State Budget Practice Report Cards and Budget Resource Guide

States that depend on revenues from natural resource production generally maintain healthy rainy day funds to help compensate for their economies’ vulnerability to volatile commodity prices. Yet until a few years ago, Montana, a major producer of coal, oil, and natural gas, did not have a formal rainy day fund and instead relied on general fund balances in its place. That changed in 2018, when the state began depositing money into the newly created Budget Stabilization Reserve Fund. Montana’s mark in reserve funds reflects this shift, which helped the state earn a B average in the category for fiscal 2017 through 2019, up from C for the previous three-year period. 

Montana’s new rainy day fund policies adhere closely to best practices cited in the recent Volcker Alliance working paper, Rainy Day Fund Strategies: A Call to Action. Like twenty other states, it ties rainy day funding to historical revenue volatility, requiring that half of revenues above its annual estimate, plus $15 million, go into the stabilization reserve. In 2021, the volatility formula will change; the fund will receive half of any revenues in excess of the average for the past six years. 

In contrast to its improving reserve funds grade, Montana averaged only a D in budget forecasting—the second-lowest mark possible. The state does not provide multiyear revenue or expenditure forecasts, and it lacks a consensus revenue estimating process. It did relatively well in avoiding one-time revenue measures, however, posting a B average in budget maneuvers.

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To emphasize the need for clear and comprehensible budgets to inform citizens, promote responsible policymaking, and improve fiscal stability, the Volcker Alliance in 2016 began a study of budgetary and financial reporting practices of all fifty states. The Volcker Alliance’s mission is to improve the effectiveness of the administration of government at all levels. Making state budgeting more transparent and accountable is an important part of that goal.

The report cards presented here are taken from the 2020 Volcker Alliance report, Truth and Integrity in State Budgeting: The Balancing Act, which proposes a set of best practices for policymakers. For those wishing to gain greater insight into state fiscal issues, the accompanying budget resource guide is derived from the Alliance publication State Budget Sources: An Annotated Guide to State Budgets, Financial Reports, and Fiscal Analyses (2016). 

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