Standard & Poor's affirmed its AA rating and stable outlook on Montana's $183 million of general obligation bonds.

"Despite currently softer revenue performance and projections of lower reserve levels, the state is likely to maintain good reserve levels given its history of budgetary conservatism and willingness to make necessary expenditure reductions," said analyst Paul Dyson. "The state's economy has been spared the brunt of the national economic downturn, and sources indicate the state will be one of the first in the U.S. to return to peak employment."

Montana had unaudited general fund reserves of $383 million, or 22% of expenditures, at the end of fiscal 2009. The state also has a $789 million coal-severance fund, or rainy-day fund, that equals 45% of general fund expenditure.

That's not to say the state's been entirely immune to the economic downturn. Like other states with big energy sectors, it has seen revenues decline with commodity prices. Annual revenues fell 11% to $1.74 billion in fiscal 2009 due to weaker-than-expected natural resource and personal income tax collections.

While the state expects spending to be flat in the current 2009-11 biennium, declining revenue could create a $243 million shortfall over the period, according to Standard & Poor's. Through the first five months of fiscal 2010, individual income taxes were $51 million, or 17%, percent below budget.

Despite the revenue declines, Montana's economy remains one of the strongest in the nation. The state "lacked a significant housing bubble" during the boom, Dyson said. Its jobless rate was 6.4% in October, the fourth lowest among the states.

"Even though the Montana economy was unable to completely shield itself from the national recession, the outlook for Montana is much brighter than that of other states," Dyson said.

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