Legislative fiscal staff warn of shrinking structural balance; DPHHS supplemental and paused provider-rate increases eyed

The Legislative Finance Committee heard on Friday that Montana’s General Fund balance remains above the statutory 8.3% operating target but faces a looming structural gap and uncertainty tied to April tax filings and federal tax-law changes.

Nick Van Brown of the Legislative Fiscal Division told members the ending fund balance is about $364.3 million after a $2.1 million ACFR true‑up, but that ongoing revenues versus ongoing expenditures show a shortfall beginning in FY2027 (about $35.8 million in the Division’s baseline). "This remains a concern as it is negative," Van Brown said.

Sam Schaeffer, the Division’s lead revenue analyst, said ongoing general‑fund revenues have grown 6.4% through February but that much of that gain reflects the re‑inclusion of Treasury interest earnings; excluding that, growth is closer to 2.4%. He warned that withholding — a large and early indicator of wage‑driven receipts — has slowed to 4.5% and will be especially sensitive to the implementation of House Bill 337’s income‑tax reductions and to the federal tax changes known as HR1. "April's coming up — it will be, I think, a more volatile April than what is typical in a tax season," Schaeffer said, noting that April receipts could change year‑end outcomes materially.

On the expenditure side, the governor’s budget office has notified the LFD and the committee of a potential supplemental to close FY2026 and prepare for FY2027 pressures. Ryan Evans, assistant director in the governor’s budget office, said the supplemental request centers on Medicaid program shortfalls and the Montana State Hospital. He described an executive mitigation plan that includes greater use of state special revenue balances and said, "all options are on the table," including not implementing planned FY27 provider rate increases adopted by the Legislature last session.

Committee members and outside commenters pushed back on pausing or rescinding provider increases. Representative Gillette (section B chair) and other lawmakers acknowledged the shortfall’s complex origins — FMAP reductions, higher utilization after rate changes, and late‑session amendments that shifted costs — and described mitigation choices as difficult.

Provider groups and associations urged the committee in public comment to avoid rate reductions that would shrink provider capacity and limit access for Medicaid patients. "These are the folks in your community that are the front line that keep people from going into higher levels of care," one commenter said, asking for more transparent consultation before any rate decisions.

The committee did not take a formal vote on supplemental acceptance; staff said the LFC has a 90‑day window from receipt to issue a report or return comment to the governor. LFD staff said they will produce a full analysis in the coming weeks and recommended the committee schedule a May meeting timed with improved April tax data to consider its formal response.