Montana's budget outlook: Strong today, planning for tomorrow

Montana enters the next budget cycle in one of the strongest fiscal positions in recent history. State revenues remain healthy, the economy continues to expand, and the Montana Legislative Fiscal Division (LFD) projects that the state will continue to meet its constitutional requirement to maintain a balanced budget. This outlook follows several years of significant tax reform that reduced individual income tax rates while simplifying the state's tax code. 

The Legislative Fiscal Division projects approximately $7.1 billion in ongoing General Fund revenue during the 2029 biennium, exceeding the estimated baseline budget of $6.438 billion, even after accounting for present-law adjustments and identified spending pressures. Montana is expected to remain structurally balanced under current law. This strong outlook is particularly notable given the substantial tax relief enacted over the past decade, including reforms that reduced the number of individual income tax brackets from seven to two and lowered the state's top marginal rate from 6.9% to 5.4%.

Montana's fiscal strength has been supported by a growing economy. The state ranked 15th nationally in real GDP growth during 2025, while personal income has grown faster than the national average since 2000, significantly narrowing Montana's historical income gap with the rest of the country. That growth has translated into stronger tax collections. Between fiscal years 2014 and 2024, individual income tax collections increased from approximately $1.06 billion to $2.24 billion, while corporate income tax collections grew from $147.6 million to $312.3 million; both increasing by more than 111% over the decade. 

The composition of Montana's economy is also evolving. Investment income, retirement income, and business earnings now account for a larger share of personal income than in previous decades, while wage growth continues to trail national averages. These shifts are reflected in Montana's revenue system, where individual and corporate income taxes account for a much larger share of General Fund revenue than they did twenty years ago. Although these changes have contributed to recent revenue growth, they also suggest that a larger share of state revenues is tied to income sources that may fluctuate more with broader economic conditions.

Demographic trends reinforce this changing fiscal landscape. More than 220,000 Montanans are retired, representing roughly 24% of the state's population over age 16. Birth rates continue to decline, making future population growth increasingly dependent on migration rather than natural increase. Although Montana experienced unprecedented migration during and immediately following the COVID-19 pandemic, the Legislative Fiscal Division reports that migration has largely returned to pre-pandemic levels.

These demographic changes help explain many of the workforce challenges identified in the outlook. Labor force participation among prime working-age adults remains relatively strong, suggesting that labor shortages stem less from declining workforce participation than from an aging population and slower workforce growth. Rather than signaling economic weakness, these trends point to an economy that is maturing, with demographic shifts likely to play a greater role in shaping future growth. 

Looking ahead, the Legislative Fiscal Division projects General Fund revenue growth will return to more historically typical levels following the extraordinary gains experienced during the pandemic years. These projections remain positive but suggest policymakers should not expect the unusually rapid revenue growth of recent years to continue indefinitely.

The outlook also identifies several areas where expenditures are expected to increase. Beyond the baseline budget, approximately $1.78 billion in additional known expenditure pressures have been identified. School funding accounts for roughly $1.47 billion, followed by wage pressures, healthcare costs, and employee benefits. These increases largely reflect the natural costs of a growing state while reinforcing the importance of maintaining the disciplined budgeting practices that have contributed to Montana's fiscal stability.

Another notable finding is Montana's reliance on federal funding.  Federal transfers accounted for 44% of state spending in fiscal year 2025, supporting major programs including Medicaid, transportation, education, and other essential public services. The Congressional Budget Office estimates the federal government recorded a $1.8 trillion deficit in fiscal year 2025, with continued deficits projected under current law. Recognizing this uncertainty, the Legislative Fiscal Division presents a scenario estimating that proportional federal spending reductions could expose the state to approximately $1.7 billion in fiscal risk by FY 2031. 

Recent reforms have improved the state's overall tax competitiveness while maintaining balanced budgets and record revenue collections. As neighboring states continue modernizing their tax systems and many adopt flat income tax structures, Montana's favorable fiscal position provides policymakers with the flexibility to evaluate additional reforms from a position of strength rather than necessity. Future discussions about tax competitiveness, including the potential role of a flat income tax, are therefore best understood within the broader context of Montana's sustained economic growth and disciplined fiscal management.

Montana’s budget outlook highlights an economy that is changing, a population that is aging, and a tax base that continues to evolve. Montana's prudent fiscal management and tax reforms to improve economic competitiveness have positioned the state well. Future budgets will increasingly be shaped by demographic trends, changing revenue sources, expenditure growth, and uncertainty surrounding federal policy.

Understanding these long-term budget drivers will help ensure Montana remains both fiscally resilient and economically competitive in the years ahead.