication (July 2020). The 2008 releases did not give executive order numbers; the sources describe the actions as the governor ordering or announcing them. The Board of Examiners documents in the State Controller's copy do not record the board's decision; the Idaho Press reported that the board approved the schools portion of the 2020 holdback unanimously and that lawmakers still had to act in January.

Three things differ across the episodes. The size: 4 percent in 2008-09, 4 percent in 2009 (with tiers), 5 percent in 2020, 3 percent in 2025. The treatment of schools: protected by a reserve transfer in 2009, cut by 5 percent through the Board of Examiners in 2020, and exempted from the executive order in 2025. And the follow-up: in 2020 the schools reduction ran through the Board of Examiners (the DFM letter lists the reduced amounts for each of the six public school appropriation bills, House Bills 626 to 631); in 2026 the Legislature passed the rescissions act.

What happened to revenue afterward also differed. The Legislative Budget Book's table of General Fund revenue (sourced to the Legislative Fiscal Reports and DFM) shows FY 2021 at $5,009,093,906, up 22.2 percent from $4,097,525,200 in FY 2020, which is far from the decline DFM anticipated in July 2020. FY 2026 also closed above DFM's forecast ($5.684 billion against $5.512 billion; LSO's year-end monitor counts $5,675.5 million, so the two offices' totals differ by $8.8 million, and this module cites each with its source). A holdback is a decision made on a forecast. When revenue beats the forecast, the cuts look larger than needed after the fact. When revenue misses, they look too small. That is a reason to evaluate the decision with the information available on the date it was made, and to keep the later outcome as a separate question.

Who is exempt, and who decides

Group	Treatment in 2025-26	Source
K-12 public schools	Exempt from the 3 percent holdback in EO 2025-05 and EO 2026-01. The Legislature still reduced the public schools support unit line by $22,366,500 in the FY 2026 supplemental.	EOs; LSO packet
Medicaid, Idaho State Police, Department of Correction	Exempt from the additional 1 percent in the 2026 rescissions act and from the 5 percent FY 2027 maintenance cuts, per reporting.	Idaho Capital Sun, Mar. 17 and Feb. 13, 2026
Constitutional officers (elected), legislative and judicial branches	Invited to find their own savings. Statute bars cutting elected officers below constitutional duties and requires the written permission of the legislative and judicial heads.	67-3512A; EOs
Agencies the DFM administrator exempts	EO 2026-01 authorizes the administrator to exempt agencies as necessary to balance the FY 2026 budget.	EO 2026-01, para. 5
Dedicated-fund agencies	A General Fund holdback does not reach dedicated funds. In 2008 ITD said it was unaffected because it is funded by fuel taxes and fees.	ITD Transporter, Sept. 2008

The order's recitals say state support for public schools has never been higher, with a 63 percent increase in General Fund appropriations over six years, and DFM Administrator Lori Wolff wrote in June 2025 that public education and teacher pay would remain the governor's top priorities. Idaho Education Association President Layne McInelly called the holdbacks "very unfortunate and completely predictable" and said excluding public schools showed the governor's role as a defender of public education. The statute itself says nothing about schools, which are covered by separate funding statutes.

What agencies actually cut

The executive order asked for process changes before percentages: review operations and consider consolidation, eliminate positions vacant for more than six months, take inventory of contracts that grew faster than inflation, review the number of boards and commissions and their meetings, review travel, and report unobligated dedicated fund cash balances. The order's reviews feed later budget requests as well as the current year.

Specific agency examples show the range. Idaho Department of Lands Director Dustin Miller told the Idaho Capital Sun on August 19, 2025 that the cut applied to the department's General Fund portion, that "nothing's been finalized," and that the department would keep strong initial attacks on wildfires. IDL cut its FY 2027 request from a planned $1.9 million in enhancements and three new positions to $16,600 in new ongoing General Fund spending, a 0.14 percent increase, for inflation and a 1 percent pay increase for timber protection associations. Miller called it a maintenance budget only. In February 2026, DFM Administrator Wolff joined state agency directors in warning that the new across-the-board cuts were unnecessary and could do lasting harm, and reports listed possible effects they warned about: delayed tax refunds, fewer seasonal firefighters, less water quality testing, fewer mental health courts. JFAC then restored some items before the governor signed: seasonal firefighter funding for the Department of Lands ($265,200, according to the Capital Sun), career technical education for rural schools, some Idaho National Guard tuition benefits and Tax Commission funding to process returns.

The 2026 rescissions act eliminated 110 full-time positions, per the Sun. The count, like the dollars, is a number to check against LSO's agency detail before repeating.

Legal limits and disputes

What the law fixes: the trigger is the governor's determination about the current fiscal year, the tool is an executive order, the reduction is of spending authority and not of the appropriation, constitutional officers and the legislative and judicial branches have protections, agency heads may appeal to the Board of Examiners, and the governor may not cut below what is needed to keep spending within revenue.

What the statute leaves open, and where disagreement shows up:

• Permanence. The statute calls the reduction temporary and tied to the current fiscal year. Making it "permanent" for FY 2027, as DFM's September 2025 memo did for budget planning, means agencies prepared FY 2027 requests on the lower base, and the Legislature then decided the actual FY 2027 numbers. Boise State Public Radio reported that the order would need legislative approval.
• Breadth versus targeting. Sen. Kevin Cook said in February 2026, "We are passing something today that has the potential to break the state, and you know that," and on February 6 called the across-the-board approach "taking a chainsaw to the budget." Other members voted for across-the-board cuts as the way to balance the budget.
• Necessity. DFM Administrator Wolff joined agency directors in warning in February that the additional across-the-board cuts were unnecessary and could do lasting harm to core programs. Senate Minority Leader Melissa Wintrow said the cuts would hurt families. Senate President Pro Tempore Kelly Anthon said when the August 2025 order was signed, "Idaho's leaders are laser focused on making sure taxpayers are getting the most bang for their buck," JFAC co-chairs Scott Grow and Josh Tanner said in February the cuts make room for the federal tax cuts and build structural balance, and Republican leaders said in April 2026 the cuts were needed because of revenue uncertainty and federal tax conformity. House Majority Leader Rep. Jason Monks called the rescissions bill a necessary bill.
• Cause. Democratic legislators pointed to about $4 billion in state income tax cuts over five years, citing the Idaho Center for Fiscal Policy. Republican leaders pointed to revenue uncertainty and to the cost of conforming to federal tax law. LSO's table of 2026 legislation with fiscal impact shows H.B. 559 costing $155 million in FY 2026 and $175 million in FY 2027 (see lesson 7).
• Court tests. This lesson found no reported Idaho court decision or formal opinion interpreting 67-3512A in the sources searched. That is a statement about what was checked, not a claim that none exists.

Questions and answers

What exactly is a holdback?

A temporary reduction in an agency's spending authority, ordered by the governor under Idaho Code 67-3512A. The agency still has its appropriation on the books, but it may spend only the reduced authority on file with the State Controller.

Is a holdback the same as a veto?

No. A veto applies to a bill before it becomes law. A holdback applies to money already appropriated for the current fiscal year, and it must follow the statute's conditions.

How long does a holdback last?

The statute calls it temporary and the governor may restore the authority at any time by executive order. EO 2025-05 applied to FY 2026, which ended June 30, 2026. DFM's September 2025 memo carried the 3 percent into FY 2027 budget planning, and the Legislature set the actual FY 2027 amounts.

Why did the Legislature pass a rescissions act if the governor had already ordered a holdback?

The holdback does not change the appropriation. The rescissions act (Senate Bill 1331) changed the appropriations in law, and added 1 percent beyond the 3 percent for most agencies in FY 2026. The 5 percent cuts for FY 2027 were written separately, into the FY 2027 maintenance budgets JFAC passed in February. LSO's table shows the holdback line replaced by the rescissions.

Can an agency head object?

Yes. Under 67-3512A the head of an executive department, office or institution may appeal to the Board of Examiners, which can restore the authority in whole or in part. The documents checked for this lesson did not report an appeal in 2025 or 2026.

Does a holdback apply to federal money or fees?

EO 2025-05 reduces General Fund spending authority. Federal and dedicated funds are separate funds. In 2008 the Idaho Transportation Department said it was unaffected because it is funded by dedicated sources.

What is the Budget Stabilization Fund's role?

Idaho Code 57-814 says the fund is for meeting General Fund revenue shortfalls and expenses from a major disaster declared by the governor. A separate section, 57-814A, lets the Board of Examiners transfer money from it at the end of a fiscal year if General Fund money is insufficient to meet authorized appropriations, limited to the lesser of the insufficiency or one half of one percent of the year's original General Fund appropriations, and the transfer must be addressed in the governor's next executive budget. For FY 2026 that cap would be about $28.1 million (0.005 x $5,623,940,500, this lesson's arithmetic). Lesson 6 covers reserves.

What happens at the end of the fiscal year to money agencies did not spend?

Under Idaho Code 67-3521, encumbrances for legally contracted obligations may carry forward as executive carry forward, and carry forward not paid in the next year reverts to the fund it came from unless DFM extends it. LSO's April 2026 packet lists $31.5 million of executive carry forward and $12.1 million of reappropriation going into FY 2026.

Hard questions

"Is it fair for a governor to cut what the Legislature funded?"

The Legislature wrote 67-3512A in 1981 and amended it in 1994 and 1995, so the power is statutory and long standing, and it includes limits: protection for constitutional officers, consent for the legislative and judicial branches, an appeal, a floor, and the temporary label. People who defend holdbacks say they let the state react in the middle of a year when the Legislature is not in session. People who question them say they let the executive change spending the Legislature set, and in 2026 JFAC and the Senate chose to write cuts into law instead. The sources checked here did not show a court deciding the question, so the fair answer is that the statute grants the power with those limits and the Legislature can override the choice by law.

"Were the cuts needed, or a choice?"

Both framings appear in the record. Revenue was running below the Legislature's projection in 2025 (a $141.5 million gap by early June 2025), the 2025 session had passed tax cuts costing over $450 million, and the 2026 session added the cost of federal conformity ($155 million in FY 2026). Republican leaders said cuts were needed to balance the budget and keep a cushion. Democratic leaders said the shortfall was created by tax policy and that cuts hurt families. DFM's administrator said the 1 percent added in March was unnecessary. DFM's July report shows FY 2026 closing $171.9 million above its forecast, and the first quarter of FY 2027 is ahead of the August forecast. Whether those later results show the cuts were unneeded depends on whether you judge by what was known in February 2026 or by what happened after. The documents show the decisions and the results. They do not settle that judgment.

"Why exempt schools from the holdback but cut their budget anyway?"

The executive order exempted K-12 from the 3 percent. LSO's table shows a public schools support unit decrease of $22,366,500 in the FY 2026 supplemental, which is a separate legislative action, and the March act's additional 1 percent also did not apply to K-12, according to reporting. The Idaho Education Association criticized the holdbacks while noting the schools exclusion. Lesson 9 and the school boards module explain how state school funding works.

"If Idaho must balance its budget, why hold billions in reserves?"

Reserves exist so that a revenue shortfall does not force immediate cuts. The Budget Stabilization Fund's stated purpose is meeting General Fund revenue shortfalls, and in 2009 a Public Education Stabilization Fund transfer of $49.3 million protected schools from a mid-year cut. Others argue reserves should be used before agencies are cut, and others argue that preserving reserves protects against a bigger downturn. In March 2026, Sen. Wintrow proposed delaying or undoing tax cuts or using reserves instead of further cuts, per the Idaho Capital Sun. How reserves count toward Article VII, section 11 is not spelled out in the constitutional text, and this lesson found no court ruling on it.

"Does the 2026 election change any of this?"

The governor and the Legislature are elected in November 2026 and the next session starts in January 2027. On October 6, 2026 the Democratic candidate for governor, Terri Pickens, said she would present a budget restoring last year's cuts if elected, according to the Idaho Capital Sun's October 9 report. Gov. Little said in a written statement, "we must remain disciplined and make spending decisions based on what we can responsibly sustain." What the 2027 Legislature does with the FY 2027 supplementals and FY 2028 budgets will be recorded in LSO's budget documents, which is where to check.