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State Brief: Montana


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State Brief: Montana

Rating History
Date Action Rating Outlook
Sept. 11, 2020 Affirmation AA Stable
May 5, 2008 Rating upgrade AA Stable
June 28, 2007 Outlook change AA- Positive
Feb. 15, 1994 Outlook change AA- Stable
Aug. 26, 1992 Outlook assigned AA- Negative
Oct. 22, 1986 Rating downgrade AA-

The effects of the COVID-19 pandemic have been less acute on Montana's economy and budget relative to other states. At the same time, the state's strong reserves, very low debt, and history of active budget management practices along with the governor's ability to make midyear budget cuts when needed will aid the state in addressing lingering economic headwinds or slower-than-forecast revenue growth heading into the fiscal 2022-2023 biennium.

Montana outperformed revised fiscal 2020 revenue estimates with only a 1.6% decline in general fund revenue, and ended with a strong $452.5 million in general fund reserves and $118.0 million in the budget stabilization reserve fund, equaling 24% of annual expenditures, and estimates higher unassigned balances totaling $720 million at June 30, 2021, based on unaudited results. Montana reported a $164.4 million surplus, on a budgetary basis, at fiscal year-end June 30, 2020, and a larger operating surplus in fiscal 2021 primarily as a result of better-than-anticipated revenue collections.

The state received $1.25 billion from the CARES Act and $906 million from the American Rescue Plan Act.

We consider Montana's environmental and social risks higher than those of other states. However, we view the state's governance risks as in line with the sector. Environmental risks stem from the state's concentration in the coal, oil, and gas industry and the potential for increasing economic challenges as utilities transition to renewable energy sources. The state's susceptibility to wildfires, which have led to budget pressures in the recent past, also contributes to its environmental risks. We view Montana's social risks as slightly higher than those of other states given an age dependency ratio that is substantially above the national average.

Biennium 2022-2023 Budget Highlights

  • The general fund balance is budgeted to improve to $379.6 million in 2023 from $277.0 million in fiscal 2021as a result of higher revenue estimates, lower spending on Medicaid, and other budgeted savings, which are estimated to equal 14.0% of expenditures in 2023, or 18.7% with inclusion of the $121 million budget stabilization reserve fund funded at its maximum.
  • With the federal aid and vaccine progress, general revenue is expected to rebound to $2.75 billion in 2023, resulting in a $53.8 million surplus, following projected revenue growth of 1.4%, 3.0%, and 4% in fiscal years 2021 through 2023, sequentially.

What We're Watching

  • While we expect Montana to sustain steady budgetary performance into the fiscal 2022-2023 biennium, any conditions that cause structural imbalanced budgets to form and prompt the state to substantially deplete reserves--as a result of dampened revenue growth, a more severe drop-off in federal relief funding, or otherwise--without a plan for replenishment could challenge our view of credit quality.
  • Montana's continued economic dependence on cyclical sectors, including natural resources, agriculture, and tourism, along with the oil and natural gas sectors, which are particularly sensitive to commodity prices.

Credit Fundamentals

  • Improved reserves that provide flexibility to withstand temporary revenue shortfalls
  • Government framework that requires Montana to adopt a balanced budget and provides the governor some flexibility to reduce spending across agencies within the biennium to maintain structurally stable fiscal results
  • Low debt burden, at $130 per capita and 0.2% of personal income, coupled with rapid debt amortization, which keeps fixed costs manageable.

Historical Financial Data
Mil. $ unless otherwise noted
Audited GAAP basis 2020 2019 2018
General fund revenue 2,443 2,450 2,265
General fund expenditures 2,305 2,274 2,220
Net transfers and other adjustments 10 64 83
Net general fund operating surplus (deficit) 148 241 128
Total general fund balance 593 443 199
Budget reserve* 570.5 358 187
% of general fund budget expenditures 24.1 14.8 8.2
*Budget stabilization reserve fund established in 2019 biennium.

This report does not constitute a rating action.

Primary Credit Analyst:Sussan S Corson, New York + 1 (212) 438 2014;
Secondary Contacts:Ladunni M Okolo, Dallas + 1 (212) 438 1208;
Kayla Smith, Centennial + 1 (303) 721 4450;

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