For the past two weeks, we’ve been discussing how the state invests its resources. However, equally as important is where those dollars originate. So this week we focus on - revenue.
The idea of revenue is an easy one – it's the money coming into the state to invest on a wide range of government services. If it was an individual, it would be our income. There are three main sources of revenue in Montana – general fund, federal, and state special.
In previous posts, we stated that the general fund makes up nearly 40% of Montana’s budget. Half of these funds come from income tax. The rest comes from video gaming tax, insurance premiums tax, oil and gas taxes, vehicle tax, corporation license tax, and property taxes.
But there are more types of revenue besides state taxes. Federal funds make up the biggest portion of overall revenue for Montana. In FY13, an estimated $2.14 billion, or more than 40%, of the state budget came from federal government. The federal government provides money to states to re-invest in specific programs. Sometimes these dollars are highly restricted, but other times they allow Montana to be more responsive to the needs of our state. Often, the state is required to pay a portion of the program costs by matching the federal dollars with state dollars. For example, states are required to match a percentage of federal Medicaid dollars to support our low-income neighbors. According to the Legislative Fiscal Division, federal revenues support 86% of the funding for Medicaid in Montana. Montana’s general fund supports 13%, and state special funds (explained in the next paragraph) account for less than 1%.
The third revenue stream is state special revenue. In FY13, an estimated $1.1 billion, or 21%, of total state spending came from state special revenue accounts. State special revenue accounts are funded by specific taxes or fees that must be used for specific and purposes. Montana has hundreds of state special revenue accounts. For example, Montana has a table wine tax. Thirty-one percent of the proceeds from that tax are deposited into a state special revenue account to fund Department of Public Health and Human Services programs for treating and preventing alcoholism.
Knowing where Montana’s funding comes from is just as important as knowing how the legislature invests it. Tomorrow, the Center on Budget and Policy Priorities will release an analysis on best practices for estimating revenue in the states. So we will continue on this important topic tomorrow with a bonus wonky word – revenue estimate – and will discuss how Montana can improve our process.
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MBPC is a nonprofit organization focused on providing credible and timely research and analysis on budget, tax, and economic issues that impact low- and moderate-income Montana families.