Legislative fiscal staff warn Montanaof rising revenue volatility; recommend treating some income tax as "risky revenue"

Amy Carlson, legislative fiscal analyst, and Sam Schaeffer of the Legislative Fiscal Division told the House Finance Committee that Montanas revenue mix has become more income-tax dependent and therefore more volatile, and they presented simulations and policy options to reduce budget risk.

The analysts said the share of general revenues from individual and corporate income taxes has risen markedly over two decades, making year-to-year swings larger than in the past. "In 1 out of every 4 biennia or 1 out of every 8 years, you could expect a revenue shortfall in the vicinity of about $150,000,000," Schaeffer told the committee as he walked through simulations of historical declines converted to todays dollars. Carlson summarized the fiscal picture: "Montana right now is in a very strong financial position," but she and Schaeffer warned that the states risk is increasing.

Why it matters: the presenters said income-tax components that are most volatilenotably capital gains, partnership and business income, and certain dividend and interest receiptshave grown to make up a larger share of general revenue than in the early 2000s. Schaeffer showed that the combined share of individual and corporate income taxes rose from roughly 45% two decades ago to about 66% (and above 70% as recently as fiscal 2022), amplifying the…