State of Montana Financial Audit for the Fiscal Year Ended June 30, 2020 (Legislative Audit Division 20-01A)
Summary
The Montana Legislative Audit Division's financial audit of the State of Montana for the fiscal year ended June 30, 2020 (report 20-01A, February 2021) covers the state's basic financial statements and its Schedule of Expenditures of Federal Awards. The division issued unmodified opinions on the 11 opinion units in the basic financial statements and an unmodified opinion on the schedule in relation to them. In fiscal year 2020 the state received $1.25 billion from the United States Treasury through the Coronavirus Relief Fund authorized by the CARES Act. The report contains no audit recommendations.
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A REPORT
TO THE
MONTANA
LEGISLATURE
FINANCIAL AUDIT
State of Montana
For the Fiscal Year Ended
June 30, 2020
FEBRUARY 2021
LEGISLATIVE AUDIT
LEGISLATIVE AUDIT
COMMITTEE
REPRESENTATIVES
Kim ABBOTT
Kim.Abbott@mtleg.gov
DAN BARTEL
Danbartel2@gmail.com
DENISE HAYMAN, CHAIR
Denise. Hayman@mtleg.gov
EMMA KERR-CARPENTER
Emma.KC@mtleg.gov
TERRY MOORE
terry.moore@mtleg.gov
Matt REGIER
Matt.Regier@mtleg.gov
SENATORS
JASON ELLSWORTH, VICE CHAIR
Jason.Ellsworth@mtleg.gov
JOHN Esp
Johnesp2001@yahoo.com
PAT FLOWERS
Pat.Flowers@mtleg.gov
TOM JACOBSON
Tom.Jacobson@mtleg.gov
ToM McCGILLVRAY
Tom.McGillvray@mtleg.gov
Mary McNALLY
McNally4MTLeg@gmail.com
MEMBERS SERVE UNTIL A
MEMBER'S LEGISLATIVE TERM
OF OFFICE ENDS OR UNTIL A
SUCCESSOR IS APPOINTED,
WHICHEVER OCCURS FIRST.
§5-13-202(2), MCA
FINANCIAL AUDITS
Financial audits are conducted by the Legislative Audit Division
to determine if the financial statements included in this report
are presented fairly and the agency has complied with laws and
regulations having a direct and material effect on the financial
statements. In performing the audit work, the audit staff uses
standards set forth by the American Institute of Certified Public
Accountants and the United States Government Accountability
Office. Financial audit staff members hold degrees with an
emphasis in accounting and many staff members hold Certified
Public Accountant (CPA) certificates.
The Single Audit Act Amendments of 1996 and the Uniform
Administrative Requirements, Cost Principles, and Audit
Requirements for Federal Awards require the auditor to issue
certain financial, internal control, and compliance reports in
addition to those reports required by Government Auditing
Standards. This individual agency audit report is not intended
to comply with these reporting requirements and is therefore
not intended for distribution to federal grantor agencies. The
Legislative Audit Division issues a statewide biennial Single Audit
Report which complies with the above reporting requirements.
The Single Audit Report for the two fiscal years ended June 30,
2019, was issued March 30, 2020. The Single Audit Report for the
two fiscal years ended June 30, 2021, will be issued by March 31,
2022.
AUDIT STAFE
FRAUD HOTLINE
(STATEWIDE)
1-800-222-4.4.4.6
(IN HELENA)
444-4446
LADHotline@mt.gov.
www.montanafraud.gov
STEVEN ALTHOFE
COURTNEY JOHNSON
KAREN E. SIMPSON
GLENDA G. WALDBURGER
JENNIFER ERDAHL
KATIE MAJERUS
SHANDELL VANDONSEL
FLORA WASKE
Reports can be found in electronic format at:
https://leg.mt.gov/lad/audit-reports
LEGISLATIVE AUDIT DIVISION
Angus Maciver, Legislative Auditor
Deborah F. Butler, Legal Counsel
Deputy Legislative Auditors:
Cindy Jorgenson
William Soller
February 2021
‘The Legislative Audit Committee
of the Montana State Legislature:
This financial audit report contains our Independent Auditor’s Report on the basic financial statements
(BFS) and the Schedule of Expenditures of Federal Awards (SEFA) of the state of Montana for the
fiscal year ended June 30, 2020. The BFS were prepared by the State Financial Services Division of
the Department of Administration. The SEFA was prepared by the Governor's Office of Budget and
Program Planning.
We issued an unmodified opinion on the SEFA in relation to the amounts presented in the BFS. We also
issued unmodified opinions on the 11 opinion units included in the BFS, as described in the Independent
Auditor’s Report on page A-5. This means a reader may rely on the information presented in the BFS.
‘The report also contains our Report on Internal Control Over Financial Reporting and on Compliance
and Other Matters Based on an Audit of Financial Statements. This report is required by Government
Auditing Standards. The report includes one significant deficiency in internal controls that is a continuation
of a control deficiency previously reported in fiscal year 2019 Statewide Audit report (19-01), related
to internal controls over eligibility determinations for the Medicaid and Children’s Health Insurance
Program (CHIP). Additionally, the report addresses material noncompliance for three retirement systems
that are not actuarially sound as required by the Montana Constitution and state law.
Department of Administration and Governor’s Office officials reviewed the contents of this report.
The Department of Administration’s response is on page B-1, and the Governor's Office response is on
page B-2. The report also includes a response from the Department of Public Health and Human Services,
on page B-3, related to the significant deficiency in internal controls over eligibility determinations for
Medicaid and CHIP.
We thank the Department of Administration’s director, the State Financial Services Division staff, and
the Governor’s Office staff for their cooperation and assistance throughout the audit.
Respectfully submitted,
/s/ Angus Maciver
Angus Maciver
Legislative Auditor
Room 160 ¢ State Capitol Building * PO Box 201705 * Helena, MT * 59620-1705
Phone (406) 444-3122 * FAX (406) 444-9784 ¢ E-Mail lad@mt.gov
ii
Montana Legislative Audit Division
ELECTED, APPOINTED, AND ADMINISTRATIVE OFFICIALS
State of Montana
Department of
Administration
Governor’s Office of
Budget and Program
Planning
Greg Gianforte, Governor (as of January 4, 2021)
Steve Bullock, Governor (through January 3, 2021)
Misty Ann Giles, Director (as of January 2021)
John Lewis, Director (through December 2020)
State Financial Services Division
Cheryl Grey, CPA, Administrator
State Accounting Bureau
Cody Pearce, CPA, State Accountant
State Accounting & Financial Reporting Section
Frank Cornwell, CPA, Manager
Michael Aune, Accountant
Elisabeth Campbell, Accountant
Brian Feller, CPA, Accountant
Wenruzi Koch, CPA, Accountant
Courtney Cozzie, Accountant (through October 2020)
Kurt Alme, Budget Director (as of January 4, 2021)
Tom Livers, Budget Director (through January 3, 2021)
Sonia Powell, CPA, Single Audit Coordinator
For additional information concerning the basic financial statements,
contact:
Cody Pearce, CPA, State Accountant
State Financial Services Division
Department of Administration
Rm 255, Sam W. Mitchell Building
Helena, MT 59620-0102
email: cpearce@mt.gov
For additional information concerning the Schedule of Expenditures of
Federal Awards, contact:
Sonia Powell, CPA, Single Audit Coordinator
Governor’s Office of Budget and Program Planning
P.O. Box 200802
Helena, MT 59620-0802
email: SoniaPowell@mt.gov
BACKGROUND
In accordance with state
law, the Department of
Administration (department)
prepares the Basic Financial
Statements (BFS) for the
state of Montana. The BFS
provide Legislators, citizens,
and other interested parties
with a summary of the state’s
overall financial position as
of June 30, 2020, as well
as financial information on
all operations and activities
of state government for the
fiscal year then ended.
The Governor’s Office
of Budget and Program
Planning prepares the
Schedule of Expenditures
of Federal Awards (SEFA),
as required by federal
regulation. The SEFA
reports total federal grant
expenditures for the fiscal
year ended June 30, 2020, of
approximately $4.99 billion,
including noncash assistance
amounts and loan amounts
for certain programs.
REPORT SUMMARY
FINANCIAL AUDIT 20-01A FEBRUARY 2021
Mon TANA LEGIsLaTIve AupiT DIvIsION
State of Montana
For THE FISCAL YEAR ENDED JUNE 30, 2020
The state’s General Fund ending fund balance increased
by approximately $149 million, or 34 percent, from
June 30, 2019, to June 30, 2020. The overall increase is
attributed, in part, to a $57 million increase in the Budget
Stabilization Reserve Fund, which is reported as General
Fund Committed Fund Balance in the Governmental Fund
Financial Statements included in this report. Additionally,
in fiscal year 2020, the state received $1.25 billion from the
United States Treasury, through the Coronavirus Relief
Fund authorized by the federal Coronavirus Aid, Relief, and
Economic Security (CARES) Act. As of fiscal year-end 2020,
the state spent approximately $93 million of these funds,
primarily through programs established at the Department
of Commerce, Department of Public Health and Human
Services, and Department of Administration. The remaining
unspent funds are reported as cash & cash equivalents and
unearned revenues in the Federal Special Revenue Fund in
the financial statements included in this report.
AUDITOR’S OPINIONS (page A-5): UNMODIFIED
We found the state’s BFS present fairly the activity of the state of Montana
and its component units, in all material respects in relation to requirements
in Generally Accepted Accounting Principles (GAAP). This means the
reader can rely on the information presented in the BFS contained in this
report.
We also determined the Schedule of Expenditures of Federal Awards (SEFA)
is reasonable in relation to amounts in the state’s BFS.
For the full context of the state’s financial activity, see the financial
statements and notes beginning on page A-9. See also the SEFA beginning
on page A-195.
RECOMMENDATIONS:
In this report, we issued the following recommendations:
To the department: 0
To the legislature: 0
While there are no recommendations in this report, the report does include
a discussion of follow-up work conducted in support of the current state of
Montana (20-01A) audit, related to internal control and noncompliance
findings reported in the 19-14 Department of Public Health and Human
Services and 18-02 Biennial Single Audit reports specific to Medicaid
and Children’s Health Insurance Program (CHIP). It also outlines our
(continued on back)
S-1
For the full report or more
information, contact the
Legislative Audit Division.
leg.mt.gov/lad
Room 160, State Capitol
PO Box 201705
Helena, Montana 59620
(406) 444-3122
The mission of the
Legislative Audit Division
is to increase public trust
in state government by
reporting timely and accurate
information about agency
operations, technology, and
finances to the Legislature
and the citizens of Montana.
To report fraud, waste, or
abuse:
Online
Email
LADHotline@mt.gov
Call
(Statewide)
(800) 222-4446 or
(Helena)
(406) 444-4446
Text
(704) 430-3930
approach to testing the related Medicaid and CHIP expenditures for
fiscal year 2020 in support of this audit, and our considerations on
whether the undisclosed contingent liability as of June 30, 2019, based
on the findings in the 19-14 and 18-02 audit reports, continues to exist
as of June 30, 2020. As outlined in the Report on Internal Control
and Compliance section below, we determined a control deficiency
continues to exist related to benefit eligibility determinations for
Medicaid and CHIP. We do not believe the financial statements
require disclosure of a contingent liability as of June 30, 2020.
‘There were no recommendations in the prior audit report.
SUMMARY OF AUDIT WORK:
Our audit work included obtaining and evaluating the results of agency
audits, as well as analyzing financial data, performing testing of the
adjustments and corrections made to the state’s accounting records, and
reviewing the financial statements and note disclosures to determine
whether they were supported and presented in accordance with GAAP.
We also performed procedures related to the state’s implementation of
new accounting standards during the fiscal year.
Additionally, we performed procedures to determine the reasonableness
of the SEFA in relation to amounts in the state’s BFS. These procedures
included tying amounts on the SEFA back to the amounts in the state’s
accounting records, reviewing the note disclosures to determine whether
they were complete and supported, and ensuring the SEFA was presented
in accordance with requirements in federal regulations.
REPORT ON INTERNAL CONTROL AND COMPLIANCE
(page A-1):
In this report, we identified the following:
Material Weaknesses in Internal Control: 0
Significant Deficiencies in Internal Control: 1
Material Non-Compliance: 1
Other Matters: 0
For the full context of this information, including the distinction between
the types of items reported, see the report beginning on page A-1.
The recommendation related to the material noncompliance included
in the Report on Internal Control and Compliance is included in the
Public Employees’ Retirement Board (20-08A) audit report.
Information regarding the significant deficiency in internal control is
presented in Chapter I of the current state of Montana (20-01A) audit
report.
Chapter | — Introduction and Background
Introduction
We conducted a financial audit of the state of Montana’s basic financial statements
(BES) for the fiscal year ended June 30, 2020. The objectives of the audit were to:
1. Determine whether the BFS are presented fairly in accordance with
Generally Accepted Accounting Principles (GAAP) and to determine the
reasonableness of the state’s Schedule of Expenditures of Federal Awards
(SEFA) in relation to the state’s BFS.
2. Obtain an understanding of the internal control structures to the extent
necessary to support the audit of the financial statements and, where necessary,
make recommendations for improvement in the state’s management and
internal controls.
3. Prepare the Report on Internal Control over Financial Reporting and on
Compliance and Other Matters Based on our audit of the state of Montana’s
BFS for the fiscal year ended June 30, 2020, as required by Government
Auditing Standards. This report is prepared based on the results of this audit
as well as all other audits.
In accordance with state law, the Department of Administration (department) prepares
the BFS for the state of Montana. To prepare the BFS, the department uses financial
data from the Statewide Accounting, Budgeting, and Human Resources System
(SABHRS) used by all agencies. Adjustments are made from the SABHRS data to
present the financial activity in accordance with GAAP. Adjustments include but are
not limited to corrections of errors and eliminating internal balances that roll together
for presentation purposes.
To address the objectives above, we focused our audit efforts on analyzing financial
data, testing the adjustments and corrections made to SABHRS, and reviewing the
financial statements and note disclosures to determine whether they were supported
and presented in accordance with GAAP. We also evaluated the results of completed
agency audits and performed procedures over the state’s implementation of new
accounting standards. We determined whether the SEFA was reasonable in relation
to the amounts presented in the BFS and prepared in accordance with Uniform
Administrative Requirements, Cost Principles, and Audit Requirements for Federal
Awards (Uniform Guidance).
We issued unmodified opinions on the 11 opinion units included in the BFS, as
described in the Independent Auditor’s Report on page A-5. Unmodified opinions
mean the readers of the BFS can rely on the information presented. We also issued
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Montana Legislative Audit Division
an unmodified opinion on the SEFA in relation to the amounts presented in the BFS.
This report does not include any audit recommendations.
In our Report on Internal Control Over Financial Reporting and on Compliance and
Other Matters Based on an Audit of Financial Statements on page A-1, we report material
noncompliance for three retirement systems that are not actuarially sound as required
by the Montana Constitution and state law. This retirement system issues are disclosed
in the Public Employees’ Retirement Board (20-08A) audit report. Additionally,
we report one significant deficiency in internal controls that is a continuation of a
control deficiency previously reported as a material weakness in internal controls in
the fiscal year 2019 State of Montana Audit report (19-01), related to proper eligibility
determinations for the Medicaid and Children’s Health Insurance Program (CHIP).
Further discussion of this control deficiency, including our basis for concluding it is
a significant deficiency in financial reporting for fiscal year 2020, is presented in the
paragraphs below. These paragraphs also include a discussion regarding changes in our
approach to testing the Medicaid and CHIP program expenditures from fiscal year
2019 to fiscal year 2020, and our considerations regarding the undisclosed contingent
liability identified in the 19-01 audit report.
Medicaid and CHIP Eligibility Internal Controls,
Expenditure Testing, and Contingent Liabilities
In our fiscal year 2018 and 2019 audit of the Department of Public Health and Human
Services (DPHHS) (19-14), we reported internal control and compliance issues related
to eligibility determinations for the Medicaid and CHIP programs. Conclusions were
based on federal and state program requirements, federal guidance to auditors, and
results of our review of 63 case files which also included consideration of state tax data
as an external data source. As a result, we reported a material weakness in internal
control and material noncompliance in the Report on Internal Control Over Financial
Reporting and on Compliance and Other Matters Based on an Audit of Financial
Statements in our state of Montana audit report for fiscal year 2019 (19-01).
Additionally, our audit opinions for the state’s General Fund and Federal Special
Revenue Fund for fiscal year 2019 were qualified based on an omitted contingent
liability disclosure related to federal questioned costs based on our audit findings in
the 19-14 audit.
Fiscal Year 2020 Expenditure Testing Approach and Results
As required by auditing standards, we performed follow-up on the internal control and
compliance issues identified in the 19-14 DPHHS audit as part of the current audit of
the state’s BFS. We noted several changes occurred for fiscal year 2020, including:
¢ — Federal guidance to auditors no longer contained a requirement to redetermine
eligibility to ensure beneficiaries qualify for the Medicaid program and are
in the appropriate enrollment category. Additionally, the federal guidance
indicated the auditor is not expected to test beyond the requirements of the
state. As such, if the department accepted self-attested information verified at
a later date, then the auditor should accept such information in audit testing.
¢ Chapter 415, Laws of 2019 (HB 658) requires the department to verify
the information provided on an application for Medicaid to confirm an
applicant’s eligibility before authorizing payment of benefits under the
program. HB 658 also requires the department use state tax data in its
verifications. The department implemented verification at application as of
January 1, 2020, and the use of state tax data began on May 14, 2020. The
department was ready to require proof of residency in March 2020, but the
change was put on hold due to a requirement in Section 6008 of the Families
First Coronavirus Response Act which prevents the inclusion of additional
eligibility policy changes during the pandemic, so will continue to accept
self-attestation as proof of residency until the pandemic is over.
The above changes were considered as we designed and conducted audit tests in support
of the audit of the state’s BFS for fiscal year 2020.
We conducted a stratified judgmental sample from nearly 300,000 client eligibility
determinations or redeterminations made during fiscal year 2020. From that population,
we selected 34 clients, including new clients (initial eligibility determinations) and
continuing clients (eligibility redeterminations). A portion of our sample was directed
at clients who incurred more significant benefits costs during fiscal year 2020. We
randomly selected 25 of the clients reviewed. Of the remaining nine, we selected two
clients based on eligibility categories where issues were identified by the prior audit,
one client because the initial intake information was collected by the Department of
Corrections, and six because of the benefit costs they incurred during the audit period.
Through our testing of the randomly selected files, we identified one instance where
a Medicaid client's eligibility for their current category had not been confirmed
since November 2017. While the department's automated data processes occurred,
a difference flagged by the system requiring department staff resolution was not
completed as required. In fiscal year 2020 when the department completed the
required procedure, the individual was misclassified in the state’s eligibility system,
20-01A
Montana Legislative Audit Division
which resulted in the individual incorrectly not being required to pay a premium. We
identified this misclassified individual through our audit work. In this situation, the
misclassification did not result in an incorrect federal or state match.
We considered the results of the current sample as well as the magnitude of the Medicaid
and CHIP programs, which collectively incur over $2 billion in benefits and claims
expenditures annually. While there was no misapplication of federal and state match
for this identified instance, the breakdown in internal controls could have resulted in a
misapplication of match or in the department not identifying an ineligible individual.
Given the magnitude of the payments under these programs, we consider this to be a
significant deficiency in internal control, requiring the attention of those charged with
governance at the state level. Therefore, it is reported in the current Report on Internal
Control Over Financial Reporting and on Compliance and Other Matters Based on
an Audit of Financial Statements on page A-1.
Additional follow-up on the recommendations from the 19-14 audit will be conducted
as part of the audit of DPHHS for fiscal years 2020 and 2021.
Contingency Liability Disclosure Considerations
As part of the current audit of the BFS, we also considered whether the BFS required
disclosure of a contingent liability related to the federal questioned costs based on
our audit findings in the 19-14 audit and reported in our most recent biennial Single
Audit report (18-02). The underlying Single Audit finding has not yet been formally
resolved by the Centers for Medicare & Medicaid Services (CMS). However, in a
November 2020 email, CMS indicated it would pursue the internal control deficiencies
identified by the audit but would not pursue financial recoveries associated with the
questioned costs related to the internal control deficiencies. The email also states that
this does not preclude financial recovery of the federal share of claims for services
to deceased beneficiaries or where inaccurate increased Federal Medical Assistance
Percentage (FMAP) rates were applied.
We considered this information in relation the requirements in GAAP for contingencies,
and determined it was reasonable for the State Financial Services Division to not report
a contingent liability in fiscal year 2020 for those questioned costs.
Independent Auditor’s Report and
Basic Financial Statements, Required
Supplementary Information, and Schedule
of Expenditures of Federal Awards
Angus Maciver, Legislative Auditor
Deborah F. Butler, Legal Counsel
Deputy Legislative Auditors:
Cindy Jorgenson
William Soller
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT
OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH
GOVERNMENT AUDITING STANDARDS
The Legislative Audit Committee
of the Montana State Legislature:
We have audited, in accordance with the auditing standards generally accepted in the United States
of America and the standards applicable to the financial audits contained in Government Auditing
Standards issued by the Comptroller General of the United States, the financial statements of the
governmental activities, the business-type activities, the aggregate discretely presented component units,
each major fund, and the aggregate remaining fund information of the state of Montana, as of and
for the year ended June 30, 2020, and the related notes to the financial statements, which collectively
comprise the state of Montana’s basic financial statements, and have issued our report thereon dated
January 22, 2021. Our report includes a reference to other auditors who audited the financial statements
of the Montana State University component units and the University of Montana component units,
as described in our report on the state of Montana’s financial statements. The financial statements of
the Montana State University component units and the University of Montana component units were
not audited in accordance with Government Auditing Standards, and accordingly, this report does not
include reporting on internal control over financial reporting or instances of reportable noncompliance
associated with these component units.
Internal Control Over Financial Reporting
In planning and performing our audit of the financial statements, we considered the state of Montana’s
internal control over financial reporting as a basis for designing audit procedures that are appropriate
in the circumstances for the purpose of expressing our opinions on the financial statements, but not
for the purpose of expressing an opinion on the effectiveness of the state of Montana’s internal control.
Accordingly, we do not express an opinion on the effectiveness of the state of Montana’s internal
control.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, to prevent,
or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a
combination of deficiencies, in internal control, such that there is a reasonable possibility that a material
Room 160 ¢ State Capitol Building * PO Box 201705 * Helena, MT * 59620-1705
Phone (406) 444-3122 * FAX (406) 444-9784 ¢ E-Mail lad@mt.gov
A-2
misstatement of the entity’s financial statements will not be prevented or detected and corrected on a
timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control
that is less severe than a material weakness, yet important enough to merit attention by those charged
with governance.
Our consideration of internal controls was for the limited purpose described in the first paragraph of
this section and was not designed to identify all deficiencies in internal control that might be material
weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies
may exist that have not been identified. Given these limitations, during our audit we did not identify
any deficiencies in internal control that we consider to be material weaknesses. We did identify certain
deficiencies in internal control, described below, that we consider to be a significant deficiency.
The Department of Public Health and Human Services internal controls over Medicaid and Children’s
Health Insurance Program eligibility determinations did not consistently operate as designed in fiscal
year 2020. When these controls do not operate as designed, the state of Montana is at risk of misapplying
match requirements between the General Fund and Federal Special Revenue Fund sources, or of not
identifying ineligible participants. Collectively, these two programs incur over $2 billion in benefit and
claims expenditures annually.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the state of Montana’s financial statements
are free from material misstatement, we performed tests of its compliance with certain provisions of
laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and
material effect on the determination of financial statement amounts. However, providing an opinion
on compliance with those provisions was not an objective of our audit, and accordingly, we do not
express such an opinion. The results of our tests disclosed instances of noncompliance or other matters
that are required to be reported under Government Auditing Standards. The identified instances of
noncompliance are described below.
The Montana Public Employees’ Retirement Board administers eight defined benefit retirement plans.
The Montana Constitution and state law require all retirement systems to be actuarially sound. The
actuarial valuations as of June 30, 2020, indicate the Game Wardens’ and Peace Officers, Highway
Patrol Officers, and Public Employees’ retirement systems are not actuarially sound as they amortize
in 40, 39, and 35 years, respectively. The maximum allowable amortization period is 30 years, as
defined by state law.
State of Montana’s Response to Findings
‘The state of Montana’s response to the findings identified in our audit are described in the separately
issued Public Employees’ Retirement Administration report (20-08A), and on B-1 of this report. The
responses in these reports were not subjected to the auditing procedures applied in the audit of the
financial statements and, accordingly, we express no opinion on them.
A-3
Purpose of this Report
‘The purpose of this report is solely to describe the scope of our testing of internal control and compliance
and the results of that testing, and not to provide an opinion on the effectiveness of the state of
Montana’s internal control or on compliance. This report is an integral part of an audit performed in
accordance with Government Auditing Standards in considering the state of Montana’s internal control
and compliance. Accordingly, this communication is not suitable for any other purpose.
Respectfully submitted,
/s/ Cindy Jorgenson
Cindy Jorgenson, CPA
Deputy Legislative Auditor
Helena, MT
January 22, 2021
A-5
Angus Maciver, Legislative Auditor
Deborah F. Butler, Legal Counsel
Deputy Legislative Auditors:
Cindy Jorgenson
William Soller
INDEPENDENT AUDITOR'S REPORT
The Legislative Audit Committee
of the Montana State Legislature:
Report on Financial Statements
We have audited the accompanying financial statements of the governmental activities, the business-type
activities, the aggregate discretely presented component units, each major fund, and the aggregate
remaining fund information of the state of Montana, as of and for the year ended June 30, 2020, and
the related notes to the financial statements which collectively comprise the state of Montana’s basic
financial statements, as follows:
¢ Statement of Net Position
¢ Statement of Activities
¢ Balance Sheet—Governmental Funds
¢ Reconciliation of the Balance Sheet—Governmental Funds to the Statement of Net Position
¢ — Statement of Revenues, Expenditures, and Changes in Fund Balances—Governmental Funds
¢ Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances—
Governmental Funds to the Statement of Activities
¢ — Statement of Fund Net Position—Proprietary Funds
¢ Statement of Revenues, Expenses, and Changes in Fund Net Position—Proprietary Funds
¢ — Statement of Cash Flows—Proprietary Funds
¢ — Statement of Fiduciary Net Position—Fiduciary Funds
¢ — Statement of Changes in Fiduciary Net Position—Fiduciary Funds.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements
in accordance with accounting principles generally accepted in the United States of America; this
includes the design, implementation, and maintenance of internal controls relevant to the preparation
and fair presentation of financial statements that are free from material misstatement, whether due to
fraud or error.
Our responsibility is to express opinions on these financial statements based on our audit. We did
not audit the financial statements of the Montana State University (MSU) component units and the
Room 160 ¢ State Capitol Building * PO Box 201705 * Helena, MT * 59620-1705
Phone (406) 444-3122 * FAX (406) 444-9784 ¢ E-Mail lad@mt.gov
University of Montana (UM) component units, which represent 14.93 percent, 30.30 percent, and
2.25 percent, respectively of the assets, net position, and revenues of the aggregate discretely presented
component units. Those financial statements were audited by other auditors whose reports have been
furnished to us, and our opinions, insofar as they relate to the amounts included for the university
component units, are based solely on the reports of other auditors.
We conducted our audit in accordance with auditing standards generally accepted in the United
States of America and the standards applicable to financial audits contained in Government Auditing
Standards, issued by the Comptroller General of the United States. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free from material misstatement. The financial statements of the MSU and UM component units were
not audited in accordance with Government Auditing Standards.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud
or error. In making those risk assessments, the auditor considers internal control relevant to the
state of Montana’s preparation and fair presentation of the financial statements in order to design
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the state of Montana’s internal control. Accordingly, we express no
such opinion. An audit also includes evaluating the appropriateness of accounting policies used and
the reasonableness of significant accounting estimates made by management, as well as the overall
presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinions.
Summary of Opinions
Opinion Unit Type of Opinion
Governmental Activities Unmodified
Business-Iype Activities Unmodified
General Fund Unmodified
State Special Revenue Fund Unmodified
Federal Special Revenue Fund Unmodified
Land Grant Unmodified
Coal Severance Tax Unmodified
Unemployment Insurance Unmodified
Municipal Finance Programs Unmodified
Aggregate Discretely Presented Component Units Unmodified
Aggregate Remaining Fund Information Unmodified
Opinions
In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of the governmental activities and business-type activities, General Fund, State Special
Revenue Fund, Federal Special Revenue Fund, Land Grant, Coal Severance Tax, Unemployment
Insurance, and Municipal Finance Programs major funds, and the aggregate discretely presented
component units and aggregate remaining fund information of the state of Montana, as of June 30,
2020, and the respective changes in financial position and, where applicable, cash flows thereof for the
fiscal year then ended in accordance with accounting principles generally accepted in the United States
of America.
Emphasis of Matter
As discussed in Note 2 to the basic financial statements, in fiscal year 2020, the state adopted
Governmental Accounting Standards Board Statement No. 84—Fiduciary Activities. This clarified how
fiduciary activity is identified and reported. As a result, the types of activities reported in the fiduciary
fund type have changed, and the Fiduciary Fund financial statements now report the Custodial Fund
type instead of the Agency Fund Type. Our opinion is not modified with respect to this matter.
As discussed in Note 1C to the financial statements, in fiscal year 2020, the Unemployment Insurance
Fund reports federal contributions to fund benefit claims related to the statewide unemployment
impact of COVID-19. These federal contributions are reported as non-operating revenues. Additionally,
the Federal Special Revenue Fund reports significant cash & cash equivalent and unearned revenue
balances, associated with the unspent portion of the $1.25 billion the state received from the
Coronavirus Relief Fund, authorized by the federal Coronavirus Aid, Relief; and Economic Security
(CARES) Act. As discussed in Note 17 to the basic financial statements, the unspent portion will be
expended during fiscal year 2021. Our opinions are not modified with respect to these matters.
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that Management’s
Discussion and Analysis, the Budgetary Comparison Schedule, the Pension Plan Information, the
Other Postemployment Benefits Plan Information, and the Risk Management Trend Information,
and the related notes, be presented to supplement the basic financial statements. Such information,
although not a part of the basic financial statements, is required by the Governmental Accounting
Standards Board who considers it to be an essential part of financial reporting for placing the
basic financial statements in an appropriate operational, economic, or historical context. We have
applied certain limited procedures to the required supplementary information in accordance with
auditing standards generally accepted in the United States of America, which consisted of inquiries
of management about the methods of preparing the information and comparing the information for
consistency with management's responses to our inquiries, the basic financial statements, and other
knowledge we obtained during our audit of the basic financial statements. We do not express an
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opinion or provide any assurance on the information because the limited procedures do not provide us
with sufficient evidence to express an opinion or provide any assurance.
Supplementary Information
Our audit was conducted for the purpose of forming opinions on the financial statements that
collectively comprise the state of Montana’s basic financial statements as a whole. The Schedule of
Expenditures of Federal Awards, as required by Title 2 U.S. Code of Federal Regulations Part 200,
Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards,
is presented for purposes of additional analysis and is not a required part of the basic financial
statements. Such information is the responsibility of management and was derived from and relates
directly to the underlying accounting and other records used to prepare the basic financial statements.
‘The information has been subjected to the auditing procedures applied in the audit of the basic financial
statements and certain additional procedures, including comparing and reconciling such information
directly to the underlying accounting and other records used to prepare the basic financial statements
or to the basic financial statements themselves, and other additional procedures in accordance with
auditing standards generally accepted in the United States of America. In our opinion, the Schedule of
Expenditures of Federal Awards is fairly stated, in all material respects, in relation to the basic financial
statements as a whole.
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated January 22,
2021, on our consideration of the state of Montana’s internal control over financial reporting and on
our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements
and other matters. The purpose of that report is to describe the scope of our testing of internal
control over financial reporting and compliance and the results of that testing, and not to provide
an opinion on the effectiveness of the state of Montana’s internal control over financial reporting or
on compliance. That report is an integral part of an audit performed in accordance with Government
Auditing Standards in considering the state of Montana’s internal control over financial reporting and
compliance.
Respectfully submitted,
/s/ Cindy Jorgenson
Cindy Jorgenson, CPA
Deputy Legislative Auditor
Helena, MT
January 22, 2021
MANAGEMENT?’S DISCUSSION AND ANALYSIS
INTRODUCTION
Management of the State of Montana (State) provides this Management’s Discussion and Analysis of the State of
Montana’s basic financial statements included in the Comprehensive Annual Financial Report (CAFR). This is a
narrative overview and analysis of the financial activities of the State of Montana for the fiscal year ended June 30,
2020. We encourage readers to consider this information in conjunction with the additional information that is
furnished in the State’s financial statements, which follow.
In late 2019, a novel strain of coronavirus (“COVID-19”’) started to spread throughout the world, including to the
United States, resulting in the World Health Organization proclaiming COVID-19 to be a pandemic and the
President of the United States declaring a national emergency. In response to the spread of COVID-19, the United
States government, state governments (including the State), local governments, and private industries have taken
measures to limit social interactions in an effort to limit the spread of COVID-19. In March of 2020, Montana
declared a state emergency, and a national emergency was announced in the United States shortly after. The
Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed by Congress and signed into law by the
President of the United States on March 27, 2020. In the following discussion and analysis, COVID-19 refers to this
pandemic and CARES refers to the CARES Act funding.
FINANCIAL HIGHLIGHTS
Government-wide
The assets and deferred outflows of resources of the State exceeded its liabilities and deferred inflows of resources at
the end of fiscal year 2020 by $10.2 billion compared with $9.7 billion at the end of fiscal year 2019, representing a
5.6% increase in net position. Component units reported net position of $2.2 billion at the end of fiscal year 2020
compared to $2.1 billion at the end of fiscal year 2019, representing a 5.2% increase in net position. More detail is
provided in the financial statement overview below.
Fund Level
As of the close of fiscal year 2020, the State’s governmental funds reported combined ending fund balances of $5.0
billion compared with $4.5 billion at fiscal year 2019. This represents a $434.9 million (9.6%) increase in total fund
balance. Of the 2020 balance, $1.9 billion is not in spendable form, primarily as permanent fund principal. Thus,
$3.1 billion is available for spending. The fund balance in spendable form is segregated by constraint as follows:
$1.2 billion restricted, $1.4 billion committed, $90.5 million assigned, and $372.9 million unassigned. These
changes are discussed in more detail in the financial analysis of the State’s major funds presented below.
The State’s business-type activity funds reported net position at the close of fiscal year 2020 in the amount of $393.3
million compared with fiscal year 2019 net position of $482.6 million. Of the 2020 business-type activity net
position, $22.0 million was reported as net investment in capital assets. Net position of $371.3 million was in
spendable form with $21.0 million unrestricted and $350.3 million restricted to expenditure for a specific purpose.
This represents a $90.0 million (19.5%) decrease in spendable net position from the fiscal year 2019 balance of
$461.3 million. These changes are discussed in more detail in the financial analysis of the State’s major funds
presented below.
Long-term Debt
The State’s total governmental activity bonds and notes payable for governmental activities increased by $287.0
thousand, from $127.1 million in fiscal year 2019 to $127.4 million, a 0.2% increase in fiscal year 2020.
Further detail relating to the State’s long-term debt is provided in notes to the financial statement’s Note 11.
OVERVIEW OF THE FINANCIAL STATEMENTS
This discussion and analysis is intended to serve as an introduction to the State of Montana’s basic financial
statements. The State’s basic financial statements include three components: (1) government-wide financial
statements, (2) fund financial statements, and (3) notes to the financial statements. The report also contains
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additional required supplementary information, which includes budgetary schedules, pension and other post
employment benefits plan information, and risk management trends. These components are described below:
Basic Financial Statements
The basic financial statements include two types of financial statements that present different views of the State —
the government-wide financial statements and the fund financial statements. These financial statements also include
the notes to the financial statements, which provide further detail and information related to the balances of the
financial statements.
Government-wide Financial Statements
The government-wide financial statements provide a broad view of the State’s operations in a manner similar to a
private-sector business. The statements provide both short-term and long-term information about the State’s
financial position, which assists in assessing the State’s economic condition at the end of the fiscal year. These are
prepared using the flow of economic resources measurement focus and the accrual basis of accounting. In other
words, they follow methods that are similar to those used by most businesses, including all revenues and expenses
connected with the fiscal year, even if cash involved has not been received or paid. The government-wide financial
statements include two statements: The Statement of Net Position and the Statement of Activities, as defined below.
The Statement of Net Position presents all of the government’s assets, deferred outflows of resources, liabilities,
deferred inflows of resources, and net position. Over time, increases or decreases in the State’s net position may
serve as a useful indicator of whether the financial position of the State is improving or deteriorating.
The Statement of Activities presents information related to the government’s net position changes during the most
recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change
occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for
some items that will not result in cash flows until future fiscal periods. This statement also presents a comparison
between direct expenses and program revenues for each function of the State.
Both of the above financial statements have separate sections for three different types of state activities. These three
types of activities are as follows:
Governmental Activities — Activities mostly supported by taxes and intergovernmental revenues, including federal
grants. Most services normally associated with state government fall into this category, including education (support
for both K-12 public schools and higher education), general government, health and human services, natural
resources, public safety, and transportation.
Business-type Activities — Functions normally intended to recover all or a significant portion of their costs through
user fees and charges to external users of goods and services. The major business-type activities of the State include
the Unemployment Insurance Fund and the Municipal Finance Programs, which assists Montana’s small businesses
and local governments in obtaining long-term, fixed-rate financing through private Montana lending institutions.
Discretely Presented Component Units — Operations for which the State has financial accountability, but have
certain independent qualities as well. In order to be considered component units, these entities must be legally
separate to the extent that they may sue, or be sued, in their own right. For the most part, these entities operate
similarly to private sector businesses and the business-type activities described above. The State’s component units
consist of one financing authority, one housing board, one nonprofit independent public corporation, and two
universities.
Fund Financial Statements - Reporting the State’s Major Funds
A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for
specific activities or objectives. The State, like other state and local governments, uses fund accounting to ensure
and demonstrate compliance with finance-related legal requirements.
The fund financial statements focus on individual parts of the state government, reporting the State’s operations in
more detail than the government-wide statements. All of the funds can be divided into three categories. It is
important to note that these fund categories use different accounting approaches and should be interpreted
individually. The three categories of funds are as follows:
Governmental Funds — Most of the basic services provided by the State are financed through governmental funds.
Governmental funds are used to account for essentially the same functions reported as governmental activities in the
government-wide financial statements. However, unlike the government-wide financial statements, the
governmental fund financial statements focus on near-term inflows and outflows of spendable resources. They also
focus on the balances of spendable resources available at the end of the fiscal year. Such information may be useful
in evaluating the government’s near-term financing requirements. This approach is known as using the flow of
current financial resources measurement focus and the modified accrual basis of accounting. These statements
provide a detailed short-term view of the State’s finances that assists in determining whether there will be adequate
financial resources available to meet the current needs of the State.
The State has five governmental funds that are considered major funds for presentation purposes. Each major fund is
presented in a separate column in the governmental fund balance sheet and in the governmental fund statement of
revenues, expenditures, and changes in fund balances. The State’s five major governmental funds are the General
Fund, the State Special Revenue Fund, the Federal Special Revenue Fund, the Coal Severance Tax Fund, and the
Land Grant Fund.
Proprietary Funds — When the State charges customers for the service it provides, whether to outside customers or
to other agencies within the State, these services are generally reported in proprietary funds. Like the government-
wide statements, proprietary fund statements utilize full accrual accounting, the same method used by private sector
businesses. Enterprise funds report activities that provide supplies and services to the general public. Whereas
internal service funds report activities that provide supplies and services to the State’s other programs and activities.
Fiduciary Funds — Resources held for the benefit of parties outside state government are accounted for in fiduciary
funds. Fiduciary funds are not reflected in the government-wide financial statements because the resources of these
funds are not available to support the State’s own programs. Fiduciary fund statements use the full accrual basis of
accounting.
Notes to the Financial Statements
The notes to the financial statements provide additional information that is essential for a full understanding of the
government-wide and the fund financial statements. The notes to the financial statements can be found immediately
following the fiduciary fund financial statements.
Required Supplementary Information
The basic financial statements are followed by a section of required supplementary information. This section
contains a budgetary comparison schedule, which includes the reconciliation between the statutory fund balance for
budgetary purposes and the fund balance for the General Fund and major special revenue funds as presented in the
governmental fund financial statements. Required supplementary information also includes pension and other post
employment benefits plan information, as well as additional risk management trend data.
GOVERNMENT-WIDE FINANCIAL ANALYSIS
Montana’s overall financial position increased from the last fiscal year, as reflected in the $545.8 million increase
(5.6%) in net position. This improvement resulted from the continued moderate growth, despite the initial impacts of
COVID-19, particularly in tax and investment revenue. However, growth is not expected to persevere in fiscal year
2021, as the associated financial and economical affects of the pandemic are realized.
Net Position
As noted earlier, net position may serve over time as a useful indicator of a government’s financial position. The
State’s combined net position (government and business-type activities) totaled $10.2 billion at the end of fiscal year
2020. Net position of both governmental and business-type activities increased by $635.0 million (6.9%) and
decreased by $89.2 million (18.5%), respectively. These changes are explained in detail in the major fund analysis
below.
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A portion of the State’s net position reflects its investment in capital assets such as land, buildings, equipment, and
infrastructure (roads, bridges, and other immovable assets) less any related debt used to acquire those assets that is
still outstanding. The State uses these capital assets to provide services to citizens; consequently, these assets are not
available for future spending. Although the State’s investment in its capital assets is reported net of related debt, it
should be noted that the resources needed to repay this debt must be provided from other sources since the capital
assets themselves cannot be used to liquidate these liabilities.
An additional portion of the State’s net position represents resources that are subject to external restrictions on how
they may be used. The remaining balance of unrestricted net position may be used to meet the State’s ongoing
obligations to citizens and creditors. Internally imposed designations of resources are not presented as restricted net
position.
At the end of the current fiscal year, the State reported positive balances in net investment in capital assets and
restricted net position categories, along with a negative balance in the unrestricted category of net position, for both
the governmental activities and the primary government as a whole. The negative unrestricted net position is
primarily due to the State's net pension liability. GASB Statements No. 68 and 71, related to pension liabilities and
other balance sheet components, were implemented in fiscal year 2015 and are contributing factors to the negative
net position. The State also reported positive balances for all categories of net position for the business-type
activities.
Net Position
June 30,
(expressed in thousands)
Governmental Business-type Total Primary
Activities Activities Government
2019 2020 2019 2020 2019 2020
Current and other assets $ 5,762,815 $ 7,572,307 $ 629,612 $ 554,386 $ 6,392,427 $ 8,126,693
Capital assets 6,480,485 6,823,046 21,283 22,052 6,501,768 6,845,098
Total assets 12,243,300 14,395,353 650,895 576,438 12,894,195 14,971,791
Deferred outflows of resources 779,931 613,249 2,919 2,423 782,850 615,672
Long-term liabilities
Due in more than one year 2,639,113 2,707,169 20,277 18,302 2,659,390 2,125,471
Other liabilities 976,135 2,251,217 147,328 163,594 1,123,463 2,414,811
Total liabilities 3,615,248 4,958,386 167,605 181,896 3,782,853 5,140,282
Deferred inflows of resources 212,056 219,243 3,641 3,645 215,697 222,888
Net investment in capital assets 6,402,612 6,743,003 21,266 22,035 6,423,878 6,765,038
Restricted 3,216,332 3,452,344 442,306 350,309 3,658,638 3,802,653
Unrestricted (423,017) (364,374) 18,996 20,976 (404,021) (343,398)
Total net position $ 9,195,927 $ 9,830,973 $ 482,568 $ 393,320 $ 9,678,495 $ 10,224,293
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The following condensed financial information was derived from the government-wide Statement of
Activities, and reflects how the State’s net position changed during the fiscal year:
Changes in Net Position
For Fiscal Year Ended June 30,
(expressed in thousands)
Governmental Business-type Total Primary
Activities Activities Government
2019 2020 2019 2020 2019 2020
Revenues:
Program revenues
Charges for services $ 623,732 $ 686,335 $ 426,701 $ 443,048 $ 1,050,433 $ 1,129,383
Operating grants 2,611,941 2,930,307 68,243 71,422 2,680,184 3,001,729
Capital grants 527,900 564,431 512 950 528,412 565,381
General revenues
Taxes 2,762,972 2,793,211 30,094 32,576 2,793,066 2,825,787
Other 248,070 186,194 2,398 504,749 250,468 690,943
Total revenues 6,774,615 7,160,478 527,948 1,052,745 7,302,563 8,213,223
Expenses:
General government 829,657 957,534 829,657 957,534
Public safety 428,514 458,526 428,514 458,526
Transportation 547,907 557,290 547,907 557,290
Health and human service 2,680,251 2,896,774 2,680,251 2,896,774
Education 1,314,785 1,352,323 1,314,785 1,352,323
Natural resources 302,680 338,957 302,680 338,957
Interest on long-term debt 5,454 5,365 5,454 5,365
Unemployment Insurance 108,507 746,508 108,507 746,508
Liquor Stores 89,971 98,324 89,971 98,324
State Lottery 48,061 51,385 48,061 51,385
Municipal Finance Programs 2,937 2,542 2,937 2,542
Hail Insurance 933 1,154 933 1,154
Other Services 70,154 74,323 70,154 74,323
Prison Funds 9,307 8,506 9,307 8,506
MUS Group Insurance 88,330 100,958 88,330 100,958
MUS Workers Comp 3,887 657 3,887 657
Total expenses 6,109,248 6,566,769 422,087 1,084,357 6,531,335 7,651,126
Increase (decrease) in net
position before transfers 665,367 593,709 105,861 (31,612) 771,228 562,097
Transfers 55,786 58,703 (55,786) (58,703) = —
Change in net position 721,153 652,412 50,075 (90,315) 771,228 562,097
Net position, beg of year
(as adjusted) 8,474,774 9,178,561 432,493 483,635 8,907,267 9,662,196
Net position, end of year $ 9,195,927 $ 9,830,973 $ 482,568 $ —_ 393,320 $ 9,678,495 $ 10,224,293
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Governmental Activities
The following chart depicts revenues of the governmental activities for the fiscal year:
Revenues - Govermental Activities
Fiscal Year Ended June 30, 2020
Other : 2.6%
Charges for Services: 9.6%
( Grants: 40.9%
Taxes: 39.0%
Capital Grants: 7.9%
The following chart depicts expenses of the governmental activities for the fiscal year:
Expense - Governmental Activities
Fiscal Year Ended June 30, 2020
Debt: 0.1%
General Government: 14.6%
Public Safety: 7.0% = — a
Transportation: 8.5% ad
Health and Human
Services: 44.1%
Interest on Long-Term Natural Resources: 5.2%
Education: 20.6%
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Business-type Activities
The following chart depicts revenues of the business-type activities for the fiscal year:
Revenues - Business-type Activities
Fiscal Year Ended June 30, 2020
Operating Grants: 6.8%
Capital Grants: 0.1%
Va. Taxes: 3.1%
Other: 47.9%
Services: 42.1%
The Other Revenue in the above table is primarily related to additional federal funding received for Unemployment
Insurance claims due to COVID-19.
The following chart depicts expenses of the business-type activities for the fiscal year:
Expenses - Business-type Activities
Fiscal Year Ended June 30, 2020
Gen Govt Services: 6.9% Prison Funds: 0.8%
MUS Group Insurance : 9.3%
Hail Insurance: 0.1%
Municipal Finance: 0.2% 77 MUS Workers Comp: 0.1%
State Lottery: 4.7%
Liquor Stores: 9.1%
Unemployment Insurance: 68.8%
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FINANCIAL ANALYSIS OF THE STATE’S MAJOR FUNDS
As the State completed the year, its governmental funds reported fund balances of $5.0 billion. Of this total, $3.1
billion (61.5%) constitutes spendable fund balance and $1.9 billion (38.5%) is classified as non-spendable. The
analysis of the following major funds, providing the majority of the fund balance for the government, follows.
General Fund Revenues and Expenditures
The General Fund is the chief operating fund of the State. For fiscal year 2020, the total fund balance of the General
Fund was reported at approximately $592.8 million. Of this balance, $4.9 million is non-spendable. The remaining
$587.9 million is spendable with $117.8 million committed, $89.5 million assigned, and $380.7 million unassigned.
This spendable fund balance of the General Fund represents 19.3% of the $3.1 billion spendable governmental fund
balances for all governmental funds. Of the assigned fund balance, $72.7 million pertains to the projected general
fund spend down of fund balance in fiscal year 2021 and $16.8 million relates to outstanding encumbrances at the
end of the fiscal year. The committed fund balance of $117.8 million relates to the balance of the Budget
Stabilization Reserve Fund, which is combined with the General Fund for financial statement presentation. Further
detail on the breakdown of fund balance for the General Fund is provided in Note 14 — Major Purpose Presentation.
Total fund balance increased by $149.4 million when compared to the previously reported fund balance of $443.4
million. Changes in both expenditures and revenues are discussed in detail below. The 2019 legislative session
projected $226.4 million of unassigned fund balance for fiscal year 2020, without regard to a fund balance spend
down. The difference was primarily the result of a larger than anticipated beginning fund balance.
General Fund Revenues — Total General Fund revenues were $2.4 billion for fiscal year 2020 (lower than legislative
estimation), a 0.3% decrease from the $2.5 billion reported in 2019 (which were lower than legislative estimation).
Fiscal year 2020 tax revenue increased by 0.1% in total over 2019, with corporate income tax collections up 0.4%
and individual income tax collections increased by 0.1%. Other noted decreases in revenues included investment
earnings.
General Fund Expenditures — Total General Fund expenditures for fiscal year 2020 increased by $31.7 million
(1.4%). This increase in expenditures occurred in the general government, public safety, education, and natural
resources functions and the decrease in expenditures occurred in the health and human services function as follows:
* General government expenditures increased by $11.6 million (3.2%)
¢ Public safety expenditures increased by $7.7 million (2.4%)
¢ Education expenditures increased by $45.8 million (4.4%)
* Natural resources expenditure increased by $4.3 million (13.3%)
¢ Health and human services expenditures decreased by $46.0 million (8.7%)
The expenditures in the health and human services function decreased for two reasons. The Montana HELP Act
account was moved to the State Special Revenue Fund. The Centers for Medicare & Medicaid Services provided the
Department of Public Health and Human Services an additional 6.2% federal funding for COVID-19, so the General
Fund share of Medicaid expenditures went down.
The General Fund’s actual revenues and expenditures in comparison to budgeted revenues and expenditures is
provided in more depth on the Budgetary Comparison Schedule within the Required Supplementary Information
section of this report. The same level of detail used to report the actual revenues and expenditures is not readily
available for all budgetary revenues and expenditures, which may cause some variances.
General Fund Expenditure Budget Reversions
Fund balances are not reserved for reverted appropriations. For fiscal year 2020, general fund appropriations that
reverted to 2021 were $64.9 million.
The Department of Public Health and Human Services had unspent appropriations of $54.0 million related to
Medicaid savings and other operational costs.
The Department of Revenue had unspent appropriations of $3.0 million related to the funds available to local
governing bodies pursuant to Section 15-1-402 (6)(d), MCA, regarding protested property taxes and other
operational costs.
The Judicial Branch had unspent appropriations of $1.7 million related to vacancy savings and operational costs.
The Department of Administration had unspent appropriations of $1.4 million, and these were attributable to the
cybersecurity enhancement project, state contributions to retirement funds, and other operational costs.
The Department of Natural Resources and Conservation had unspent appropriations of $1.3 million related to
operational costs.
The Department of Justice had unspent appropriations of $1.0 million related to operational costs, statutory
retirement transfers, and restricted State IT costs.
The remaining unspent appropriation of $2.4 million was attributable to miscellaneous reversions across other
agencies.
State Special Revenue Fund
The fund balance of the State Special Revenue Fund increased by $122.3 million to $1.8 billion. Revenues increased
by $7.5 million (0.7%) and expenditures increased $84.6 million (8.0%), for fiscal year 2020. The largest increases
in revenues are attributable to an increase in licenses and permits, other taxes collections, and contributions and
premiums. The largest increases in expenditures are attributable to health and human services related expenditures
and capital outlay expenditures for infrastructure. Other financing sources, such as bond proceeds, increased due to
the General Obligation Bonds, Series 2020C was issued in fiscal year 2020. Primarily, transfers into the State
Special Revenue Fund from other governmental funds resulted in an increase in fund balance.
During the COVID-19 pandemic, the State Emergency Coordination Center (SECC) received donated personal
protective equipment (PPE) and directed to the Department of Public Health and Human Services to distribute to
hospitals, long-term care facilities, EMS, and local DES. The value of the donated PPE was $90.7 thousand. SECC
also received a donation of $20.0 thousand from an individual and directed to the Department of Public Health and
Human Services to purchase hand sanitizer for local distribution.
Federal Special Revenue Fund
The fund balance of the Federal Special Revenue Fund increased by $5.8 million (46.1%) to the balance of negative
$6.8 million. Revenues and expenditures increased by $344.4 million (11.7%) and $321.0 million (11.0%)
respectively, for the fiscal year 2020. Revenue increases are attributable to increases in federal program revenue,
including COVID-19 related federal funding. Expenditure increases are attributable to increases in health and human
services, general government, and capital outlay related expenditures. The health and human services and general
government related expenditure increase is attributable to COVID-19. The capital outlay expenditure increase of
15.6% is attributable to infrastructure expenditure increases by transportation.
Coal Severance Tax Permanent Fund
The fund balance of the Coal Severance Tax Permanent Fund increased by $66.0 million (5.7%) to $1.2 billion.
Revenue decreased by $5.7 million (5.4%) to $99.9 million, primarily due to an decrease of natural resource tax
revenue. Transfers out, which decreased by $6.2 million (15.5%), and the increase in investment earnings helped
lead to the increase in fund balance.
Land Grant Permanent Fund
The fund balance of the Land Grant Permanent Fund increased by $71.6 million (9.2%) to $845.7 million. Revenue
decreased by $3.1 million to a total of $126.6 million, and the rentals, leases, and royalties were attributable to the
decrease. The general capital asset sale proceeds increased by $4.0 million to a total of $11.0 million. Transfers out
were $61.6 million, which was a decrease of $4.8 million compared to fiscal year 2019. Primarily, investment
earnings and income generated by the State's trust lands resulted in an increase in fund balance.
Unemployment Insurance Enterprise Fund
Net position restricted for unemployment compensation decreased by $113.1 million (32.2%). The decrease in net
position is attributable to the substantially high volume of benefit claims due to COVID-19 in fiscal year 2020,
accompanied by an increase in the federal funding through the Federal Pandemic Unemployment Compensation and
Pandemic Unemployment Assistance in fiscal year 2020.
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Municipal Finance Programs Fund
Net position decreased by 0.8% to $5.4 million in fiscal year 2020. Financing income revenue decreased $475.0
thousand, and investment earnings decreased $242.0 thousand, while expenses from interest expense decreased
$247.0 thousand. Overall revenues and expenditures decreased (23.2)% and (13.4)%, which resulted in an decrease
of $43.0 thousand to net position.
CAPITAL ASSETS AND DEBT ADMINISTRATION
Capital Assets
The State’s investment in capital assets for its governmental and business-type activities, as of June 30, 2020,
amounted to $9.3 billion, with related accumulated depreciation of $2.5 billion, leaving a net book value of $6.8
billion. This investment in capital assets includes land, buildings, improvements, equipment, infrastructure,
intangible assets, and construction in progress. Infrastructure assets are items that are normally immovable and of
value only to the State, such as roads, bridges, streets and sidewalks, drainage systems, lighting systems, and similar
items.
The total increase in the State’s investment in capital assets for the current fiscal year was $343.3 million or 5.3% in
terms of net book value. Most increases in capital expenditures were seen in construction, or reconstruction, of roads
and bridges. Additional information relating to the State’s capital assets can be found in Note 5 of the notes to the
financial statements.
Debt Administration
Montana continues to receive excellent general obligation bond ratings from Moody’s Investor Service (Aal),
Standard and Poor’s Corporation (AA), and Fitch Ratings (AA+), which remain unchanged from 2019.
State debt may be authorized either by a two-thirds vote of the members of each house of the Legislature or by a
favorable vote of a majority of the State’s electors voting thereon. There is no constitutional limit on the amount of
debt that may be incurred by the State. The Montana Constitution does, however, prohibit the incurring of debt to
cover deficits caused by appropriations exceeding anticipated revenue.
The State of Montana’s general obligation debt increased from $73.1 million at June 30, 2019, to $90.3 million at
June 30, 2020. There is cash available, of $7.4 million at the end of fiscal year 2020, in debt service funds to service
general obligation debt.
The below table contains the ratio of general obligation debt and total State debt to personal income and to the
amount of debt per capita:
Amount Percentage of ' State Debt,
(in thousands) Personal Income ") Per Capita”
General obligation debt $ 90,250 0.17% $ 84
Total State debt $ 137,701 0.30% $ 129
) Based on personal income for calendar year 2019.
@ Based on estimated 2019 Montana population.
®) Based on total of general obligation bonds, special revenue bonds, notes payable, and lease/installment purchase payable for the
percentage and state debt per capita.
More detailed information regarding the State’s long-term obligations is provided in Note 11 of the notes to the
financial statements and in the statistical tables.
ECONOMIC CONDITION AND OUTLOOK
On March 3, 2020, Governor Bullock formed a multi-agency task force to coordinate the State’s preparations with
respect to COVID-19. On March 12, 2020, Governor Bullock issued Executive Orders No. 2-2020 and 3-2020
declaring a State of Emergency in the State in response to the COVID-19 pandemic. Montana residents were under a
Stay at Home Directive from March 28, 2020 through April 24, 2020. The State is now in a phased-in reopening.
Concerns stemming from COVID-19 have caused significant volatility in the United States financial markets, and in
financial markets world-wide. Economic activity has been reduced in the near term as a result of actions required in
response to the COVID-19 pandemic. The State expects that the economic repercussions associated with COVID-19
are likely to negatively affect the State’s receipt of revenues in fiscal year 2021 from individual income tax,
corporate income tax and alternative corporate income tax, gaming taxes, vehicle taxes, accommodations taxes,
interest earnings, and other smaller sources. Current estimates project a total general fund revenue decline in fiscal
year 2021 when compared to official pre-pandemic estimates, with, assuming that the prevalence and adverse effects
of COVID-19 are diminished and/or more effectively contained, an estimated rebound in state revenue collections
beginning in fiscal year 2022 and beyond. In addition, the volatility and loss of value in the investment markets may
negatively affect the value of the State’s investments and the valuations of the State’s pension plans.
COVID-19 has significantly affected Montana’s economy. Most business and service sectors in the State, including,
without limitation, tourism and hospitality services, agriculture and natural resource extraction, are expected to
experience decreases in operations and revenues, which are expected to result in decreased taxes, fees, assessments
and other revenue to the State. The long-term effects of the pandemic on the economy and demographics are
unknown, but there will likely be lasting impacts on Montana residents and businesses and the ways that people
travel to, from, and within Montana. Montana has pronounced exposure to downturns in tourism, hospitality and the
service industry, and those industries were most impacted at the onset of the pandemic. However, the State believes
meaningful recovery is already taking place in those and other Montana industries.
As Montana works to respond to and recover from the unprecedented economic strain caused by COVID-19, the
State is allocating emergency financing relief available from the federal government to those who have been hardest-
hit by impacts of COVID-19. The financial assistance is funded through $1.25 billion in federal emergency relief
made available under the federal Coronavirus Aid, Relief and Economic Security (CARES) Act.
The State cannot predict: (i) the duration or extent of the COVID-19 outbreak or any other outbreak or pandemic;
(i) the duration or expansion of travel restrictions and warnings — both domestically and internationally; (iii)
whether additional countries or destinations will be added to the travel restrictions or warnings; (iv) what effect any
COVID-19 or any other outbreak/pandemic-related travel restrictions or warnings may have on demand for travel;
(v) whether and to what extent the COVID-19 outbreak or any other outbreak or pandemic may disrupt the local or
global economy, manufacturing or supply chain, or whether any such disruption may adversely impact State-related
operations and financial results; or (vi) whether any of the foregoing may have a material adverse effect on the
finances and operations of the State.
The extent of the impact of the COVID-19 on the State’s operational and financial performance, and on State’s
general financial condition, will depend on future developments, many of which are out of the State’s control,
including without limitation the implementation of federal aid; the duration and spread of the COVID-19 pandemic;
restrictions, limitations and changes on school and university attendance, public gatherings and other public events;
restrictions in operations of public and private businesses and organizations nationwide and internationally; and
travel restrictions and other restrictions and measures taken in response to the COVID-19 pandemic. The State
believes it may be months and perhaps years before the State is able to accurately determine the full impact that the
various events surrounding COVID-19 have on the State’s economy and financial condition.
Despite the economic effects of COVID-19, Montana’s primary economic base remains concentrated in nonresident
travel, agriculture, and mining, as well as service-providing industries. Per the 2020 Labor Day Report issued by the
Montana Department of Labor and Industry, Montana experienced the longest economic expansion in history from
July 2009 to February 2020. Montana had real wage growth of 1.6% in calendar year 2019. Montana’s
unemployment rate was as low as 3.5% in February 2020. In March 2020, the COVID-19 pandemic-induced
recession appears to have been quite short, with employment levels quickly rebounding after the phased reopening
of the economy. Unemployment claims hit a peak in April and continue to decrease steadily. Jobs have been quick
to return with roughly 40,000 payroll positions added in May and June. Montana had the 16th smallest job loss
among states, giving the state a smaller hurdle to overcome in the recovery. In July 2020, the Montana's
unemployment rate was 6.4% with the national rate around 10.2%. Even with a strong recovery and rapid job
growth, it is likely that the pandemic will have continued impacts on Montana's economy.
Montana had an estimated 1,068,778 population as of July 1, 2019. The Montana labor market has total nonfarm
workers of 464,600 in August 2020 as compared to 484,700 in August 2019. A more in-depth analysis of the State’s
overall financial position can be found in the transmittal letter of this report.
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The Montana Constitution, Article VHI, Section 15, states that public retirement systems shall be funded on an
actuarially sound basis. Public pension plans are considered actuarially sound if the unfunded accrued actuarial
liability amortization period is within 30 years. As of June 30, 2020, the Game Warden & Peace Officers’
Retirement System (GWPORS), the Highway Patrol Officers’ Retirement System (HPORS), and the Public
Employees’ Retirement System - Defined Benefit Retirement Plan (PERS-DBRP) were not in compliance and did
not amortize within 30 years. The unfunded liabilities in the other state retirement systems amortize in 30 years or
less as of the fiscal year ended June 30, 2020.
The actuarial condition of these retirement plans is disclosed in greater detail in Note 6 of the financial statements.
The unfunded actuarial liability of these plans is long-term in nature and does not translate into an inability of the
plans to meet their current obligations in the near future.
REQUESTS FOR INFORMATION
This financial report is designed to provide a general overview of the State of Montana’s finances for all of
Montana’s citizens, taxpayers, customers, investors, and creditors. The financial report seeks to demonstrate the
State’s accountability for the money it receives. Questions concerning any of the information provided in this report
or requests for additional information should be addressed to the State of Montana, Statewide Accounting Bureau,
Room 255 Mitchell Building, PO Box 200102, Helena, MT 59620.
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STATEMENT OF NET POSITION
JUNE 30, 2020
(amounts expressed in thousands)
PRIMARY GOVERNMENT
GOVERNMENTAL BUSINESS-TYPE COMPONENT
ACTIVITIES ACTIVITIES TOTAL UNITS
ASSETS
Cash/cash equivalents (Note 3) $ 3,152,853 $ 415,578 $ 3,568,431 $ 613,423
Receivables (net) (Note 4) 630,026 48,277 678,303 149,152
Due from primary government _— _— _— 1,325
Due from other governments 335,261 16,745 352,006 34,539
Due from component units 560 1,525 2,085 176
Internal balances 7,497 (7,497) _— _—
Inventories 28,754 4,424 33,178 5,058
Advances to component units 10,092 9,892 19,984 _—
Long-term loans/notes receivable 525,184 41,969 567,153 597,356
Equity in pooled investments (Note 3) 2,565,490 18,641 2,584,131 51,492
Investments (Note 3) 215,456 2,728 218,184 2,142,283
Securities lending collateral (Note 3) 46,893 339 47,232 6,798
Net pension asset (Note 6) 39,567 _— 39,567 _—
Other assets 14,674 1,765 16,439 77,523
Depreciable capital assets and infrastructure, net (Note 5) 4,494,153 15,121 4,509,274 835,952
Land and nondepreciable capital assets (Note 5) 2,328,893 6,931 2,335,824 154,696
Total assets 14,395,353 576,438 14,971,791 4,669,773
DEFERRED OUTFLOWS OF RESOURCES (Note 4) 613,249 2,423 615,672 77,561
LIABILITIES
Accounts payable (Note 4) 743,939 49,961 793,900 127,328
Lottery prizes payable _— 3,152 3,152 _—
Due to primary government _— _— _— 2,085
Due to other governments 20,694 248 20,942 4,648
Due to component units 1,325 — 1,325 176
Due to pension trust funds 34,357 — 34,357 —
Advances from primary government _— _— _— 19,984
Unearned revenue 1,214,220 5,380 1,219,600 92,837
Amounts held in custody for others 51,871 31 51,902 16,152
Securities lending liability (Note 3) 46,893 339 47,232 6,798
Other liabilities 4,504 _— 4,504 22,862
Short-term debt (Note 11) _— 90,670 90,670 _—
Long-term liabilities (Note 1 1):
Due within one year 133,414 13,813 147,227 173,596
Due in more than one year 418,492 5,975 424 467 1,832,149
Net pension liability (Note 6) 2,243,084 11,510 2,254,594 186,395
Total OPEB liability (Note 7) 45,593 817 46,410 27,460
Total liabilities 4,958,386 181,896 5,140,282 2,512,470
DEFERRED INFLOWS OF RESOURCES (Note 4) 219,243 3,645 222,888 56,222
STATEMENT OF ACTIVITIES
FOR THE FISCAL YEAR ENDED JUNE 30, 2020
(amounts expressed in thousands)
PROGRAM REVENUES
OPERATING CAPITAL
CHARGES GRANTS GRANTS NET
FOR AND AND (EXPENSE)
FUNCTIONS/PROGRAMS EXPENSES SERVICES CONTRIBUTIONS CONTRIBUTIONS REVENUE
Primary government:
Governmental activities:
General government $ 957,534 $ 249,885 $ 245,338 $ 668 $ (461,643)
Public safety 458,526 182,773 34,960 — (240,793)
Transportation 557,290 32,555 70,444 548,110 93,819
Health and human services 2,896,774 39,945 2,179,408 — (677,421)
Education 1,352,323 2,531 196,537 683 (1,152,572)
Natural resources 338,957 178,646 203,620 14,970 58,279
Interest on long-term debt 5,365 _— _— _— (5,365)
Total governmental activities 6,566,769 686,335 2,930,307 564,431 (2,385,696)
Business-type activities:
Unemployment Insurance 746,508 119,523 16,388 _— (610,597)
Liquor Stores 98,324 116,583 — — 18,259
State Lottery 51,385 59,892 — — 8,507
Municipal Finance Programs 2,542 7 2,482 _— (53)
Hail Insurance 1,154 1,182 33 _— 61
Other Service 74,323 26,080 49,632 950 2,339
Prison Funds 8,506 7,532 — — (974)
Mus’ Group Insurance 100,958 108,624 2,384 _ 10,050
MUS' Workers Compensation 657 3,625 503 _— 3,471
Total business-type activities 1,084,357 443,048 71,422 950 (568,937)
Total primary government $ 7,651,126 $ 1,129,383 $ 3,001,729 $ 565,381 $ (2,954,633)
Component units:
Montana Board of Housing $ 24,455 $ 1,742 $ 25,151 $ — $ 2,438
Facility Finance Authority 705 741 155 _— 191
Montana State Fund 201,034 156,871 — — (44,163)
Montana State University 630,487 287,201 213,150 5,972 (124,164)
University of Montana 452,417 169,686 126,758 1,875 (154,098)
Total component units $ 1,309,098 $ 616,241 $ 365,214 § 7,847 $ (319,796)
‘Montana University System
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PRIMARY GOVERNMENT
GOVERNMENTAL ~BUSINESS-TYPE COMPONENT
ACTIVITIES ACTIVITIES TOTAL UNITS
Changes in net position:
Net (expense) revenue $ (2,385,696) $ (568,937) $ (2,954,633) $ (319,796)
General revenues:
Taxes:
Property 327,629 _— 327,629 _—
Fuel 260,553 _— 260,553 _—
Natural resource 171,055 _— 171,055 _—
Individual income 1,455,150 _— 1,455,150 _—
Corporate income 185,358 _— 185,358 _—
Other (Note 1) 393,466 32,576 426,042 _—
Unrestricted grants and contributions 740 496,499 497 239 _—
Settlements 27,906 _— 27,906 _—
Unrestricted investment earnings 138,435 106 138,541 143,101
Transfers from primary government _— _— _— 244,663
Gain (loss) on sale of capital assets 11,070 134 11,204 156
Miscellaneous 8,043 8,012 16,055 1,036
Contributions to term and permanent endowments _— _— _— 37,057
Transfers between primary government 58,703 (58,703) _— _—
Total general revenues, contributions, and transfers 3,038,108 478,624 3,516,732 426,013
Change in net position 652,412 (90,313) 562,099 106,217
Total net position - July 1 - as previously reported 9,195,927 482,568 9,678,495 2,070,862
Adjustments to beginning net position (Note 2) (17,366) 1,065 (16,301) 1,563
Total net position - July 1 - as adjusted 9,178,561 483,633 9,662,194 2,072,425
Total net position - June 30 $ 9,830,973 $ 393,320 $ 10,224,293 $ 2,178,642
The notes to the financial statements are an integral part of this statement.
A-26
BALANCE SHEET
GOVERNMENTAL FUNDS
JUNE 30, 2020
(amounts expressed in thousands)
ASSETS
Cash/cash equivalents (Note 3)
Receivables (net)
Interfund loans receivable (Note 12)
Due from other governments
Due from other funds (Note 12)
Due from component units
Inventories
Equity in pooled investments (Note 3)
Long-term loans/notes receivable
Advances to other funds (Note 12)
Advances to component units
Investments (Note 3)
Securities lending collateral (Note 3)
Other assets
Total assets
LIABILITIES, DEFERRED INFLOWS OF RESOURCES,
AND FUND BALANCES
Liabilities:
Accounts payable
Interfund loans payable (Note 12)
Due to other governments
Due to other funds (Note 12)
Due to component units
Advances from other funds (Note 12)
Unearned revenue
Amounts held in custody for others
Securities lending liability (Note 3)
Other liabilities
Total liabilities
DEFERRED INFLOWS OF RESOURCES
Fund balances (Note 14):
Nonspendable
Restricted
Committed
Assigned
Unassigned
Total fund balances
Total liabilities, deferred inflows of resources, and fund balances
The notes to the financial statements are an integral part of this statement.
SPECIAL REVENUE
GENERAL STATE FEDERAL
528,914 $ 989,208 $ 1,264,153
434,693 86,629 75,438
95,979 101,954 —
12,849 892 321,510
26,471 13,737 2,882
— 304 17
3,704 20,117 —
— 370,979 —
— 498,389 6,214
355 28,348 —
— 2,295 —
6,834 12,600 —
— 6,957 —
3,384 10,174 308
1,113,183 $ 2,142,583 _$ 1,670,522
289,190 $ 188,550 $ 237,358
— 5,288 189,055
170 19,336 1,188
3,070 10,182 1,851
34,442 498 742
— 6,085 25,486
798 21,971 1,194,737
7,080 40,003 125
— 6,957 —
— 304 —
334,730 209,154 1,650,542
185,641 7,314 26,779
4,903 21,310 252
— 1,146,404 —
117,773 668,401 —
89,469 — —
380,667 — (7,051)
592,812 1,836,115 (6,799)
1,113,183 $ 2,142,583 $ 1,670,522
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RECONCILIATION OF THE BALANCE SHEET OF GOVERNMENTAL FUNDS TO THE
STATEMENT OF NET POSITION
JUNE 30, 2020
(amounts expressed in thousands)
Total fund balances - governmental funds
Amounts reported for governmental activities in the Statement of Net Position are different due to:
Capital assets used in governmental activities are not current financial resources and therefore not
reported in the governmental funds (Note 5):
Depreciable capital assets and infrastructure, net $
Land and nondepreciable capital assets
Deferred outflows of resources represent a consumption of net assets that will be reported as an
outflow of resources in a future period and therefore are not reported in the governmental funds.
Other assets not available in the current period and therefore are not reported in the governmental
funds:
Net pension asset
Long-term receivables
Internal service funds are used by management to charge the costs of certain activities, such as
insurance and central computer services, to individual governmental funds. The assets and liabilities
and of the internal service funds are included in the governmental activities in the Statement of Net
Position, excluding internal service funds' capital assets, deferred outflows of resources, deferred
inflows of resources and long-term liabilities reported in specific areas.
Other liabilities that are not due and payable in the current period and are not reported in the
governmental funds.
A portion of deferred inflows of resources represents an acquisition of net assets that will be
recognized as an inflow of resources in a future period, which differs than that reported in the
governmental funds.
Long-term liabilities and related accrued interest are not due and payable in the current period and
therefore are not reported in the governmental funds (Note 11):
Other long-term liabilities
Net pension liability
Total OPEB liability
Total net position - governmental activities
The notes to the financial statements are an integral part of this statement.
4,494,153
2,328,893 6,823,046
613,249
39,567
(444)
237,715
(12,149)
5,021
(551,906)
(2,243,084)
(45,593) (2,840,583)
$ 9,830,973
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A-30
STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES
GOVERNMENTAL FUNDS
FOR THE FISCAL YEAR ENDED JUNE 30, 2020
(amounts expressed in thousands)
SPECIAL REVENUE
GENERAL STATE FEDERAL
REVENUES (Note 14)
Licenses/permits $ 132,654 $ 285,639 $ —
Taxes:
Natural resource 69,726 64,110 _—
Individual income 1,421,934 _— _—
Corporate income 186,680 — —
Property 308,093 19,536 _
Fuel _ 260,324 _
Other 237,274 151,174 _
Charges for services/fines/forfeits/settlements 33,453 106,641 7,358
Investment earnings 20,243 39,163 668
Securities lending income _ 15 37
Sale of documents/merchandise/property 273 12,536 _
Rentals/leases/royalties 8 1,346 —
Grants/contracts/donations 11,315 19,503 72
Federal 18,889 6,642 3,180,500
Federal indirect cost recoveries 178 57,509 93,287
Other revenues 2,414 3,949 1,289
Total revenues 2,443,134 1,061,956 3,283,211
EXPENDITURES
Current:
General government 372,209 193,199 172,137
Public safety 321,661 96,834 25,892
Transportation _— 248,620 106,199
Health and human services 480,752 231,632 2,181,889
Education 1,082,324 76,644 193,684
Natural resources 36,263 195,389 90,770
Debt service:
Principal retirement 208 3,603 103
Interest/fiscal charges 256 645 1
Capital outlay 11,681 90,705 460,057
Securities lending _ 46 7
Total expenditures 2,305,354 1,137,317 3,230,749
Excess of revenue over (under) expenditures 137,780 (75,361) 52,462
OTHER FINANCING SOURCES (USES)
Inception of lease/installment contract 433 15,290 257
Insurance proceeds 48 34,366 _—
General capital asset sale proceeds 76 892 —
Bond premium _— 4,361 _—
Bond proceeds _— 28,900 _—
Energy conservation loans _ 632 _
Transfers in (Note 12) 86,773 176,213 1,485
Transfers out (Note 12) (76,949) (64,180) (48,633)
Total other financing sources (uses) 10,381 196,474 (46,891)
Net change in fund balances 148,161 121,113 5,571
Fund balances - July 1 - as previously reported 443,409 1,713,834 (12,614)
Adjustments to beginning fund balance (Note 2) 1,445 1,378 244
Fund balances - July 1 - as adjusted 444,854 1,715,212 (12,370)
Increase (decrease) in inventories (203) (210) _
Fund balances - June 30 $ 592,812 $ 1,836,115 $ (6,799)
The notes to the financial statements are an integral part of this statement.
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RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN
FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES
FOR THE FISCAL YEAR ENDED JUNE 30, 2020
(amounts expressed in thousands)
Net change in fund balances - total governmental funds $
Amounts reported for governmental activities in the Statement of Activities are different due to:
Capital outlays are reported as expenditures in governmental funds. However, in the Statement of
Activities, these costs are allocated as depreciation expense over the useful life of the capital asset.
Capital outlays exceeded depreciation expense in the current year by the following amount (Note 5):
Capital outlay $ 611,539
Depreciation expense and amortization (254,930)
Miscellaneous transactions involving capital assets such as sales (gain/loss) and donations are
reported in the Statement of Activities, but only proceeds from sales are reported in the governmental
funds.
Revenues reported in the Statement of Activities that do not provide current financial resources are
not reported as revenues in the governmental funds.
Bond proceeds provide current financial resources to governmental funds, but issuing debt increases
long-term liabilities in the statement of net assets.
Internal service funds are used by management to charge the costs of certain activities, such as
insurance and central computer services, to individual governmental funds. Internal service funds are
reported separately from governmental funds in the fund financial statements. In the government-
wide statements, internal service funds are included with governmental activities.
Some expenses reported in the Statement of Activities do not require the use of current financial
resources and therefore are not reported as expenditures in the governmental funds. Some
expenditures reported in the governmental funds either increase or decrease items reported in the
Statement of Net Position.
Change in net position - governmental activities $
The notes to the financial statements are an integral part of this statement.
432,420
356,609
(542)
34,712
(33,261)
32,892
(170,418)
652,412
STATEMENT OF FUND NET POSITION
PROPRIETARY FUNDS
JUNE 30, 2020
(amounts expressed in thousands)
ASSETS
Current assets:
Cash/cash equivalents (Note 3)
Receivables (net) (Note 4)
Interfund loans receivable (Note 12)
Due from other governments
Due from other funds (Note 12)
Due from component units
Inventories
Short-term investments (Note 3)
Securities lending collateral (Note 3)
Other current assets
Total current assets
Noncurrent assets:
Advances to other funds (Note 12)
Advances to component units
Long-term investments (Note 3)
Long-term notes/loans receivable
Other long-term assets
Capital assets (Note 5):
Land
Land improvements
Buildings/improvements
Equipment
Infrastructure
Construction work in progress
Intangible assets
Other capital assets
Less accumulated depreciation
Total capital assets
Total noncurrent assets
Total assets
DEFERRED OUTFLOWS OF RESOURCES (Note 4)
GOVERNMENTAL
BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS ACTIVITIES -
MUNICIPAL INTERNAL
UNEMPLOYMENT FINANCE SERVICE
INSURANCE PROGRAMS NONMAJOR = TOTAL FUNDS
248,066 $ 26,546 $ 140,966 $ 415,578 $ 223,048
4,478 8,029 35,770 48,277 11,691
16,745 _ _ 16,745 10
_ 3,338 _ 3,338 109
_ 1,525 _ 1,525 g
_ _ 4,424 4,424 4,933
— 146 _ 146 _
_ _ 339 339 386
_ _ 370 370 565
269,289 39,584 181,930 490,803 240,751
_ 564 20,659 21,223 23,715
2,266 39,703 _ 41,969 _
_ _ 3,830 3,830 95
_ _ 16,379 16,379 6,069
_ 4 9,806 9,810 264,670
_ _ 2,361 2,361 4,397
_ _ 1,521 1,521 551
_ (3) (17,591) (17,594) (170,266)
— 1 22,051 22,052 105,516
2,266 57,168 44,105 103,539 129,231
271,555 96,752 226,035 504,342 369,982
_— 51 2,372 2,423 9,975
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A-35
STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION
PROPRIETARY FUNDS
FOR THE FISCAL YEAR ENDED JUNE 30, 2020
(amounts expressed in thousands)
GOVERNMENTAL
BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS ACTIVITIES -
MUNICIPAL INTERNAL
UNEMPLOYMENT FINANCE SERVICE
INSURANCE PROGRAMS NONMAJOR TOTAL FUNDS
Operating revenues:
Charges for services $ 126 $ 7 $ 196,619 $ 196,752 $ 160,006
Investment earnings 8,549 441 3,210 12,200 3,421
Securities lending income _ _ 4 4 6
Financing income _ 2,041 _— 2,041 _—
Contributions/premiums 119,397 _— 125,820 245,217 227,049
Grants/contracts/donations 7,839 _ 49,221 57,060 5,504
Other operating revenues _ _— 9,088 9,088 12,023
Total operating revenues 135,911 2,489 383,962 522,362 408,009
Operating expenses:
Personal services _ 282 17,653 17,935 71,822
Contractual services _ 54 22,834 22,888 39,424
Supplies/materials _ 7 99,872 99,879 21,301
Benefits/claims 745,250 _ 149,459 894,709 222,488
Depreciation _ _— 875 875 14,672
Amortization _ _ 541 541 541
Utilities/rent _ 53 1,119 1,172 7,608
Communications _ 8 971 979 11,376
Travel _ 2 249 251 469
Repairs/maintenance _ _— 1,437 1,437 27,904
Grants _ _ _ _ 230
Lottery prize payments _ _— 36,766 36,766 _—
Securities lending expense _ _ 2 2 3
Arbitrage rebate tax _ 72 _ 72 _
Interest expense _ 2,008 8 2,016 433
Other operating expenses 1,258 56 3,078 4,392 5,830
Total operating expenses 746,508 2,542 334,864 1,083,914 424,101
Operating income (loss) (610,597) (53) 49,098 (561,552) (16,092)
Nonoperating revenues (expenses):
Tax revenues (Note 1) _ _ 32,576 32,576 _
Grant revenue 496,499 _ _ 496,499 _
Insurance proceeds _ _ _ _ 261
Gain (loss) on sale of capital assets _ _ 44 44 (48)
Federal indirect cost recoveries _ _— 225 225 13,478
Increase (decrease) value of livestock _ _ (353) (353) _
Total nonoperating revenues (expenses) 496,499 _ 32,492 528,991 13,691
Income (loss) before contributions and
transfers (114,098) (53) 81,590 (32,561) (2,401)
Capital contributions _ _— 1,184 1,184 107
Transfers in (Note 12) _ _ 458 458 36,137
Transfers out (Note 12) _ _ (59,394) (59,394) (944)
Change in net position (114,098) (53) 23,838 (90,313) 32,899
Total net position - July 1 - as previously reported 351,527 5,413 125,628 482,568 165,979
Adjustments to beginning net position (Note 2) 1,000 11 54 1,065 (443)
Total net position - July 1 - as adjusted 352,527 5,424 125,682 483,633 165,536
Total net position - June 30 $ 238,429 $ 5,371 $ 149,520 $ 393,320 $ 198,435
The notes to the financial statements are an integral part of this statement.
A-36
STATEMENT OF CASH FLOWS
PROPRIETARY FUNDS
FOR THE FISCAL YEAR ENDED JUNE 30, 2020
(amounts expressed in thousands)
GOVERNMENTAL
BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS ACTIVITIES -
MUNICIPAL INTERNAL
UNEMPLOYMENT FINANCE SERVICE
INSURANCE PROGRAMS NONMAJOR TOTAL FUNDS
CASH FLOWS FROM OPERATING ACTIVITIES
Receipt from sales and service $ 149,412 $ 7 $ 315,932 $ 465,351 $ 385,267
Payments to suppliers for goods and services (3,499) (248) (120,966) (124,713) (111,093)
Payments to employees _ (384) (17,385) (17,769) (70,040)
Grant receipts (expenses) 7,830 _— 49,381 57,211 5,261
Cash payments for claims (744,996) _ (149,826) (894,822) (184,467)
Cash payments for prizes _ _ (37,048) (37,048) _
Other operating revenues — — 9,311 9,311 25,499
Other operating payments (1,258) _ (2,894) (4,152) (5,830)
Net cash provided by (used for)
operating activities (592,511) (625) 46,505 (546,631) 44,597
CASH FLOWS FROM NONCAPITAL
FINANCING ACTIVITIES
Collection of taxes _— _— 32,576 32,576 _
Transfer to other funds _ _ (62,239) (62,239) (944)
Transfer from other funds _— _— 457 457 36,142
Proceeds from interfund loans/advances 1,485 _— 102 1,587 2,342
Payment of interfund loans and advances _ _ (61) (61) _
Payment of principal and interest on bonds and notes _ (16,756) (8) (16,764) (728)
Grant receipt 479,806 — _ 479,806 _—
Net cash provided by (used for)
noncapital financing activities 481,291 (16,756) (29,173) 435,362 36,812
CASH FLOWS FROM CAPITAL AND RELATED
FINANCING ACTIVITIES
Proceeds from insurance _ _ _ _ 262
Acquisition of capital assets _ _ (2,238) (2,238) (12,656)
Proceeds from sale of capital assets _ _ 927 927 916
Net cash provided by (used for) capital and
related financing activities = = (1,311) (1,311) (11,478)
CASH FLOWS FROM INVESTING ACTIVITIES
Sale (purchase) of investments _ (5,546) 2,581 (2,965) 10,998
Proceeds (loss) on sales or maturities of investments _— 8,218 _ 8,218 _
Proceeds (loss) from securities lending transactions/
investments _ _ 4 4 6
Interest and dividends on investments 11,306 455 3,230 14,991 3,421
Payment of securities lending costs _ _ (3) (3) (3)
Collections of principal and interest on loans — 42,169 _ 42,169 _—
Cash payment for loans _ (29,093) _ (29,093) _
Net cash provided by (used for)
investing activities 11,306 16,203 5,812 33,321 14,422
Net increase (decrease) in cash
and cash equivalents (99,914) (1,178) 21,833 (79,259) 84,353
Cash and cash equivalents, July 1 347,980 27,724 119,133 494,837 138,695
Cash and cash equivalents, June 30 $ 248,066 $ 26,546 $ 140,966 $ 415,578 $ 223,048
The notes to the financial statements are an integral part of this statement.
STATEMENT OF CASH FLOWS
PROPRIETARY FUNDS
FOR THE FISCAL YEAR ENDED JUNE 30, 2020
(amounts expressed in thousands)
Reconciliation of operating income to net
cash provided by operating activities:
Operating income (loss)
Adjustments to reconcile operating income
to net cash provided for (used for)
operating activities:
Depreciation
Amortization
Securities lending expense
Investment earnings
Securities lending income
Financing income
Interest expense
Other revenue
Arbitrage rebate tax
Change in assets, deferred outflows, liabilities and
deferred inflows:
Decr (Incr) in accounts receivable
Decr (Incr) in due from other funds
in due from component units
in due from other governments
in inventories
(
Decr (Incr
Decr (Incr
Decr (Incr
( in other assets
Decr (Incr
Incr (Decr) in accounts payable
in due to other funds
in due to other governments
in lottery prizes payable
in unearned revenue
in amounts held in custody for others
in compensated absences payable
in total OPEB liability
in estimated claims
in other payables
(
Incr (Decr
Incr (Decr
Incr (Decr
Incr (Decr
Incr (Decr
Incr (Decr
Incr (Decr
Incr (Decr
Incr (Decr
Incr (Decr
accounts
Net cash provided by (used for)
operating activities
in net pension liability and related
Schedule of noncash transactions:
Capital asset acquisitions from contributed capital
Incr (Decr) in fair value of investments
Total noncash transactions
GOVERNMENTAL
BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS ACTIVITIES
MUNICIPAL INTERNAL
UNEMPLOYMENT FINANCE SERVICE
INSURANCE PROGRAMS NONMAJOR TOTAL FUNDS
$ (610,597) $ (53) $ 49,098 $ (561,552) $ (16,092)
— — 875 875 14,672
— — 541 541 541
— — 3 3 3
(8,549) (441) (3,184) (12,174) (3,421)
— _ (4) (4) (6)
— (2,041) — (2,041) —
— 2,008 8 2,016 432
— — 225 225 13,476
(1,498) — (5,165) (6,663) (2,637)
— — 2 2 (29)
(9) — 166 157 (7)
— — 599 599 (602)
— — (2) (2) 355
25,521 16 2,807 28,344 2,651
— — 1,476 1,476 82
— — 135 135 —
— — (281) (281) —
2,621 — 555 3,176 (115)
— (16) 210 194 580
— 1 (155) (154) (394)
— — (1,546) (1,546) 37,760
— — 7 7 (4,419)
— (76) 135 59 1,219
$ (592,511) $ (625) $ 46,505 $ (546,631) $ 44,597
$ —$ —$ 1,184 § 1,184 $ 108
— (9) (905) (914) (1,050)
$ — $ (9) $ 279 $ 270 $ (942)
The notes to the financial statements are an integral part of this statement.
A-37
A-38
STATEMENT OF FIDUCIARY NET POSITION
FIDUCIARY FUNDS
JUNE 30, 2020
(amounts expressed in thousands)
ASSETS
Cash/cash equivalents (Note 3)
Receivables (net):
Accounts receivable
Interest
Due from primary government
Due from other PERB plans
Long-term loans/notes receivable
Total receivables
Investments at fair value:
Equity in pooled investments (Note 3)
Other investments (Note 3)
Total investments
Securities lending collateral (Note 3)
Capital Assets:
Land
Buildings/improvements
Equipment
Accumulated depreciation
Intangible assets
Total capital assets
Other assets
Total assets
DEFERRED OUTFLOWS OF RESOURCES
LIABILITIES
Accounts payable
Due to other PERB plans
Unearned revenue
Securities lending liability (Note 3)
Compensated absences payable
Net pension liability (Note 6)
Total OPEB liability (Note 7)
Total liabilities
DEFERRED INFLOWS OF RESOURCES
NET POSITION
Restricted for:
Pensions
Postemployment benefits other than pensions
Pool participants
Individuals, organizations, and other governments
Total net position
The notes to the financial statements are an integral part of this statement.
PENSION
(AND OTHER
EMPLOYEE PRIVATE
BENEFIT) PURPOSE
TRUSTFUNDS TRUST FUNDS
INVESTMENT
TRUST CUSTODIAL
FUNDS FUNDS
$ 130,602 $ 45,741
22,235 —
65 —
34,357 —
197 —
9 _
1,705,734 $ 6,281
— 668
809 —
57,463 —
809 668
11,658,386 —
868,852 167,559
13,139 —
12,527,238 167,559
13,139 —
62,203 —
35 —
973 —
96 —
(281) —
5,309 —
239 —
6,132 —
— 34,835
12,783,638 248,135
1,719,921 9,489
359 —
1,247 21
197 —
369 —
62,203 —
635 —
1,488 —
213 —
66,952 21
370 —
12,136,708 —
579,967 —
— 248,114
1,718,902 —
— 8,817
$ 12,716,675 $ 248,114
1,718,902 $ 8,817
A-39
STATEMENT OF CHANGES IN FIDUCIARY NET POSITION
FIDUCIARY FUNDS
FOR THE FISCAL YEAR ENDED JUNE 30, 2020
(amounts expressed in thousands)
PENSION
(AND OTHER
EMPLOYEE PRIVATE INVESTMENT
BENEFIT) PURPOSE TRUST CUSTODIAL
TRUST FUNDS TRUST FUNDS FUNDS FUNDS
ADDITIONS
Contributions/premiums:
Employer $ 273,930 $ — $ — $ =
Employee 260,267 _— _— _—
Other contributions 118,680 18,278 1,615,814 _—
Investment earnings:
Net increase in fair value of investments 405,201 (926) 1,304 —
Interest, dividends, and other 24,836 1 23,686 17
Securities lending income 1,349 _— 3 _—
Total investment earnings 431,386 (925) 24,993 17
Less investment costs:
Administrative investment expense 64,071 _— _— _—
Securities lending expense 719 _— 2 _—
Net investment earings 366,596 (925) 24,991 17
Charges for services 786 — — —
Other additions and miscellaneous 905 9,160 _— 51,943
Total additions 1,021,164 26,513 1,640,805 51,960
DEDUCTIONS
Benefits 986,936 — _ __
Refunds 22,878 — _ __
Distributions _— 38,336 1,310,284 47,848
Administrative expenses 13,286 758 _— _—
Transfers to MUS-RP 268 _— _— _—
Transfers to PERS-DCRP 1,984 — — —
Total deductions 1,025,364 39,094 1,310,284 47,848
Change in net position (4,200) (12,581) 330,521 4,112
Net position - July 1 - as previously reported 12,720,859 287,288 1,388,381 —_
Adjustments to beginning net position (Note 2) 16 (26,593) — 4,705
Net position - July 1 - as adjusted 12,720,875 260,695 1,388,381 4,705
Net position - June 30 $ 12,716,675 $ 248,114 $ 1,718,902 $ 8,817
The notes to the financial statements are an integral part of this statement.
NOTES TO THE FINANCIAL STATEMENTS
NOTE1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements for the State of Montana (State) have been prepared in accordance with
Generally Accepted Accounting Principles (GAAP), as prescribed by the Governmental Accounting Standards
Board (GASB).
A. Reporting Entity
For financial reporting purposes, the State includes funds that comprise the primary government and its component
units. The component units are entities that the State is financially accountable for, or whose relationship with the
State is such that exclusion would cause the State's financial statements to be misleading or incomplete. GASB has
set forth criteria to be considered in determining financial accountability. This criterion includes appointing a voting
majority of an organization's governing body, and (1) the ability of the State to impose its will on that organization
or (2) the potential for the organization to provide specific financial benefits to, or impose specific financial burdens
on, the State.
Discretely Presented Component Units
These component units are entities that are legally separate from the State because they possess corporate powers,
but are financially accountable to the State, or whose relationships with the State are such that exclusion would
cause the State's financial statements to be misleading or incomplete. Complete financial statements of the individual
component units, which issue separate financial statements, can be obtained from their respective administrative
offices. The condensed financial statements, presented in Note 18, include the financial data of the entities listed
below.
Complete financial statements for each of the individual discretely presented component units may be obtained at
the following addresses:
Montana Board of Housing Montana State Fund
301 South Park, Room 240 855 Front Street
PO Box 200528 PO Box 4759
Helena, MT 59620-0528 Helena, MT 59604-4759
Facility Finance Authority Universities and Colleges
2401 Colonial Drive, 3“ Floor Commissioner of Higher Education
PO Box 200506 560 North Park Ave, 4th Floor
Helena, MT 59620-0506 PO Box 203201
Helena, MT 59620-3201
Montana Board of Housing (MBOH) — MBOH, which is a legally separate entity, is governed by a quasi-judicial
board appointed by the Governor with the advice and consent of the Senate. The State of Montana has the ability to
modify or approve: the budget, the rate or fee changes affecting revenues, and the ability to appoint, hire, reassign,
or dismiss those responsible for the day-to-day operations of MBOH. It was created in 1975 to facilitate the
availability of safe and affordable housing to persons and families of lower-income. MBOH issues negotiable notes
and bonds to fulfill its purposes. The total amount of notes and bonds outstanding at any time may not exceed $1.5
billion. The discount price of bonds sold, not the face amount of the bonds, counts against this statutory ceiling.
Neither the faith and credit nor taxing power of the State of Montana may be pledged for the amounts so issued.
MBOH is attached to the Department of Commerce for administrative purposes only. MBOH is audited annually by
the State’s Legislative Audit Division.
Facility Finance Authority (FFA) — FFA, which is a legally separate entity, is governed by a quasi-judicial board
appointed by the Governor with the advice and consent of the Senate. The State of Montana has the ability to modify
or approve: the budget, the rate or fee changes affecting revenues, and the ability to appoint, hire, reassign, or
dismiss those responsible for the day-to-day operations of FFA. FFA assists eligible, nonprofit Montana health care
and other community-based service providers to obtain and maintain access to the broadest range of low-cost capital
A-41
A-42
financing as possible. FFA issues revenue bonds to fulfill its purposes. Neither the faith and credit or taxing power
of the State of Montana may be pledged for the amounts so issued. FFA is attached to the Department of Commerce
for administrative purposes only. Individual financial reports are issued every two years and are audited by the
State’s Legislative Audit Division.
Montana State Fund (MSF) — MSF is a nonprofit, independent public corporation established under Title 39,
Chapter 71 of the Montana Code Annotated (MCA). MSF provides Montana employers with an option for workers’
compensation and occupational disease insurance and guarantees available coverage for all employers in Montana.
MSF is governed by a seven-member Board of Directors appointed by the Governor with the advice and consent of
the Senate. This Board has full power, authority, and jurisdiction in the administration of MSF. MSF's results are
included in the State's Comprehensive Annual Financial Report because of the significance of MSF's financial
relationship with the State. MSF's board is allocated to the Department of Administration for administrative
purposes only. MSF is reported on a calendar year basis and is audited annually by the State’s Legislative Audit
Division and is also regulated by the Montana State Auditor's Office as an authorized insurer that is subject to the
provisions of Title 33, Montana Insurance Code.
MSF functions as an autonomous insurance entity supported solely from its own revenues. All assets, debts, and
obligations of MSF are separate and distinct from assets, debts, and obligations of the State of Montana. If MSF is
dissolved by an act of law, the assets held by MSF are subject to the disposition provided by the Legislature enacting
the dissolution with due regard given to obligations incurred and existing (Section 39-71-2322, MCA).
MSF handles the administration of the claims of Montana State Fund and State of Montana (Old Fund), including
determining who a claimant is; what, if any, claims will be paid; and the amount of claims allowed to be paid. Old
Fund covers workers’ compensation claims that were incurred before July 1, 1990, and is reported within the
governmental activities of the primary government, on the government-wide financial statements.
Universities and Colleges — The Montana Constitution, Article X, Section 9, grants governance authority over the
Montana University System (MUS) to the Board of Regents (Board), with seven members appointed by the
Governor and confirmed by the Senate. All state funds appropriated by the Legislature to the Board for the support
of the MUS are channeled through the Office of the Commissioner of Higher Education (OCHE). The Constitution
charges the Board with hiring a Commissioner of Higher Education who serves as its executive staff. OCHE is the
state-level administrative organization of the MUS.
The Board has responsibility for the following institutions: Montana State University - Bozeman and the units under
it including Montana State University - Billings, Montana State University - Northern, and Great Falls College
Montana State University; and University of Montana - Missoula and the units under it including Montana
Technological University, University of Montana - Western, and Helena College University of Montana. All units
are funded through state appropriations, tuition, federal grants, and private donations and grants. The universities are
audited annually by the State’s Legislative Audit Division.
Though the following organizations perform functions related to the MUS, they are not considered part of Montana's
reporting entity: (1) Community Colleges which are considered part of local units of government; (2) the Montana
Higher Education Student Assistance Corporation, a private nonprofit corporation; and (3) the Student Assistance
Foundation of Montana, a private nonprofit corporation. Entities such as local school districts and local authorities
of various kinds are considered part of local units of government and have not been included. The state and federal
support of local public education systems is reported in the General Fund, the State Special Revenue Fund, and the
Federal Special Revenue Fund.
Fiduciary Fund Component Units
Complete financial statements for each of the individual fiduciary fund component units may be obtained at the
following addresses:
Teachers’ Retirement System Public Employees’ Retirement Board
100 North Park Avenue, Suite 110 100 North Park Avenue, Suite 200
PO Box 200139 PO Box 200131
Helena, MT 59620-0139 Helena, MT 59620-0131
Teachers’ Retirement System (Pension Trust Fund) — This retirement plan is a legally separate entity with a board
appointed by the Governor. Its purpose is to provide retirement, disability, death, and lump-sum payments to benefit
recipients of Montana's public teaching profession. The plan is funded from employer and employee contributions,
investment earnings, and the State’s General Fund. The benefit payments and administrative costs of the Teachers’
Retirement System are paid from the same funding sources. The system is audited annually by the State’s
Legislative Audit Division. Further detail related to the Teachers’ Retirement System is provided in Note 6.
Public Employees’ Retirement Board (Pension and Other Employee Benefit Trust Funds) — The Public Employees’
Retirement Board (PERB) is appointed by the Governor and administers ten separate plans for the purpose of
providing retirement, disability, death, and lump-sum payments to plan members. These legally separate plans
include the Public Employees’ Retirement Plan — Defined Benefit and Defined Contribution and the associated
education funds; the Judges’; the Highway Patrol Officers’; the Sheriffs’; the Game Wardens’ and Peace Officers’;
the Municipal Police Officers’; the Firefighters’ Unified Retirement Systems; the Volunteer Firefighters’
Compensation Act; and the State of Montana Deferred Compensation Program (457 Plan) retirement plans. The
board also administers an Other Post Employment Benefit (OPEB) disability plan on behalf of Public Employees’
Retirement Plan-Defined Contribution members.
PERB is responsible for the ten separate public employee plans, which includes the Deferred Compensation
Program, and a separate Other Post Employment Benefit plan. These are reported as pension and other employee
benefit trust funds. The board is audited annually by the State’s Legislative Audit Division. Further detail related to
the PERB is provided in Note 6 and its OPEB plan information in Note 7.
B. Government-wide and Fund Financial Statements
The government-wide financial statements, Statement of Net Position and Statement of Activities, report
information on all of the non-fiduciary activities of the State of Montana and its component units. For the most part,
the impact of interfund activity has been removed from these statements. Governmental activities, which are
normally supported by fees, taxes, and intergovernmental revenues, are reported separately from business-type
activities, which rely to a significant extent on fees and charges for support. Likewise, the State of Montana is
reported separately from certain legally separate component units for which the State is financially accountable.
The Statement of Activities demonstrates the degree to which program revenues offset the direct expenses of a
function. Direct expenses are those that are clearly identifiable with a specific function. Certain indirect costs are
included in the program expense reported for the individual functions and activities. Program revenues include (1)
charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges
provided by a given function; and (2) grants and contributions restricted to meeting the operational or capital
requirements of a particular function. Taxes and other revenues not meeting the definition of program revenues are
reported as general revenues. The State does not allocate indirect expenses to functions in the Statement of
Activities.
Separate fund financial statements are provided for governmental, proprietary, and fiduciary funds. Major individual
governmental and major individual enterprise funds are reported as separate columns in the fund financial
statements. Fiduciary fund statements are reported only in the fund financial statements.
C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation
Government-wide, Proprietary, and Fiduciary Fund Financial Statements
The government-wide, proprietary fund, and fiduciary fund financial statements are reported using the economic
resources measurement focus and the accrual basis of accounting. Revenues are reported when earned; expenses are
recorded when a liability is incurred regardless of the timing of the related cash flows. Property taxes are recognized
as revenues in the year for which they are levied. Grants and similar items are recognized as revenues as soon as all
of the eligibility requirements imposed by the provider are met.
As a general rule, material interfund revenues and expenses have been eliminated from the government-wide
financial statements. These have not been eliminated where their elimination would distort the direct costs and
program revenues of the functions involved.
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Governmental Fund Financial Statements
Governmental fund financial statements are reported using the current financial resources measurement focus and
the modified accrual basis of accounting. Revenues are recognized when they are realizable, measurable, earned, and
available. Revenue is considered realizable when it is probable the amount will be collected. Revenue is considered
measurable and realizable if the precise amount is known because the transaction is completed, or if there is enough
information to provide a reasonable estimate of the net realizable revenue to be received. Revenue is considered to
have been earned when the exchange of goods or services has taken place. Revenue is considered to be available if it
is collectible within the current period or soon enough thereafter, to pay liabilities of the current period. For this
purpose, the State considers revenue available if it is expected to be collected within 60 days of the end of the
current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting.
However, debt service expenditures as well as expenditures relating to compensated absences, claims, and
judgments are recorded only when payment is due.
The major revenue sources considered susceptible to accrual are licenses and permits, natural resource taxes,
individual income taxes, corporate income taxes, property taxes, fuel taxes, and certain federal revenues
(reimbursable grants and U.S. mineral royalties). All other revenue is considered to be measurable and available
when the cash is received.
Fund Financial Statements
The State uses funds to report on its financial position and the results of its operations. A fund is a separate
accounting entity with a self-balancing set of accounts. Fund accounting is designed to demonstrate legal
compliance and to aid financial management by segregating transactions related to certain government functions or
activities.
The financial activities of the State of Montana are classified into fund categories as described below:
Governmental Funds
General Fund — To account for all governmental financial resources, except those required to be accounted for in
another fund.
Special Revenue Funds — To account for the proceeds of specific revenue sources restricted to expenditure for
specified purposes other than major capital projects. (1) The State Special Revenue Fund accounts for activities
funded from state resources used to account for and report the proceeds of specific revenue sources that are
restricted or committed to expenditure for specified purposes other than debt service or capital projects. Several
funds are defined in statute as Permanent Funds, however per GASB Statement No. 54, Fund Balance Reporting
and Governmental Fund Type Definitions (GASB 54), these funds should be reported within the State Special
Revenue Fund. The respective effect on fund balance is approximately a $95.8 million increase. One specific fund is
defined in statute as a Federal Special Revenue Fund; however, per GASB 54, this fund should be reported within
the State Special Revenue Fund. The respective effect on fund balance is approximately a $27.2 million increase. (2)
The Federal Special Revenue Fund accounts for activities funded from federal sources used in the operation of state
government.
Debt Service Funds — To account for resources accumulated for payment of principal and interest on general long-
term obligation debt.
Capital Projects Funds — To account for resources used for the acquisition or construction of major capital facilities,
other than those financed by proprietary or trust funds.
Permanent Funds — To account for resources that are permanently restricted to the extent that only earnings, not
principal, may be used to support the government’s programs. Several funds are defined in statute as Permanent
Funds, however per GASB 54 these funds should be reported within the State Special Revenue Fund.
Proprietary Funds
Enterprise Funds — To account for operations: (1) financed and operated similar to private business enterprises,
where the intent of the Legislature is to finance or recover costs primarily through user charges; (2) where the
Legislature has decided periodic determination of revenue earned, expenses incurred, or net income is appropriate;
(3) where the activity is financed solely by a pledge of the net revenues from fees and charges of the activity; or (4)
when laws or regulations require that the activities’ costs of providing services, including capital costs, be recovered
with fees and charges rather than with taxes or similar revenues. The primary focus of fee revenues charged by
enterprise funds is users outside of the primary government. One specific fund is defined in statute as an Enterprise
Fund, however, per GASB 34, this fund should be reported within Internal Service Funds. The respective effect on
net position is approximately a $5.2 million increase.
Internal Service Funds — To account for the financing of goods and services provided by one department or agency
to other departments, agencies, or other governmental entities on a cost-reimbursement basis.
The State of Montana reports two employee group benefits funds. The MUS Group Insurance Fund primarily
charges its fees to Montana State University and the University of Montana. The universities are reported as
discretely presented component units, which the State considers to be external users, and as such, reports the MUS
Group Insurance Fund as an enterprise fund. The Employee Group Benefits Fund charges its fees to funds of the
primary government, and as such, is reported as an internal service fund.
Fiduciary Funds
Fiduciary Funds are used to account for assets held by the State in a trustee capacity or as an agent for individuals,
private organizations, or other governments. These assets cannot be used to support the government’s own
programs.
Pension (and Other Employee Benefit) Trust Funds — To account for resources that are required to be held in trust
for the members and beneficiaries of the State’s defined benefit plans, defined contribution plans, other retirement
plans, and other post-employment benefit plan. Plan members receive retirement, disability, death, and lump-sum
payments from the fund. Further detail related to the individual plans is provided in Note 6 and Note 7.
Private-Purpose Trust Funds —To account for assets held by the State in a trustee capacity, where both the principal
and earnings benefit individuals, private organizations, or other governments. For example, unliquidated security
bonds held on deposit from self-insured employers.
Investment Trust Fund — To account for the receipt of monies and the distribution of related investment earnings to
local government agencies by the Montana Board of Investments for investment in the Short Term Investment Pool
(STIP) and Trust Fund Investment Pool (TFIP).
Custodial Funds — To account for transactions related to assets held by the State as an agent for individuals, private
organizations, and other governments. For example, monies belonging to one parent submitted by another as is the
case with child support payments.
Major Governmental Funds
The General Fund is the State’s primary operating fund, as previously defined.
The State Special Revenue Fund accounts for activities funded from state sources, which are restricted either legally
or administratively for particular costs of an agency, program, or function.
The Federal Special Revenue Fund accounts for activities funded from federal sources used in the operation of state
government.
The Coal Severance Tax Fund, created by Article IX, Section 5 of the Montana State Constitution, receives 50% of
all coal tax collections. The principal in this fund can be expended only upon an affirmative vote of three-fourths of
each house of the Legislature.
The Land Grant Permanent Fund accounts for lands granted to the State for support of public schools and state
institutions.
Major Enterprise Funds
The Unemployment Insurance Fund accounts for employer contributions deposited with the Secretary of the
Treasury of the United States to the credit of the State’s unemployment trust fund. Unemployment benefits are paid
from this fund to eligible recipients. For fiscal year 2020, federal and state contributions were also made to this fund
due to increased claims related to the statewide unemployment impact of COVID-19.
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The Board of Investments (BOI) Municipal Finance Programs Fund accounts for the programs created under the
Municipal Finance Consolidation Act (MFCA) and the Economic Development Act. Primarily, this involves a
MFCA revolving loan program that provides variable low interest rate loans to eligible Montana State agencies,
universities, and local governments for a variety of projects statutorily defined. The funding for the revolving loan
program is from the issuance of put bonds. The MFCA program also provides local government entities access to
tax-exempt funds through the issuance of conduit (no-commitment) debt. In previous years this activity was
referred to as the Economic Development Bonds Fund. Separately issued financial statements may be obtained by
contacting the Montana Board of Investments, 2401 Colonial Drive, 3rd Floor, PO Box 200126, Helena, MT
59620-0126.
D. Proprietary Activity Accounting and Financial Reporting
Proprietary funds distinguish operating revenues and expenses from non-operating items. Operating revenues
generally result from providing services and delivering goods in connection with a proprietary fund’s principal
ongoing operations. Operating expenses for enterprise and internal service funds include the cost of sales and
services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting these
definitions are reported as non-operating.
E. Cash/Cash Equivalents
For all funds, cash and cash equivalents consist of amounts deposited in the State Treasurer’s pooled cash account,
cash deposits in checking accounts, cash invested in the Short Term Investment Pool (STIP), cash held by trustees,
undeposited cash held by individual state agencies, and investments categorized as cash equivalents, which are
short-term, highly liquid investments with original maturities of three months or less. Further detail related to cash
and cash equivalents is provided in Note 3.
F. Receivables
This classification, net of estimated uncollectibles, consists primarily of receivables for goods sold and services
provided, short-term loans and notes, interest and dividends, taxes due within 60 days of fiscal year-end, and
income, withholding, and inheritance taxes that are past due. An allowance for uncollectible taxes is provided based
upon historical analysis. Further detail related to receivables is provided in Note 4.
G. Inventories
Inventories of materials and supplies are reported at cost. The State allows agencies to use any generally accepted
inventory pricing method but specifies the first-in, first-out method generally to be appropriate for most agencies.
Governmental funds use the "purchase method," meaning inventory purchases are recorded as expenditures. At
fiscal year-end, inventory balances are shown as nonspendable, indicating they do not constitute available
expendable resources. Proprietary and fiduciary funds report using the "consumption method," meaning inventories
are expensed as used.
H. Equity in Pooled Investments
To account for equity in pooled investments, BOI uses one internal investment pool and one external investment
pool. The internal investment pool is the Consolidated Asset Pension Pool (CAPP). The State's nine defined benefit
pension trust funds are the only participants in CAPP. The external investment pool is the Trust Funds Investment
Pool (TFIP). State agencies and qualifying local governments can participate in TFIP. Current State agency TFIP
participation is within the enterprise funds, internal service funds, permanent funds, investment trust funds, Montana
University System Units, and specific accounts established within the State and Federal Special Revenue Funds. The
participant investments in the pools are reported at fair value in the assets within the individual funds. Further detail
related to cash and cash equivalents and investments is provided in Note 3.
I. Investments
For agencies whose investment needs are not met by BOI’s established investment pools, BOI provides separate
investments, which are combined and reported as Separately Managed Accounts (SMA). SMA participants have
direct fixed income, equity, and Montana mortgage and loan investments. SMA investments are reported at fair
value. Certain securities including asset-backed securities, variable-rate instruments, zero-coupon bonds, preferred
stocks, and mortgage-backed securities are purchased for portfolio diversification and a competitive rate of return.
Other State agencies, on a limited basis by statute, may administer other long-term investments. Most investments
are reported at fair value on the Statement of Net Position. Further detail related to investments is provided in Note
3.
J. Capital Assets
Capital asset valuation is based on actual historical cost or, in the case of donations, acquisition value. General
government infrastructure capital assets are capitalized and reported on the government-wide financial statements.
Infrastructure assets of proprietary funds are capitalized on the fund financial statements. Interest incurred during the
construction of capital assets for proprietary funds is capitalized. Interest incurred during the construction of capital
assets for higher education component units is expensed. The State has chosen to use the depreciation approach for
infrastructure assets. The State is reporting accumulated depreciation on the Statement of Net Position and
depreciation expense on the Statement of Activities for these assets. Further detail related to capital assets is
provided in Note 5.
Capital assets in proprietary, private-purpose trust, and pension trust funds are accounted for within their respective
funds and are depreciated or amortized on their fund financial statements. Capital assets in governmental funds are
accounted for in the governmental activities of the government-wide financial statements, as is the associated
depreciation and amortization. Depreciation is on a straight-line basis with estimated useful lives of 25 to 60 years
for buildings, 10 to 50 years for infrastructure, 7 to 20 years for building improvements, and 3 to 10 years for
equipment. State agencies are also required to extend or shorten the useful lives of capital assets to reflect their
actual experience or industry standards when appropriate. Amortization is on a straight-line basis with estimated
useful lives of 4 years for software (internally and externally generated), 30 years for land use rights, and 20 years
for other intangibles.
The capitalization limit for buildings and building/land improvements is $25,000. The capitalization threshold for
infrastructure and internally-generated software is $500,000. The capitalization threshold for intangible assets is
$100,000. The capitalization limit for other capital assets is $5,000. Agencies are allowed to capitalize additions to
collections and land acquisitions at any cost. Purchases under these thresholds are recorded as expenditures/expenses
in the current period.
K. Deferred Outflows, Deferred Inflows, and Unearned Revenue
A deferred outflow of resources is a consumption of net assets by the government that is applicable to a future
reporting period. A deferred inflow of resources is an acquisition of net assets by the government that is applicable
to a future reporting period. Deferred outflows and inflows of resources may include financial transactions related to
refunding debt, non-exchange transactions, derivative investment, OPEB, and pension related components and are
reported on the government-wide, proprietary fund, and fiduciary fund financial statements. Additionally, deferred
inflows of resources may include financial transactions related to unavailable revenue on the governmental fund
financial statements. Unavailable revenue is reported when assets are recognized, but those assets are not considered
available to pay liabilities of the current period. Unearned revenue, which is neither a deferred outflow of resources
nor a deferred inflow of resources, is recognized as a liability on government-wide, governmental and proprietary
fund financial statements. Further detail related to deferred outflows of resources and deferred inflows of resources
is provided in Note 4.
L. Long-term Obligations
Long-term obligations expected to be financed from governmental funds are reported on the government-wide
financial statements. Long-term debt is recognized as a liability of a governmental fund when due, or when
resources have been accumulated in the debt service fund for payment early in the following year. For other long-
term obligations, only that portion expected to be financed from current expendable available financial resources is
reported as a fund liability of a governmental fund on the fund financial statements. The remaining portion of such
obligations is reported on the government-wide financial statements. Long-term liabilities expected to be financed
from proprietary and fiduciary fund operations are accounted for in those funds. Further detail related to leases/
installment purchases payable and long-term liabilities is provided in Note 10 and Note 11, respectively.
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M. Capital Leases
A capital lease is a lease that transfers benefits and risks of ownership to the lessee. At the inception of a capital
lease, on the government-wide, proprietary fund, and fiduciary fund financial statements, a capital asset and a capital
lease liability are recorded at the present value of the future minimum lease payments. On the governmental fund
financial statements no asset or liability is recorded related to assets under capital leases. Rather, on the
governmental fund financial statements, at the inception of a capital lease, capital outlay expenditures, and other
financing sources (inception of lease/installment contract) are recorded at the net present value of the minimum lease
payments. Further detail related to capital leases is provided in Note 10.
N. Bond Discounts/Premiums/Issuance Costs
Bond premiums and discounts, as well as issuance costs, are recognized in the period they are incurred. Bond
proceeds and bond premiums are reported as an other financing source, and bond discounts are reported as an other
financing use. Issuance costs are reported as debt service expenditures whether or not they are withheld from the
bond proceeds. Bonds payable are recorded net of any applicable premium or discount. Further detail related to
long-term debt is provided in Note 11.
O. Compensated Absences
Full-time state employees earn vacation leave ranging from 15 to 24 days per year depending on the individual's
years of service. Teachers employed by the State do not receive vacation leave. Vacation leave may be accumulated
and carried over from one year to the next. The carryover is limited to two times the maximum number of days
earned annually. Sick leave is earned at the rate of 12 days per year with no limit on accumulation. Each
contribution year, an employee may contribute a maximum of 80 hours of sick or annual leave to a nonrefundable
sick leave pool. Excess annual leave that is being forfeited can also be contributed, with no maximum contribution.
The adjusted ending balance of the pool for June 30, 2019, was 17,412 hours. For fiscal year 2020, 1,562 sick leave
hours, 703 annual leave hours, and 2,428 excess annual leave hours were contributed to the sick leave pool, and
5,227 hours were withdrawn, leaving a balance of 16,879 hours in the pool. The liability associated with the pool is
not reported in the accompanying financial statements because these hours are nonrefundable to contributors, except
by grants approved through an application process.
Vested or accumulated leave for proprietary and fiduciary funds is recorded as an expense and liability of those
funds in the fund financial statements. For governmental funds, the liability is not expected to be liquidated with
expendable financial resources. The expenditure and liability for the governmental funds is reported only on the
government-wide financial statements. Upon retirement or termination, an employee is paid for 100% of unused
vacation leave and 25% of unused sick leave. Further detail related to compensated absences is provided in Note 11.
P. Nonexchange Financial Guarantee
BOI provides loan guarantees from the Coal Severance Tax Fund to the Facility Finance Authority (FFA), a
discretely presented component unit of the State. BOI exposure to bond issues, surety bonds, and designated loans
of the FFA totaled $88.3 million as of June 30, 2020. FFA guarantee requests are submitted to BOI for review and
approval. BOI’s participation, either duration or any other consideration, to either purchase bonds or loans or to lend
money for deposit into FFA’s statutorily allowed capital reserve account is explicitly limited by statute which
requires BOI to act prudently. The guarantee requests from FFA pertain to bonds issued by FFA with a term of up
to 40 years. BOI and FFA have entered into an agreement detailing repayment to BOI. BOI has not had to perform
on any loan guarantee in the past.
Q. Fund Balance/Net Position
Fund Balance
The classifications for fund balance used for governmental funds are reported in two general classifications,
nonspendable and spendable. Nonspendable represents the portion of fund balance that is legally or contractually
required to remain intact or is not in spendable form such as inventories, and, in the General Fund, long-term notes
and loans receivable. Spendable fund balance is further categorized as restricted, committed, assigned, and
unassigned.
The restricted fund balance category includes amounts that can be spent only for the specific purposes stipulated by
the State Constitution or external parties, such as the federal government, or through enabling legislation. For the
purpose of determining restricted amounts, enabling legislation does not include commitments resulting from State
legislation if these constraints can be removed or changed by a similar legislative action.
The committed fund balance classification includes amounts that can be used only for the specific purposes
determined by a formal action of the government’s highest level of decision-making authority, the State’s
Legislature, through legislation passed into law.
Amounts, in the assigned fund balance classification, are intended to be used by the government for specific
purposes. Still they do not meet the criteria to be classified as restricted or committed. Assignments of fund balance
are created by the executive branch. In governmental funds other than the General Fund, assigned fund balance also
represents the remaining amount that is not restricted or committed. The assigned fund balance for the General Fund
are encumbrances and assignments for the portion of current General Fund balance that is projected to be used to
fund expenditures and other cash outflows in excess of the expected revenues and other cash inflows in fiscal years
as needed. The projected spend down for fiscal year 2021 is $72.7 million; thus, a related assignment of fund
balance is reported at 2020 fiscal year-end.
Unassigned fund balance is the residual classification for the General Fund and includes all spendable amounts not
contained in the other classifications. In other funds, the unassigned classification should be used only to report a
deficit balance resulting from overspending for specific purposes for which amounts had been restricted, committed,
or assigned.
The State generally segregates restricted, committed, and assigned resources by account (sub-fund) within the
governmental funds other than the General Fund. When resources meeting more than one of these spendable
classifications are commingled in an account on the State’s accounting system, the assumed order of spending is
restricted first, committed second, and finally assigned. State statute requires non-General Fund money be spent first
whenever possible so any related available unassigned balance would be spent last.
General Fund - Fund Balance
As of June 30, 2020, the State maintains a Budget Stabilization Reserve Fund as required by statute. For financial
reporting purposes, this fund is combined with the General Fund as it does not meet the GASB 54 requirements to
be a special revenue fund as the Legislature prescribed. The June 30, 2020, committed fund balance in the General
Fund of $117.8 million, represents the Budget Stabilization Reserve Fund balance.
Additionally, statute provides a minimum fund balance amount as follows: Section 17-7-140, MCA, defines
minimum ending fund balance and specifies the procedures that must be followed to make expenditure reductions or
allow transfers from the Budget Stabilization Reserve Fund if a projected ending fund balance drops below
minimum statutory requirements.
If the Budget Director determines that a deficit exists, statute requires reductions that must be made to assure that the
projected ending fund balance complies with the minimum ending fund balance of General Fund appropriations for
the biennium. Under circumstances when a deficit of this level is projected during a biennium, the Governor may
direct reductions from any General Fund expenditure not exempted by Section 17-7-140, MCA, including House
Bill (HB) 2 (the State’s main appropriation bill), any other appropriation bills, statutory appropriations, or language
appropriations. Reductions may not exceed 10% of General Fund appropriations for any single “program,” as
defined in HB 2. Ifa program has more than one appropriation, the reduction for one or more of the appropriations
may exceed 10% as long as the reduction for the program as a whole does not exceed 10%.
The Legislative and Judicial branches, the Montana School for the Deaf and Blind, principal and interest on State
debt, salaries of elected officials, and public school BASE funding are exempt, statutorily, from reductions. These
exemptions shield approximately one-third of General Fund appropriations from reduction. Of the remaining
expenditures, the Governor may not direct executive agencies headed by elected officials or the Board of Regents to
reduce their expenditures by more than the average reduction percentage imposed upon all other executive branch
agencies.
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Net Position
In funds other than governmental, net position represents the difference between assets plus deferred outflows of
resources and liabilities plus deferred inflows of resources. The net investment in the capital assets portion of net
position consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any
borrowing used for the acquisition, construction, or improvement of those assets. Net position is reported as
restricted when there are limitations imposed on their use either through constitutional provisions, enabling
legislation or through external restrictions imposed by creditors, grantors, or laws or regulations of other
governments. The government-wide Statement of Net Position reported restricted net position of $3.8 billion.
Certain investments of the Municipal Finance Programs Fund are classified as restricted net position on the
Statement of Fund Net Position for proprietary funds because applicable bond indenture agreements limit their use.
Net position associated with the Unemployment Insurance Fund is also classified as restricted.
R. Property and Income Taxes
Real property taxes are normally levied in October and are usually payable in two installments on November 30 and
May 31. These taxes attach as an enforceable lien immediately if not paid when due.
Personal property tax levies are set each August, and notices are normally mailed the following March or April. Half
of mobile home taxes are due in 30 days and the remaining half on September 30. Taxes on all other types of
personal property are to be paid in full 30 days after receipt of the notice. Property tax payments are recognized as
deferred inflows of resources if received prior to levy or availability.
Personal property taxes attach as an enforceable lien immediately if not paid when due. Each of Montana's 56
counties collect property taxes. The counties then remit the State's portion to the State Treasury. The majority of
these taxes help fund public school systems and higher education.
Calendar year 2019 State income tax filing deadline, normally April 15th of the subsequent year, was delayed to
July 15, 2020 due to COVID-19. The State has determined that extending the income tax filing deadline did not
have a material adverse effect on the State's liquidity for fiscal year 2020, nor will it in fiscal year 2021.
S. Other Taxes
On the Statement of Activities, the revenue category “Other Taxes” consists of the following taxes (in thousands):
Other
State Special Governmental Business-Type
General Fund Revenue Funds Funds Total
Accommodations $ 24,637 $ 34,417 $ 2,930 $ 19 $ 62,003
Agriculture — 10,625 — — 10,625
Car rental 4,113 1,371 — — 5,484
Cigarette/tobacco/etc. 32,745 45,158 1,556 — 79,459
Contractors gross receipts 6,729 — — — 6,729
Energy tax 7,235 40 — — 7,275
Fire protection _ 3,686 _ _ 3,686
Insurance premium 82,452 37,221 — — 119,673
Light vehicle registration 44 5,085 — — 5,129
Liquor tax 5,686 2,282 _— 32,557 40,525
Livestock — 4,991 — — 4,991
Other taxes 143 1,744 _— _— 1,887
Public service commission — 5,249 — — 5,249
Railroad car companies 4,293 — — — 4,293
Telephone license 11,581 — — — 11,581
Video gaming 57,447 6 — — 57,453
Total other taxes $ 237,105 $ 151,875 $ 4,486 $ 32,576 $ 426,042
T. Tax Abatement
In the Montana Board of Investment’s (BOI) Commercial Loan Program within the SMA, by statute, the
infrastructure loan program is funded by an $80.0 million allocation. Eligible local governments request a loan for
constructing or purchasing infrastructure to be used by a basic sector business. The basic sector business will pay a
user fee to the local government that is pledged to BOI for the loan repayment. BOI reviews each loan, and only
upon verification that the entities meet the loan requirements is the loan approved by BOI. The local government
entity must pass a resolution authorizing the acceptance of the commitment agreement. BOI indemnifies the local
government regarding repayment of the loan.
The basic sector business must create at least 15 full-time basic sector jobs to be eligible for the program. The
maximum loan size is $16.7 thousand times the number of full-time jobs created and the minimum loan size is
$250.0 thousand. The maximum loan term is 25 years. There is also up to a 2.5% interest rate reduction for job
creation. The reduction will be reflected in the user fee rate charged to the basic sector business upon BOI review
and approval. The basic sector business must create the required jobs within four years of the agreement. If the basic
sector business does not create the required jobs within the four-year period, then the basic sector business must pay
down the loan balance of the local government entity until the loan balance matches the eligible amount per the jobs
created. BOI may increase the interest rate commensurate with the number of jobs eliminated if the borrower
eliminates 10 or more qualifying jobs. The basic sector business must annually provide payroll documentation to
BOI.
Pursuant to statute, a business that is created or expanded as the result of an Infrastructure Loan is entitled to a credit
against either their State individual income taxes or corporate income taxes for the portion of the fees attributable to
the use of the infrastructure. The total amount of tax credit claimed may not exceed the amount of the loan. The
credit may be carried forward for seven years or carried back for three years.
During the fiscal year ended June 30, 2020, basic sector business entities made total user fee payments of $8.9
million, representing $7.5 million of principal and $1.4 million in interest. During the fiscal year ended June 30,
2020, a total of $14.0 million was claimed as a credit against State individual and corporation tax. The following
table details the fiscal year 2020 credit claimed by tax type and the tax year it was applied against (in thousands):
Infrastructure Credit Claimed
Tax Year Tax Year
2019 2018 Total
Corporate income tax $ — $ 1,159 $ 1,159
Individual income tax 6,476 6,320 12,796
Total amount claimed $ 6,476 $ 7,479 $ 13,955
U. Irrevocable Split Interest Agreements
Irrevocable split-interest agreements are used by donors to provide resources to two or more beneficiaries, including
governments. These agreements can be created through trusts or other legally enforceable agreements with
characteristics that are equivalent to irrevocable split-interest agreements. The University of Montana campuses
have three irrevocable split interest agreements during the fiscal year ended June 30, 2020. Further detail related to
these agreements is provided in Note 3.
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NOTE2. OTHER ACCOUNTING CHANGES
A. New Accounting Guidance Implemented
For the year ended June 30, 2020, the State of Montana implemented the provisions of GASB Statement No. 84,
Fiduciary Activities (GASB 84). The objective of this Statement is to improve guidance regarding the identification
of fiduciary activities for accounting and financial reporting purposes. This Statement establishes criteria for
identifying fiduciary activities, while outlining reporting responsibilities of fiduciary funds in state and local
governmental accounting. This Statement is designed to enhance consistency and comparability of information
reported in financial statements for assessing government accountability and stewardship.
For the year ended June 30, 2020, the State of Montana implemented the provisions of GASB Statement No. 90,
Majority Equity Interests — an amendment of GASB Statements No.14 and No. 60 (GASB 90). The objectives of this
Statement are to improve the consistency and comparability of reporting a government’s majority equity interest in a
legally separate organization and to improve the relevance of financial statement information for certain component
units. It defines a majority equity interest and specifies that a majority equity interest in a legally separate
organization should be reported as an investment if a government is holding of the equity interest meets the
definition of an investment. A majority equity interest that meets the definition of an investment should be measured
using the equity method, unless it is held by a special-purpose government engaged only in fiduciary activities, a
fiduciary fund, or an endowment or permanent fund. This Statement will improve financial reporting by providing
users of financial statements with essential information related to presentation of majority equity interests in legally
separate organizations.
For the year ended June 30, 2020, the State of Montana implemented the provisions of GASB Statement No. 95,
Postponement of the Effective Dates of Certain Authoritative Guidance (GASB 95). The objective of this Statement
is to provide temporary relief in the form of delayed effective reporting periods for upcoming GASB
pronouncements known to affect governmental financial statements. Guidance addressed in this Statement will help
to safeguard the reliability of financial statements, which in turn will benefit the users of the financial statements.
For the year ended June 30, 2020, the State of Montana implemented the provisions of GASB Statement No. 97,
Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457
Deferred Compensation Plans—an amendment of GASB Statements No. 14 and No. 84, and a supersession of GASB
Statement No. 32 (GASB 97). The primary objectives of this Statement are to increase consistency and
comparability related to the reporting of fiduciary component units; mitigate costs associated with financial
reporting; enhance relevance, consistency, and comparability of financial reporting. The requirements of this
Statement will result in more consistent financial reporting of defined contribution pension plans, defined
contribution OPEB plans, and other employee benefit plans.
B. Adjustments to Beginning Net Position
GASB Statement No. 84, Fiduciary Activities (GASB 84), requires a retroactive restatement of financial statements
for all prior periods presented, though primarily affects the Fiduciary Fund Financial Statements. If restatement for
prior periods is not practicable, the cumulative effect of applying GASB 84 is presented as a restatement of
beginning net position for the earliest period restated. In accordance with GASB 84, the State of Montana
reclassified various fund activities and restated the beginning net position as follows. Some enterprise funds,
previous private-purpose trust funds, and agency funds were reclassified as custodial funds, creating an increase to
beginning net position in the amount of $4.7 million. Some agency funds were reclassified to private-purpose trust
funds, creating an increase to beginning net position in the amount of $2.4 million. Some previous private-purpose
trust funds were reclassified to governmental funds and custodial funds, creating a decrease to beginning net
position in the amount of $29.0 million.
NOTE 3. CASH/CASH EQUIVALENTS AND INVESTMENTS
This note details the following asset classifications (in thousands):
Cash/cash equivalents $ 6,051,526
Equity in pooled investments $ 14,307,148
Investments $ 3,427,444
Carrying amounts for the bank balance for cash deposits and fair values for the State's cash equivalents and
investments are presented in Tables | through 4.
A. General
Outside of statutory requirements, the State does not maintain a statewide risk policy for cash/cash equivalents or
investments, held outside of the Montana Board of Investments (BOI). The investment risk policy for State cash/
cash equivalents and investments including the BOI Municipal Finance Programs Fund deposits and investments
managed by BOI, have been detailed below.
(1) BOI was created by the Legislature to manage the Unified Investment Program (UIP) established by the State
Constitution. The UIP is comprised of involuntary participating state funds, including pensions, trusts, insurance,
operating funds, and by statute voluntarily participating local government funds. BOI manages the UIP pursuant to
the “Prudent Expert Principle” mandated by State law, which requires an investment manager to:
1. discharge the duties with the care, skill, prudence, and diligence, under the circumstances then prevailing,
that a prudent person acting in a like capacity with the same resources and familiar with like matters
exercises in the conduct of an enterprise of a like character with like aims;
2. diversify the holdings of each fund within the UIP to minimize the risk of loss and to maximize the rate of
return unless, under the circumstances, it is clearly prudent not to do so; and
3. discharge the duties solely in the interest of and for the benefit of the funds forming the UIP.
BOI is not registered with the US Securities and Exchange Commission as an investment company. BOI’s
investment program is governed by Investment Policy Statements (IPS) approved by BOI.
Currently, only the nine retirement funds that participate in the Consolidated Asset Pension Pool (CAPP), the
Defined Contribution Disability Plan, and the Montana State Fund (MSF) may invest in public corporate capital
stock. Neither State law nor the State Constitution place restrictions on retirement fund investments. BOI approves a
separate IPS for each pool and Separately Managed Accounts (SMA) participant, which provides BOI staff with a
broad strategic framework under which the investments are managed. The IPS’s also reflect BOI approved asset
allocation ranges.
By statute, local government entities can voluntarily invest in the Short Term Investment Pool (STIP). By statute,
with a qualifying event, local government entities may also voluntarily invest in the Trust Funds Investment Pool
(TFIP).
As of June 30, 2020, BOI separately managed investments outside of the pools on behalf of participants. The
investments are combined for reporting purposes in the SMA portion of the UIP. In prior years, the SMA portion of
the UIP was referred to as Separately Managed Investments (SMI). SMA participants include the State Treasurer's
Cash Fund, State agency insurance reserves, and other State agencies. SMA participation is at the discretion of BOI
staff for State agencies allowed to participate in the UIP.
State agencies and local government entities may participate in one or more pools. By investing in pools,
participants are provided broad diversification. State agencies may also have direct fixed income, equity, or loan
investments. These investments are combined and reported as SMA.
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Separately issued investment pool financial statements may be obtained by contacting:
Montana Board of Investments
2401 Colonial Drive, 3rd Floor
PO Box 200126
Helena, MT 59620-0126
BOI’s separately issued UIP financial statements include the activity for MSF within SMA on a June 30, 2020,
basis. MSF, a discretely presented component of the State, by statute, prepares separately issued financial statements
on a calendar year-end basis. Due to the difference in reporting periods, there will be a variance between the note
disclosures and the financial statements for cash/cash equivalents and investments.
(a) Cash and cash equivalents consist of funds deposited by individual funds in the State Treasurer’s pooled cash
account, cash deposits in checking accounts, cash invested in STIP, cash held by trustees, undeposited cash held by
individual state agencies, and investments categorized as cash equivalents.
Cash deposited with the State Treasurer’s pooled cash account is invested by BOI in short-term securities and other
investments. Because these funds are immediately available to the individual funds, their investment in the pooled
cash account is reported as a cash equivalent. BOI also manages STIP, which provides individual State agencies and
local governments an opportunity to invest excess cash in a pool that is managed to preserve principal while
providing 24-hour liquidity. Because these pooled funds are invested in short-term, highly liquid investments, the
individual fund investments in the STIP are reported as a cash equivalent.
(b) Investment securities are reported by investment portfolio and type in Table 2 — Cash Equivalents, Table 3 —
Equity in Pooled Investments, and Table 4 — Investments. Unrealized gains and losses are included as a component
of investment income. Unrealized gains and losses are computed based on changes in the fair value of investments
held from the beginning of the year, but unsold at the fiscal year-end. The net change in fair value of investments
also consists of the realized gains or losses. Interest income is recognized when earned. Dividend income is recorded
on the ex-dividend date.
Investments reported at fair value are on a trade date basis. Quoted market prices, when available, have been used to
value investments. The fair values for securities that have no quoted market price represent estimated fair value.
Alternative investment securities are valued using the most recent estimates of fair value from the investment
managers. Fair value measurements are reviewed monthly, and third-party valuations are reviewed for
reasonableness and compliance with approved price source authorization policy. BOI categorizes its fair value
measurements within the fair value hierarchy established by generally accepted accounting principles as follows:
Level 1 — Quoted prices for identical assets or liabilities in active markets.
Level 2 — Prices determined using inputs, other than quoted prices included within Level 1, that are observable for
an asset or liability, either directly or indirectly. These inputs can include quoted prices for similar assets or
liabilities in active or inactive markets, or market-corroborated inputs.
Level 3 — Prices are determined using unobservable inputs, which generally results in BOI using the best
information available and may include BOI’s own data.
(c) Security Lending - BOI is authorized by law to lend its securities and has contracted with the custodial bank, to
lend BOI’s securities to broker-dealers and other entities with a simultaneous agreement to return the collateral for
the same securities in the future. The custodial bank is required to maintain collateral equal to 102% of the fair value
of domestic securities and 105% of the fair value of international securities while the securities are on loan. On any
day, including June 30th, the markets may move in a positive or negative direction resulting in under or over
collateralization. The custodial bank compensates for market movement by recalculating on the following business
day to meet the collateralization requirements. BOI and the custodial bank split the earnings 80% and 20%
respectively, on securities lending activities. BOI retains all rights and risks of ownership during the loan period.
The custodial bank indemnifies BOI’s credit risk exposure to the borrowers.
During fiscal year 2020, the custodial bank loaned BOI’s public securities and received as collateral either: US
dollar cash; US government and government sponsored agency securities; US corporate debt securities and
structured securities rated AA-/Aa3 or higher; sovereign debt securities of the Group of Ten nations; and debt
securities issued by certain supranational agencies. The custodial bank does not have the ability to sell collateral
securities unless the borrower defaults.
BOI imposed no restrictions on the amount of securities available to lend during fiscal year 2020. However, STIP
assets are currently not available for securities lending. There were no failures by any borrowers to return loaned
securities or pay distributions thereon during the period that resulted in a declaration and notice of default of the
borrower. There were no losses during fiscal year 2020 resulting from a borrower default. As of June 30, 2020, no
securities were recalled and not yet returned.
The cash collateral received for each loan was invested, together with the cash collateral of other qualified plan
lenders, in an investment fund, the Navigator Securities Lending Government Money Market (Navigator) portfolio.
BOI and the borrowers maintain the right to terminate all securities lending transactions on notice. Because the
securities lending transactions were terminable at will, their duration did not generally match the duration of the
investments made with the cash collateral received from the borrower. The Navigator portfolio had an average
duration of 28 days and the average weighted final maturity of 91 days.
(d) Investment Pools and Separately Managed Accounts (SMA) are described in the following paragraphs.
Consolidated Asset Pension Pool (CAPP)
The CAPP IPS contain prescribed asset allocation ranges among the allowable asset classes and is subject to change
as BOI adopts modifications. BOI annually affirms or revises the asset allocation ranges for the retirement plans.
The CAPP IPS also contains investment objectives and guidelines for each underlying asset class, with a purpose of
providing diversified exposure within the asset class in a prudent and cost-effective manner.
Due to a longer-term focus, CAPP's asset classes differ from other classes that are allowable for other programs.
CAPP's underlying asset classes are as follows:
¢ Domestic Equities
¢ International Equities
¢ Private Investments
¢« Natural Resources
¢ Real Estate
* Core Fixed Income
« Non-Core Fixed Income
The CAPP IPS is the only IPS that allows for investments that can be held in non-US securities in a foreign
currency. Per the CAPP IPS, the Core Fixed Income Asset Class and Non-Core Asset Class sections have maximum
restrictions that can be held. Currency exposures may be hedged, in a defensive manner, at the discretion of the
active managers to preserve the U.S. dollar value of investments made.
As part of the asset allocation approved by the Board in November 2019, the Private Equity Pension Asset Class
(PAC) is now referred to as the Private Investments PAC and the High Yield PAC is referred to as the Non-Core
Fixed Income PAC. The assets within the U.S. Treasury Inflation Protected Securities (TIPS) PAC, Investment
Grade PAC, Agency Mortgage Backed Securities PAC, U.S. Treasury and Agency PAC, Diversifying Strategies
PAC, and Broad Fixed Income PAC were combined into the Core Fixed Income PAC. These changes were effective
in December 2019. These changes did not have an impact on the underlying value of the securities within the
impacted PAC’s.
Trust Funds Investment Pool (TFIP)
The TFIP IPS provides for a 10% portfolio limit for non-core fixed income securities. TFIP invests primarily in
investment grade, U.S. dollar denominated fixed income securities. The portfolio has high yield and core real estate
exposure.
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Short Term Investment Pool (STIP)
The STIP IPS limits the concentration of credit risk exposure by limiting portfolio investment types to 3.0% in any
issuer except for US Treasury and US Agency securities as well as any repurchase agreements with a financial
institution.
STIP invests primarily in short-term, high quality, fixed income securities with a maximum maturity of 397 days or
less. Variable securities shall have a maximum maturity of 2 years. STIP shall maintain a dollar-weighted average
portfolio maturity of 60 days or less. STIP is managed to preserve principal while providing 24-hour liquidity for
state agency and local government participants.
BOI maintains a reserve account that may be used to offset losses within the STIP portfolio. The STIP reserve for
the year ending June 30, 2020, is detailed as follows:
STIP Reserve
(in thousands)
Beginning STIP Reserve $ 47,528
STIP Reserve activity
Investment Earnings:
Interest income 650
Transfer of daily STIP income 3,510
Recoveries from write-offs 846
Credit enhancement fees 157
Total STIP Reserve activity 5,163
Transfers to STIP (127)
Total STIP Reserve activity 5,036
Ending STIP Reserve $ 52,564
Separately Managed Accounts (SMA)
SMA invests primarily in investment grade, U.S. dollar denominated fixed income securities and custodial bank
interest bearing demand deposit account. However, one participant portfolio has exposure to core real estate and
high yield fixed income. The SMA portfolio also includes Veteran’s Home Loan mortgages (VHLM) and loans
funded by the Coal Severance Tax Trust Fund, as authorized by statute.
(e) Investment Risk Disclosures are described in the following paragraphs, with more detail provided in later
sections.
Custodial Credit Risk (Cash and Cash Equivalents and Investments Held at Custodial Bank)
Custodial credit risk is the risk that, in the event of the failure of the counterparty to a transaction, BOI will not be
able to recover the value of the investment or collateral securities that are in the possession of an outside party. Per
policy, BOI’s custodial bank must have bank ratings from at least two Nationally Recognized Statistical Rating
Organizations (NRSROs) on an annual basis.
As of June 30, 2020, all the public securities as well as securities held by the separate public equity account
managers were registered in the nominee name for BOI and held in the possession of BOI’s custodial bank. The
equity index funds, securities held at the State’s depository bank, real estate, mortgage and loan investments were
purchased and recorded in BOI’s name. Commingled fund investments are registered in the name of BOI. Therefore,
BOL is not subject to custodial credit risk.
Concentration of Credit Risk
Concentration of credit risk is the risk of loss attributable to the magnitude of any single investment per issuer name.
Investments explicitly guaranteed by the US government are excluded from the concentration of credit risk
requirements. Concentration of credit risk for 2020 is addressed within all IPS as set by BOI.
Credit Risk and Interest Rate Risk
Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligation. Except for
U.S. Government securities, the pools and SMA fixed income instruments have credit risk as measured by NRSRO
ratings. Credit risk is contemplated for each individual portfolio in the IPS. Credit risk is managed by constraining
portfolio purchases around investment grade NRSRO ratings as appropriate. The U.S. Government guarantees its
securities directly or indirectly. Obligations of the U.S. Government or obligations explicitly guaranteed by the U.S.
Government are not considered to have credit risk and do not require disclosure of credit risk.
As of June 30, 2020, the CAPP's cash equivalents position held at its custodial bank, $193.5 million was held in
unrated money market funds.
As a matter of STIP investment policy, BOI can only purchase securities from a pre-approved “Approved Issuer”
list. By STIP policy, permitted money market investments include only SEC registered 2a-7 Institutional Money
Market Funds that are considered “US Treasury” or “US Government” money market mutual funds according to the
SEC regulations or short-term investment vehicle available through the custodial bank. As of June 30, 2020, all the
STIP money market investments were in US Governmental money markets and $50 million was held on deposit in a
short-term investment vehicle available through the custodial bank.
Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. BOI
uses effective duration as a measure of interest rate risk for all fixed income portfolios. CAPP, TFIP, and SMA at
fair value investments are categorized to disclose credit and interest rate risk for fixed income securities. Credit risk
is disclosed using the weighted credit quality rating by investment type. Interest rate risk is disclosed using the
weighted effective duration. NRSRO provides the credit ratings. According to the STIP investment policy, “The
STIP portfolio will minimize interest rate risk by:
1. structuring the investment portfolio so securities mature to meet cash requirements for ongoing operations
thereby normally avoiding the need to sell securities on the open market prior to maturity;
2. maintaining a dollar-weighted average portfolio maturity (WAM) of 60 days or less (for this purpose, the
date to the next coupon reset date will be used for all floating or variable rate securities); and
3. STIP will maintain a reserve account.”
CAPP, TFIP, STIP, and SMA may hold fixed and variable rate securities. Interest payments on variable securities
are based on an underlying reference rate, for example, Secured Overnight Financing Rate (SOFR).
STIP investments at fair value are categorized to disclose credit risk and weighted average maturity (WAM) as of
June 30, 2020. Credit risk reflects the weighted security quality rating by investment type as of the June 30 report
date. Although the STIP investments have been rated by investment security type, STIP, as an external investment
pool, has not been rated. STIP interest rate risk is determined using the WAM method. The WAM measure
expresses investment time horizons (the time when investments are due or reset and payable in days, months, or
years) weighted to reflect the dollar size of the individual investments within an investment type. Inclusive of cash
and cash equivalents, the WAM averages 46 days for the portfolio. Based on their short weighted average maturity
and the relative immaterial difference from their cost to fair value, BOI determined the cash equivalents have little
discernible interest rate risk.
Foreign Currency Risk
Foreign currency risk is the risk that changes in exchange rates will adversely affect the fair value of an investment.
BOl's foreign currency exposure by denomination and investment type are reported, in US dollars, at fair value and
is limited to CAPP.
Other Policy Considerations
For other risk, BOI approves both the IPS and benchmark used for each portfolio. Per the CAPP IPS, the Core Fixed
average duration will be maintained in a range within 20% of the benchmark duration. The Core Fixed Income PAC
and Non-Core Fixed Income PAC average duration will be maintained in a range within 25% of the index duration.
Per the TFIP IPS, the average duration will be maintained in a range within 20% of the benchmark duration. Interest
rate risk for SMA is contemplated in each individual IPS and is managed by limiting the maturity of individual
securities and/or matching liabilities to maturities per estimated cash flows.
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Fair Value of Derivative Instruments
The UIP invests in, currency forward contracts, credit default swaps, index futures (long duration), rights and
warrants which are classified as investment derivative instruments. The investment derivative instruments decreased
in fair value for the fiscal year ended June 30, 2020, by $2.1 million. The contracts had a fair value of $152 thousand
as of June 30, 2020. The notional amount of the contracts was $10.3 million.
(2) The BOI Municipal Finance Programs Fund deposits and investments are restricted by the bond trust
indentures to the following: government and agency obligations, certificates of deposits, repurchase agreements, and
investment agreements. The bond trust indenture addresses custodial credit risk, the concentration of credit risk,
credit risk, interest rate, and credit quality risk, by detailing the permitted investments. BOI's STIP IPS details
custodial credit risk, the concentration of credit risk, and credit risk. Deposits and investments must be made with
Montana banks or in the STIP administered by BOI.
Custodial Credit Risk — Custodial credit risk is the risk that, in the event of the failure of the counterparty to a
transaction, BOI will not be able to recover the value of the investment or collateral securities that are in the
possession of an outside party. Per policy, BOI’s custodial bank’s rating from at least two Nationally Registered
Statistical Ratings Organizations (NRSROs) is reviewed on an annual basis.
Cash — Custodial risk for cash is the risk that, in the event of the failure of the custodial bank, the cash or
collateral securities may not be recovered from an outside party. The securities used as collateral are held by
the trustee in the name of BOI.
Investments — As of June 30, 2020, the Municipal Finance Programs securities were recorded by the trustee
in the name of BOI by specific account.
Concentration of Credit Risk - Concentration of credit risk is the risk of loss attributed to the magnitude of any
single investment per issuer name. The Municipal Finance Programs investments directly issued or explicitly
guaranteed by the US government and investments in mutual funds are excluded from the concentration of credit
risk requirement. The STIP investment policy limits the concentration of credit risk by limiting portfolio investment
types to 3.0% in any issuer with the exception of US Treasury and US Agency securities, as well as, any repurchase
agreements with a financial institution. As of June 30, 2020, STIP concentration risk was within the policy as set by
BOI.
Credit Risk - Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligation.
The Municipal Finance Programs US government direct-backed securities, consisting of US Treasury notes and
bills, are guaranteed directly by the US government. Obligations of the US government or obligations explicitly
guaranteed by the US government are not considered to have credit risk and do not require disclosure of credit
quality. Permitted investments, as described in the indenture, include, “Either (i) long term obligations of such bank,
trust company or association are rated in one of the three highest investment category of the Standard & Poor’s
Corporation or Moody’s Investor Service Inc., which investment category shall not be less than the prevailing rate
on the bonds or (11) the deposits are continuously secured as to principal, but only to the extent not insured by the
Bank Insurance Fund or the Savings Association Insurance Fund, or any successor to either, of the Federal Deposit
Insurance Corporation (FDIC).”
BOI’s STIP IPS specifies that STIP securities have a minimum of two credit ratings as provided by nationally
recognized statistical rating organizations, to assist in the monitoring and management of credit risk. The purchase
of STIP securities other than US government or US agency obligations is restricted to those who are pre-approved.
Although the STIP investments have been rated by investment security type, STIP, as an external investment pool,
has not been rated.
Interest Rate Risk - Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an
investment. Permitted investments, as described in the Indenture, details the allowable investments, including those
in STIP. STIP interest rate risk is determined using the WAM method. According to the STIP IPS, “The STIP
portfolio will minimize interest rate risk by:
1. structuring the investment portfolio so securities mature to meet cash requirements for ongoing operations,
thereby normally avoiding the need to sell securities on the open market prior to maturity;
2. maintaining a dollar-weighted average portfolio maturity (WAM) of 60 days or less (for this purpose, the
date to the next coupon reset date will be used for all floating or variable rate securities); and
3. STIP will maintain a reserve account.”
The Municipal Finance Program investments are categorized to disclose credit and interest rate risk as of June 30,
2020. Credit risk is disclosed using the weighted credit quality rating by investment type. Interest rate risk is
disclosed using weighted effective duration as calculated by BOI. The credit quality ratings have been calculated,
excluding non-rated investment types. Both the credit quality ratings and duration have been calculated excluding
cash equivalents, as BOI determined that these securities did not contain these risk elements. There were no
derivative transactions during the 2020 fiscal year for investments held by the trustee.
B. Cash/Cash Equivalents
(1) Cash Deposits — The State requires collateralization based on the average daily bank balance in the depository
bank holding the main state bank account. For other depository banks, state statutes require collateralization at
50.0% of the bank balance. The cash deposits amount includes both primary government and component unit
deposits.
Table 1 - Cash Deposit Amounts
(in thousands)
Carrying
Amount
Cash held by State/State's agent $ 17,974
Uninsured and uncollateralized cash 2,105
Undeposited cash 1,305
Cash in US Treasury 254,942
Cash in MSU component units 6,543
Cash in UM component units 12,195
Less: outstanding warrants (27,368)
$ 328,296
As of June 30, 2020, the carrying amount of deposits for component units was $186.7 million, as included in Table 1.
(2) Cash Equivalents — consists of cash in the State Treasury invested by individual funds in the Short-term
Investment Pool (STIP), the State Treasurer’s pooled cash account, and in identifiable securities and investments
considered to be cash equivalents. Cash equivalents, generally, are short-term, highly liquid investments with
original maturities of three months or less that are measured at cost. Cash equivalents may be under the control of
BOI or other agencies, as allowed by law.
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Table 2 - Cash Equivalents
(in thousands)
Fair
Value
Corporate commercial paper ”) 398,071
Corporate notes @) 115,311
Certificates of deposit ”) 300,206
Agency or government related ”) 1,182,828
Money market fund unrated 261,528
Cash and cash equivalents @ 3,305,016
Less: STIP Adjustments (269,872)
Total cash equivalents $ 5,723,230
(1) A portion is also included in the Investments Measured at Fair Value and NAV table.
(2) Also included in the Investments Measured at Fair Value and NAV table.
(3) Includes adjustments for STIP Reserve, STIP included in pooled investments, and holding classification differences.
As of June 30, 2020, local governments had invested $1.7 billion, and component units of the State of Montana had invested $331.5
million in STIP.
STIP Cash Equivalent Credit Quality Ratings as of
June 30, 2020
(in thousands)
Total Cash
Equivalents Credit Quality Rating
Agency or government related $ 121,655 A-1+
Asset backed commercial paper 1,508,483 A-1+
Corporate commercial paper 385,100 A-1+
Certificates of deposit 43,029 A-1+
Total cash equivalents $ 2,058,267
STIP
Credit Quality Rating and Weighted Average of Maturity as of
June 30, 2020
(in thousands)
Total Fixed
Income Credit
Investments Quality
Security Investment Type at Fair Value Rating | WAM (Days)
Treasuries $ 430,142 A-1+ 56
Agency or government related 1,182,828 A-1+ 52
Corporate:
Commercial paper 398,071 A-1+ 72
Notes 115,311 A-1+ 57
Certificates of deposit 300,206 A-1 56
Total STIP fixed income investments at fair value $ 2,426,558
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C. Equity in Pooled Investments
These securities consist of investments held by BOI in pooled investment funds. The Consolidated Asset Pension
Pool (CAPP) and Trust Funds Investment Pool (TFIP) were created to allow qualifying funds to participate in
diversified investment pools. Purchases are subject to the statutorily mandated “Prudent Expert Principle” (see Table
3 — Equity in Pooled Investments).
Table 3 - Equity in Pooled Investments
(in thousands)
Fair Value ")
CAPP:
Consolidated asset pension pool $ 11,673,887
TFIP:
Trust funds investment pool 2,644,510
Total pooled investments 14,318,397
Pool adjustments (net) (11,249)
Total equity in pooled investments $ 14,307,148
") Includes cash/cash equivalents and investments.
As of June 30, 2020, the fair value of the underlying securities on loan was $608.0 million. Collateral provided for the securities on
loan totaled $620.1 million, consisting of $110.4 million in cash and $509.7 million in securities.
As of June 30, 2020, local governments invested $13.1 million in TFIP.
State of Montana investments are categorized below to disclose credit and interest rate risk as of June 30, 2020, as
required for applicable pools.
Credit Quality Rating and Effective Duration as of June 30, 2020
Fair Value (in thousands)
Total Fixed
Income Effective
Investments Credit Quality Duration
Security Investment Type CAPP TFIP SMA at Fair Value Ratings Range (Years)
Treasuries $ 643,374 $ 348,714 $ 282,470 $ 1,274,558 AAA 3.24-12.52
Agency or Government Related 163,568 142,612 113,999 420,179 AAA 3.01-5.29
Asset-Backed Securities 88,048 83,281 57,768 229,097 AAt+ to AAA 1.69-2.72
Mortgage-Backed Securities:
Noncommercial 697,867 588,024 129,577 1,415,468 AAA 1.86-2.56
Commercial 144,057 149,106 33,534 326,697 AAA 4.60-6.97
Corporate:
Financial 322,656 311,131 238,394 872,181 BBB+ to A- 3.84-4.65
Industrial 726,975 625,164 366,556 1,718,695 BB+ to A- 4.55-5.91
Industrial (Unrated) 444 1,382 505 2,331 NR 0.40-3.06
Utility 22,041 16,429 9,625 48,095 BBB- to BBB 3.48-6.04
Total fixed income investments at fair value $ 2,809,030 $ 2,265,843 $ 1,232,428 $ 6,307,301
State of Montana investments are measured at fair value and categorized within the fair value hierarchy established
by GASB Statement No. 72 — Fair Value Measurement and Application, as defined below.
Fixed income and equity investments classified in Level | of the fair value hierarchy are valued using prices quoted
in active markets for those securities. Fixed income investments classified in Level 2 of the fair value hierarchy are
valued using a matrix pricing technique. Matrix pricing is used to value securities based on the securities’
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relationship to benchmark quoted prices. Residential Mortgages classified in Level 3 of the fair value hierarchy are
present value adjusted. Direct real estate classified in Level 3 of the fair value hierarchy is based on the latest
appraisal value. Investments measured at cost are included to account for all investments within each pool and SMA.
These assets represent cash equivalents and Montana Mortgages and Loans.
Each of the investment pools and SMA has the following fair value measurements as of June 30, 2020:
Investments Measured at Fair Value
(in thousands)
Fair Value Measurements Using
Quoted prices in
Active Markets for Significant Other Significant
Identical Assets Observable Inputs Unobservable
June 30, 2020 (Level 1) (Level 2) (Level 3)
Investments by fair value level
Fixed income investments:
Treasuries $ 1,704,700 $ 1,704,700 $ — $ —
Agency or Government Related 1,603,007 — 1,603,007 —
Asset Backed Securities 229,097 — 229,097 _—
Mortgage Backed Securities:
Noncommercial 1,415,468 _— 1,415,468 _—
Commercial 326,697 — 326,697 —
Corporate:
Commercial Paper 398,071 — 398,071 —
Commercial Notes 115,311 — 115,311 —
Certificates of Deposit 300,206 — 300,206
Financial 872,181 — 872,181 —
Industrial 1,718,695 — 1,718,695 —
Industrial (Unrated) 2,331 _ 2,331 _
Utility 48,095 — 48,095 —
Equity investments 3,997,407 3,997,407 — —
International equity investments 1,974,031 1,974,031 — —
Direct Real Estate 19,215 _— _— 19,215
Residential Mortgages 2,167 _— _— 2,167
Total investments by fair value level 14,726,679 7,676,138 7,029,159 21,382
Investments measured at the net asset value (NAV)
Private Equity Partnerships 1,531,566
Core Real Estate 711,902
Non-Core Real Estate 484,230
Natural Resources 261,683
Real Estate High Income Fund 131,764
Total investments measured at NAV 3,121,145
Total investments measured at fair value 17,847,824
Investments at cost
Cash and cash equivalents held at custodial bank 3,520,543
SMA Montana Mortgages and Loans 203,601
Total investments not categorized 3,724,144
Total investments $ 21,571,968
The investments measured at NAV for the year ended June 30, 2020, are detailed below.
Investments Measured at NAV (in thousands)
Redemption
Unfunded Frequency (If Redemption
Fair Value Commitments Currently Eligible) Notice Period
Private Equity Partnerships $ 1,531,566 $ 1,038,167
Core Real Estate 711,902 157,793 Monthly, quarterly 45-90 days
Non-Core Real Estate 484 230 502,567
Natural Resources 261,683 265,305
High Yield Bond Fund 131,764 — Daily 1-3 days
Total investments measured at the NAV $ 3,121,145 $ 1,963,832
STIP and $2.9 billion of SMA are included, and also reported in Tables 2 and 4, respectively.
Private Equity Partnerships — This type includes investments in limited partnerships. Generally speaking, the types
of partnership strategies included in this portfolio: venture capital, growth equity, buyouts, special situations,
mezzanine and distressed debt. These investments are considered long-term. Redemptions are restricted over the life
of the partnership. During the life of the partnerships, distributions are received as underlying partnership
investments are realized. It is expected that the underlying assets of the funds will be liquidated over 10 years. It is
probable all the investments in this type will be sold at an amount different from the NAV per share (or its
equivalent) of BOI’s ownership interest in partners’ capital.
Core Real Estate — This type includes funds that invest primarily in core real estate, which makes equity investments
in operating and substantially-leased institutional quality real estate in traditional property types (apartments, office,
retail, industrial and hotel) via commingled funds. The primary investment objectives of these core real estate funds
are to invest in real estate that will generate income from predictable sources of revenue and not to realize gains on
the underlying assets. This investment type receives distributions of generated income and occasionally through the
liquidation of the underlying assets of the fund. The fair values of the investments in this category have been
determined using the NAV per share (or its equivalent) of BOI’s ownership interest in the partners’ capital.
Redemption of these investments is restricted based on the availability of cash flow arising from investment
transactions, sales, and other fund operations occurring in the ordinary course of business. Therefore, requested
redemptions from a fund will be redeemed as funds become available.
Non-Core Real Estate — This type includes private partnership funds that primarily invest in value added and
opportunistic real estate funds. These funds assume more risk than the core real estate funds to achieve a greater
return on investment. Returns are driven both by current income and by expected capital appreciation. This
investment type receives distributions of generated income and occasionally through the liquidation of the
underlying assets of the fund. It is expected that the underlying assets of the funds will be liquidated over 7 to 10
years. These investments can never be redeemed. The fair values of the investments in this category have been
determined using the NAV per share (or its equivalent) of the Board’s ownership interest in the partners’ capital.
Natural Resources — This type includes private partnership funds that primarily invest in timber, energy and broad
natural resource funds. This investment type receives distributions of generated income and occasionally through the
liquidation of the underlying assets of the fund. It is expected that the underlying assets of the funds will be
liquidated over 10 to 20 years. The fair values of the investments in this category have been determined using the
NAV per share (or its equivalent) of the Board’s ownership interest in the partners’ capital.
Real Estate High Income Fund — This type consists of predominantly of real estate related instruments with an
emphasis in U.S. corporate credits, whether in the form of bonds or loans that are rated below investment grade.
These assets carry a higher risk of default than investment grade securities and accordingly provide a higher level of
income or yield commensurate with that risk. The fair values of the investments of this type have been determined
using the NAV per share (or its equivalent) of the investments.
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Commitments to Fund Managers
(in thousands)
Original Commitment
Pension Asset Class Commitment Remaining
Private Equities PAC $ 3,045,722 $ 1,038,167
Real Estate PAC 2,060,130 660,360
Natural Resources PAC 584,412 265,305
Total $ 5,690,264 $ 1,963,832
D. Investments
Article VII of Montana's Constitution, with supporting statutes, authorizes BOI to manage the State's Unified
Investment Program. Long-term investments are administered by the following agencies, as allowed by state law,
Section 17-6-201, MCA:
Long-term Investments
Percent
Department Administered
Board of Investments 50.39 %
Universities 17.83
MPERA (Montana Public Employee Retirement Administration) 24.96
College Savings Plan 4.58
Montana Board of Housing 1.16
Other 1.08
Total 100.00 %
") Other consists of the Commissioner of Higher Education, the Department of Administration, the Department of Commerce,
the Department of Natural Resources and Conservation, the Department of Revenue, and State Auditor.
BOI must employ the "Prudent Expert Rule" in managing the State's investment portfolio. Investments are presented
at fair value. Investment fair values for publicly traded securities are determined primarily by reference to market
prices supplied to BOI's custodial bank or trustee. State investments are categorized within the fair value hierarchy
established by GASB Statement No. 72.
The PERS Defined Contribution Retirement Plan (DCRP) and the Deferred Compensation Plan’s Montana Fixed
Fund is a stable value investment option administered and monitored by the Public Employees’ Retirement Board
(PERB) with input from the Employee Investment Advisory Committee and the investment consultant. The PERB
has established an investment policy for the Montana Fixed Fund to identify objectives, investment guidelines, and
outline the responsibility of the outside vendors. This investment policy includes stable value manager Pacific
Investment Management Company LLC (PIMCO), custodial bank State Street Bank and Trust Company (State
Street), and third-party synthetic Guaranteed Interest Contract (GIC) providers, Transamerica Life Insurance
Company (Transamerica), Prudential Insurance Company of America (Prudential), and Voya Retirement Insurance
and Annuity Company (Voya). All money invested in the Montana Fixed Fund of the PERS-DCRP and Deferred
Compensation Plan is held in a Pooled Trust. The third party record keeper, Empower ™ Retirement, tracks and
reports the daily trading and valuations of all investment options, including the assets held by the individual mutual
fund companies.
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(1) | The credit quality rating and duration are included in the above sections for the rated investments.
(2) For more detail, refer to component unit separately issued financial statements.
(3) The total for Montana Mortgages and Loans does not include Coal Severance Tax loans, which was included in SMA financial statements. This
amount of $10.1 million is considered advances to other funds/component units and amounts due from component units in the Coal Tax Severance column
of the governmental fund financial statements.
As of June 30, 2020, the fair value of the investments on loan was $133.7 million. Collateral provided for the investments on loan totaled $136.5 million
consisting of $42.7 million in cash and $93.8 million in securities.
$1.7 billion of SMA is included and also reported in the Investments Measured at Fair Value and NAV table.
Municipal Finance Programs — Rated Securities
Credit Quality Rating and Effective Duration as of
June 30, 2020
(in thousands)
Credit
Fair Quality Effective
Security Investment Type Value Rating" — Duration
Short-term investments
US Treasury obligations $ 146 AAt 0.46
Restricted investments
US Treasury obligations 564 AAt 0.46
Total investments $ 710
") Credit Quality Rating and Effective Duration are weighted.
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NOTE 4. DISAGGREGATION OF ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE, DEFERRED
OUTFLOWS OF RESOURCES AND DEFERRED INFLOWS OF RESOURCES
Accounts receivable, accounts payable, deferred outflows of resources, and deferred inflows of resources on the
Statement of Net Position as of June 30, 2020, consisted of the following (in thousands):
A. Accounts Receivables
Governmental Activities
Coal Federal Internal Nonmajor .
Severance Special | General Service | Land Governmental State Special
Tax Revenue Fund Funds Grant Funds Revenue
Charges for services/fines/forfeitures $ — $ 4681 $ 2,469 $ 375 $ — $ — $ 12,094
Grants/contracts/donations _ _ _ _ _— 16 258
Investment income 2,799 — 509 118 1,794 6,005 3,126
License and permits _ _ _ _ _ _ 8,538
Other receivables _ 71,178 8,503 958 _ _ 636
Reimbursements/overpayments _ 304 18,503 18 _ _ 13,881
Taxes 8,426 — 530,391 _ _ 3,003 65,748
Total receivables 11,225 76,163 560,375 12,669 1,794 9,024 105,476
Less: allowance for doubtful accounts —_ (726) (125,682) (978) —_ (24) (19,290)
Receivables, net $ 11,225 $ 75437 $ 434,693 $ 11,691 $ 1,794 $ 9,000 $ 86,186
Business-type Activities
Municipal
Finance Nonmajor Unemployment
Programs Enterprise Funds Insurance
Charges for services $ — $ 31,671 $ _—
Contributions/premiums _ 4,588 6,068
Loans/investment income 8,029 95 _—
Other receivables _ 62 _
Reimbursements/overpayments _ _ 2,129
Total receivables 8,029 36,416 8,197
Less: allowance for doubtful accounts — (646) (3,719)
Receivables, net $ 8,029 $ 35,770 $ 4,478
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B. Deferred Outflows of Resources
Governmental Activities
Nonmajor
Federal Special Internal Service Governmental State Special
Revenue General Fund Funds Funds Revenue
OPEB deferred outflows $ — $ 14,999 $ 979 $ — $ _
Pension deferred outflows ”) 13 586,392 8,996 — 65
Refunding deferred outflows _— _— _— 1,805 _—
Total deferred outflows $ 13 $ 601,391 $ 9975 $ 1,805 $ 65
Business-type Activities
Municipal
Finance Nonmajor
Programs Enterprise Funds
OPEB deferred outflows $ 5 $ 282
Pension deferred outflows 46 2,090
Total deferred outflows $ 51 $ 2,372
(1)
(2)
Further detail regarding OPEB related deferred outflows of resources is provided in Note 7.
Further detail regarding pension related deferred outflows of resources is provided in Note 6.
C. Accounts Payables
Governmental Activities
Nonmajor
Federal Special Internal Service Governmental State Special
Revenue General Fund Funds Funds Revenue
Accrued interest $ 6 $ 431 $ 27 $ 1655 $ 50
Payroll 10,922 35,566 4,839 6 25,600
Tax refunds _— 188,354 _— _— _—
Vendors/individuals 226,436 65,270 12,133 9,693 162,951
Payables, net $ 237,364 $ 289,621 $ 16,999 $ 11,354 $ 188,601
Business-type Activities
Municipal
Finance Nonmajor Unemployment
Programs Enterprise Funds Insurance
Accrued interest $ 302 $ 3 $ _
Payroll 30 1,276 —
Vendors/individuals 11 19,334 29,005
Payables, net $ 343 $ 20,613 $ 29,005
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D. Deferred Inflows of Resources
OPEB deferred inflows "”
Pension deferred inflows @
Total deferred inflows
OPEB deferred inflows “
Pension deferred inflows ”)
Total deferred inflows
(1)
(2)
Governmental Activities
Federal Special
Internal Service State Special
General Fund Funds Revenue
$ — $ 26,005 $ 1,698 $ —
37 181,999 9,444 60
$ 37 $ 208,004 $ 11,142 $ 60
Business-type Activities
Municipal
Finance Nonmajor
Programs Enterprise Funds
$ 8 $ 503
49 3,085
$ 57 $ 3,588
Further detail regarding OPEB related deferred inflows of resources is provided in Note 7.
Further detail regarding pension related deferred inflows of resources is provided in Note 6.
NOTE 5.
Changes in capital asset balances for the fiscal year ended June 30, 2020, are reflected in the following table (in
thousands):
CAPITAL ASSETS
Governmental Activities
Capital assets not being depreciated:
Land
Construction work in progress
Easements
Museum and art
Other
Total capital assets not being depreciated
Capital assets being depreciated:
Infrastructure
Land improvements
Buildings/improvements
Equipment
Easements - amortized
Other
Total capital assets being depreciated
Less accumulated depreciation for:
Infrastructure
Land improvements
Buildings/improvements
Equipment
Other
Total accumulated depreciation
Total capital assets being depreciated, net
Intangible assets
Governmental activities capital assets, net
Beginning Ending
Balance Increases") Decreases" Balance
$ 737,025 $ 16,546 $ (75) $ 753,496
1,105,818 543,097 (426,664) 1,222,251
218,813 18,059 — 236,872
85,670 408 — 86,078
29,842 354 — 30,196
2,177,168 578,464 (426,739) 2,328,893
5,573,558 386,946 (201,537) 5,758,967
69,251 7,144 — 76,995
605,637 17,788 (5,245) 618,180
410,261 33,823 (13,466) 430,618
1,377 _ (73) 1,304
5,566 210 — 5,776
6,665,650 446,511 (220,321) 6,891,840
(33,438) (3,220) _ (36,658)
(399,024) (19,418) 545 —«(417,897)
(270,662) (24,236) 9181 (285,717)
(4,308) (254) — (4,562)
(2,407,600) (242,355) 198,658 (2,451,297)
4,258,050 204,156 (21,663) 4,440,543
45,267 35,421 (27,078) 53,610
$ 6,480,485 $ 818041 $ (475,480) $ 6,823,046
(") The increases and decreases noted above include adjustments related to prior periods and correction of errors.
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(2)
Business-type Activities
Capital assets not being depreciated:
Land
Construction work in progress
Other
Total capital assets not being depreciated
Capital assets being depreciated:
Infrastructure
Land improvements
Buildings/improvements
Equipment
Total capital assets being depreciated
Less accumulated depreciation for:
Infrastructure
Land improvements
Buildings/improvements
Equipment
Total accumulated depreciation
Total capital assets being depreciated, net
Intangible assets
Business-type activities capital assets, net
Beginning Ending
$ 800 $ — $ — $ 800
6,887 2,361 (6,887) 2,361
3,640 205 (75) 3,770
11,327 2,566 (6,962) 6,931
1,175 — — 1,175
3,830 — — 3,830
10,199 6,180 — 16,379
9,573 419 (182) 9,810
24,777 6,599 (182) 31,194
(746) (19) _ (765)
(2,064) (149) _ (2,213)
(6,799) (317) _ (7,116)
(7,274) (390) 164 (7,500)
(16,883) (875) 164 (17,594)
7,894 5,724 (18) 13,600
2,062 — (541) 1,521
$ 21,283 $ 8,290 $ (7,521) $ 22,052
The increases and decreases noted above include adjustments related to prior periods and corrections of errors.
Depreciation expense was charged to governmental functions as follows (in thousands):
General government
Public safety
Transportation, including depreciation of the highway system maintained by the State
Health and human services
Education
Natural resources, including depreciation of the state's dams
Depreciation on capital assets held by the internal service funds
Total depreciation expense — Governmental Activities
Depreciation expense was charged to business-type activities as follows (in thousands):
Liquor Stores
State Lottery
Prison Funds
West Yellowstone Airport
Other Enterprise Funds
Total depreciation expense — Business-type Activities
Depreciation ”)
$ 8,222
8,043
197,267
2,952
179
11,020
14,672
$ 242,355
Depreciation ”)
$ 110
56
403
257
49
$ 875
Depreciation expenses noted above include adjustments related to prior periods and correction of errors.
NOTE 6. RETIREMENT PLANS
A. General
The funding policies for each plan provide for periodic employee, employer, and State nonemployer contributions at
rates specified by state law. An actuary determines the actuarial implications of the funding requirement in an annual
actuarial valuation. The actuarial method used to determine the implications of the statutory funding level is the
Entry Age Actuarial Cost Method, with both normal cost and amortization of the unfunded actuarial liability
determined as a level percentage of payroll expense. Benefits are established by state law and can only be amended
by the Legislature.
Montana State Fund, a discretely presented component unit of the State, by statute, prepares separately issued
financial statements on a calendar year-end basis. Due to the difference in reporting period, there will be a variance
between the note disclosures and the financial statements for some pension-related items.
Public Employees’ Retirement Board
The Public Employees’ Retirement Board (PERB) oversees eight defined benefit plans: Public Employees’
Retirement System-Defined Benefit Retirement Plan (PERS-DBRP); Judges’ Retirement System (JRS); Highway
Patrol Officers’ Retirement System (HPORS); Sheriffs’ Retirement System (SRS); Game Wardens’ and Peace
Officers’ Retirement System (GWPORS); Municipal Police Officers’ Retirement System (MPORS); Firefighters’
Unified Retirement System (FURS); and Volunteer Firefighters’ Compensation Act (VFCA). The PERB also
oversees two defined contribution plans: Public Employees’ Retirement System-Defined Contribution Retirement
Plan (PERS-DCRP) and the 457-Deferred Compensation Plan (457 Plan). The PERB also oversees education funds
related to the pension plans. All of the benefit plans, defined benefit and defined contribution, are administered by
the Montana Public Employees’ Retirement Administration (MPERA). Separately issued financial statements and
actuarial reports can be obtained at 100 North Park, Suite 200, PO Box 200131, Helena, MT 59620-0131. The
financial statements and the latest actuarial valuation may also be obtained here: http://mpera.mt.gov/. The
financial statements for the PERS-DBRP include activity for the defined benefit plan and the associated education
fund. The PERS-DCRP financial statements include activity for the defined contribution plan and the associated
education fund.
The PERB is an independent, seven-member board, appointed by the Governor. The members are assigned five-
year, staggered terms. The PERB consists of two members at large, two active defined benefit public employees,
one active defined contribution public employee, one member experienced in investments, and one retired public
employee. The PERB approves the annual operating budget, developed by MPERA management, before the
beginning of the fiscal year. As governed by statute, the PERB’s defined benefit administrative expenses may not
exceed 1.5% of the total defined benefit plan retirement benefits paid. In addition, the PERB decides legislative
policy and priorities, hires the executive director, establishes the policies and procedures that govern operations at
MPERA, and hears and rule on appeal matters of disabilities, retirees, and members. PERB members do not receive
compensation for their service to the MPERA but are reimbursed for necessary expenses incurred while serving.
All defined benefit pension plans provide retirement, disability, and death benefits to the plan members and their
beneficiaries. The PERS-DCRP Disability OPEB Plan provides a defined benefit for disabled members of the
PERS-DCRP. Beneficiaries do not receive disability benefits but may attain retirement benefits from the PERS-
DCRP. A summary of the plan eligibility and benefits are found in the Summary of Benefits sections throughout
Note 6.
Teachers’ Retirement System
The Teachers’ Retirement System (TRS) is a defined benefit plan administered by the Teachers Retirement Board
(TRB). The plan prepares a publicly issued comprehensive annual financial report that includes financial statements
and required supplementary information for TRS. Separately issued financial statements, actuarial valuations, and
experience studies can be obtained at 100 N Park Avenue, Suite 110, PO Box 200139, Helena, MT 59620-0319, or
can be found online at https://trs.mt.gov/.
The TRB consists of six members, all of whom are appointed by the Governor. Three TRB members must be
teaching professionals who, when appointed, are active members of TRS; at least one of them must be an active
classroom teacher. One TRB member must be a retired teacher who was a member of TRS at the time of retirement.
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Two TRB members are appointed from the public at large. TRB members serve staggered, five-year terms. Three
TRB members constitute a quorum.
A summary of the number of participating employer and nonemployer contributing entities as of June 30, 2020,
follows:
Classification of Participant GWPORS DBRP DCRP SRS MPORS — FURS VFCA TRS
Employer 7 548 329 57 33 27 221 364
Nonemployer
contributing entity _ 1 _ — 1 1 1 1
Total Participants 7 549 329 57 34 28 222 365
There are 688 State employees who are eligible to participate in defined benefit pension plans, other than the plans
listed above.
B. Summary of Significant Accounting Policies
The MPERA prepares its financial statements using fund accounting principles and the accrual basis of accounting.
The basis of accounting indicates the timing of transactions or events for recognition in the financial statements.
Plan member contributions, employer contributions, and related receivables are recognized as revenues in the
accounting period in which they are earned and become measurable, pursuant to formal commitments and statutory
requirements. Benefit payments and refunds/distributions are recognized in the accounting period in which they are
due and payable in accordance with the terms of each plan. Administrative and other expenses, and the associated
liabilities, are recognized in the period the liability is incurred. Administrative expenses are financed through
investment earnings on the pension trust fund for the defined benefit plans. Interfund receivables and payables exist
at year-end for defined benefit administrative expenses that are accounted for within PERS-DBRP and allocated to
the other defined benefit plans at year-end. Costs specifically related to the computer system upgrades are charged
directly to the individual plans. The MPERA adheres to all applicable Governmental Accounting Standards Board
(GASB) statements.
The TRS prepares its financial statements using the accrual basis of accounting. For the purposes of measuring the
net pension liability, deferred inflows of resources, and deferred outflows of resources related to pensions, pension
expense, information about the fiduciary net position of the TRS, and additions to/deductions from TRS’s fiduciary
net position, the items have been determined on the same accrual basis as they are reported by the TRS. For this
purpose, plan contributions are recognized as of employer payroll paid dates. Benefit payments and refunds are
recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. The
TRS adheres to all applicable GASB statements.
The pension trust fund financial statements presented in this report are prepared using the accrual basis of
accounting in the same manner as that described for the pension plan administrators above.
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C. Public Employee Defined Benefit Retirement Plan
A summary of classes of members in JRS, HPORS, GWPORS, PERS-DBRP, SRS, MPORS, FURS, VFCA, TRS,
PERS-DCRP, and 457-Deferred Compensation covered by benefit terms at June 30, 2020, follows:
Multi-Employer
Type of Plan for Reporting § Single-Employer Defined ra . . :
Purposes Benefit Multi-Employer Defined Benefit coed in
a HPORS PERS- MPORS PERS-
Plan Designation JRS 'y GWPORS| ,cop@ SRS © (FURS VFCA TRS | perp 457-DC
Classification of Member
Active 58 233 1,033} 29,039 1,502 829 735 2,401 19,7517 3,100 5,601
Inactive entitled to, but not yet
receiving, benefits or a
refund:
Vested 2 17 135] 4,070 146 95 39 766 = 1,828 639 4,293
Non-vested 1 31 495} 20,548 696 181 72 — 14,941 790 _—
Inactive members and
beneficiaries currently
receiving benefits:
Service retirements” 67 335 371] 23,195 711 811 648 1,519 16,605 106 _
Disability retirements _— 4 2 138 28 27 12 1 192 9 _—
Survivor benefits 5 11 11 523 24 32 18 4 480 1 —
Total membership 133 631 2,047] 77,513 3,107 1,975 1,524 4,691 53,797] 4,645 9,894
") Includes DROP in the Active count.
@) The inactive Non-vested count includes dormant accounts that were previously not counted.
® Includes "Alternative Payees" and "Death After Retirement" benefit payments. As of Fiscal Year 2019, the TRS plan stopped reporting separate benefit
recipient categories.
Includes "Death Before Retirement" benefit payments.
A summary of pension liability, pension assets, net pension liability/(asset), pension expense, deferred outflows of
resources, and deferred inflows of resources by plan and total for the State as an employer entity for primary
government and component units reported as of June 30, 2020, based on a June 30, 2019, actuarial valuation,
follows with amounts presented in thousands:
Aggregate Pension Amounts - All Plans (State as employer)
Employer's
Employer's Net Employer's Deferred Employer's
Employer's Total Employer’s Pension Pension Outflows of Deferred Inflows
System Pension Liability Pension Assets _Liability/(Asset) Expense Resources of Resources
JRS $ 65,319 $ 104,886 $ (39,567) $ (114) $ 5,690 $ 1,450
HPORS 237,728 152,778 84,950 12,145 11,713 _
GWPORS 247,013 206,348 40,665 9,501 13,748 4,003
PERS-DBRP 3,128,757 2,310,595 818,162 87,976 141,953 155,410
SRS 22,464 18,397 4,067 63 2,144 2,513
FURS 11,593 9,284 2,309 530 1,084 195
TRS 148,249 101,756 46,493 15,181 32,800 919
Totals $ 3,861,123 $ 2,904,044 $ 957,079 $ 125,282 $ 209,132 $ 164,490
(1) State as the Single Employer
Judges’ Retirement System — The JRS, administered by the MPERA, is a single-employer defined benefit plan
established in 1967 and governed by Title 19, chapters 2 & 5, MCA (Montana Code Annotated). This plan provides
retirement benefits for all Montana judges of the district courts, justices of the Supreme Court, the Chief Water
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Judge, and the Associate Water Judge. Benefits are established by state law and can only be amended by the
Legislature. The JRS provides retirement, disability, and death benefits to plan members and their beneficiaries.
Benefits are based on eligibility, years of service, and compensation. Member rights are vested after five years of
service.
Summary of Benefits
Member’s current salary’ or highest average compensation (HAC)”
'Hired prior to July 1, 1997, and non-Guaranteed Annual Benefit Adjustment (GABA) — monthly
compensation at time of retirement;
*Hired on or after July 1, 1997, or electing GABA — HAC during any consecutive 36 months;
*Hired on or after July 1, 2013 — 110% annual cap on compensation considered as a part of a
member’s HAC.
Eligibility for benefit
Age 60, 5 years of membership service;
Any age with 5 years of membership service — involuntary termination, actuarially reduced.
Vesting
5 years of membership service.
Monthly benefit formula
3.33% of current salary’ (non-GABA) or HAC’ (GABA) per year of service credit for the first 15
years of service credit, plus 1.785% per year for each year after 15 years.
Guaranteed Annual Benefit Adjustment (GABA)
Hired on or after July 1, 1997, or those electing GABA — after the member has completed 12 full
months of retirement, the member’s benefit increases by a maximum of 3.0% each January, inclusive
of all other adjustments to the member’s benefit.
Minimum benefit adjustment (non-GABA)
If hired prior to July 1, 1997, and member did not elect GABA — current salary of an active member
in same position is used in the calculation of the monthly benefit each time the Legislature increases
salaries for active judges.
Contributions to the Plan
Rates are specified by state law for periodic employee and employer contributions. The Legislature has the authority
to establish and amend contribution rates to the plan.
Member contributions to the system — Contributions are deducted from each member’s salary and
remitted by the participating employer. An individual account is established for each member’s
contributions and interest allocations until a retirement or refund request is processed. Plan members
are required to contribute 7.0% of the member’s monthly compensation.
Employer contributions to the system — As the employer, the State is required to contribute 25.81% of
a member’s compensation.
Actuarial Assumptions
The total pension liability/(asset) used to calculate the net pension liability/(asset) was determined by an actuarial
valuation as of June 30, 2018, with update procedures used to roll forward the total pension liability/(asset) to June
30, 2019. The actuarial assumptions used in the June 30, 2019, valuation were based on the results of the last
actuarial experience study dated May 2017 for the six-year period ended June 30, 2016. There were several
significant assumptions and other inputs used to measure the total pension liability/(asset). Among those
assumptions were the following:
¢ Investment Return 7.65%
¢ Admin Expense as a % of Payroll 0.17%
¢ General Wage Growth 3.50%
¢ Inflation at 2.75%
¢ Merit Increases None
¢ Postretirement Benefit Increases — After the member has completed 12 full months of retirement, the
member’s benefit increases by the applicable percentage (provided below) each January, inclusive of other
adjustments to the member’s benefit:
° 3% for members electing GABA or hired on or after July 1, 1997
° Current salary of an active member in the same position, if hired prior to July 1, 1997,
and not electing GABA
¢ Mortality assumptions among contributing members, terminated vested members, service retired members
and beneficiaries are based on RP-2000 Combined Employee and Annuitant Mortality Tables projected to
2020 using Scale BB, set back one year for males.
¢ Mortality assumptions among Disabled Retirees are based on RP-2000 Combined Employee and Annuitant
Mortality Tables.
Discount Rate
The discount rate used to measure the total pension asset was 7.65%. The projection of cash flows used to determine
the discount rate assumed that contributions from participating plan members and employers will be made based on
the PERB’s funding policy, which establishes the contractually required rates under MCA. Based on those
assumptions, the JRS’s fiduciary net position was projected to be adequate to make all the projected future benefit
payments of current plan members through the year 2105. Therefore, the long-term expected rate of return on
pension plan investments was applied to all periods of projected benefit payments to determine the total pension
asset. A municipal bond rate was not incorporated in the discount rate.
Target Allocations
The long-term expected return on pension plan assets is reviewed as part of the regular experience study prepared
for the JRS. The most recent analysis, performed for the six-year period ended June 30, 2016, is outlined in a report
dated May 2017, and can be located on the MPERA website. The long-term expected rate of return on pension plan
investments was determined by considering information from various sources, including historical rates of return,
rate of return assumptions adopted by similar public pension systems, and by using a building-block method in
which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment
and inflation) are developed for each major asset class. These ranges were combined to produce the long-term
expected rate of return by weighing the expected future real rates of return by the target asset allocation percentage
and by adding expected inflation. Best estimates of the arithmetic real rates of return for each major asset class
included in the JRS’s target asset allocation as of June 30, 2019, is summarized in the table that follows:
Target Asset Long-term Expected
Asset Class Allocation Real Rate of Return
Cash Equivalents 3.00% 4.09%
Domestic Equity 36.00% 6.05%
Foreign Equity 18.00% 7.01%
Fixed Income 23.00% 2.17%
Private Equity 12.00% 10.53%
Real Estate 8.00% 5.65%
Total 100.00%
Sensitivity Analysis
In accordance with GASB 68 regarding the disclosure of the sensitivity of the net pension liability/(asset) to changes
in the discount rate, the table below presents the net pension liability/(asset) calculated using the discount rate of
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7.65%, as well as what the net pension liability/(asset) would be if it were calculated using a discount rate that is
1.00% lower (6.65%) or 1.00% higher (8.65%) than the current rate.
(in thousands)
1.0% Decrease Current 1.0% Increase
(6.65%) Discount Rate (8.65%)
JRS net pension (asset) $ (33,242) $ (39,567) $ (45,028)
Net Pension Asset
In accordance with GASB 68, the employer is required to recognize and report certain amounts associated with its
participation in the JRS. GASB 68 became effective June 30, 2015, and includes requirements for participant to
record and report its net pension asset (NPA), pension expense, deferred inflows of resources and deferred outflows
of resources associated with pensions.
(dollars presented in thousands)
Net Pension Liability Net Pension Liability
(Asset) as of 6/30/18 (Asset) as of 6/30/19 Percent of NPA
Employer's proportionate share $ (42,459) $ (39,567) 100%
At June 30, 2020, the employer reported a net pension asset of $39.6 million for its proportionate share of the net
pension asset. The net pension asset was measured as of June 30, 2019, and the total pension liability used to
calculate the net pension asset was determined by an actuarial valuation as of June 30, 2018, with update procedures
used to roll forward the total pension liability to June 30, 2019. The employer’s proportion of the net pension asset
was based on the employer’s contributions received by JRS during the measurement period July 1, 2018, through
June 30, 2019, relative to the total employer contributions received from all of the JRS participating employers.
Changes in actuarial assumptions and methods: There were no changes in assumptions or other input
that affected the measurement of the total pension liability (asset).
Changes in benefit terms: There have been no changes in benefit terms since the previous
measurement date.
Changes in proportionate share: There were no changes between the measurement date of the net
pension asset and the employer’s reporting date that are expected to have a significant effect on the
employer’s proportionate share of the net pension asset.
Other Items Related to and Changes in Net Pension Asset
(in thousands)
Total Pension Plan Fiduciary Net Pension
Liability Net Position Liability/(Asset)
Balances at 6/30/2018 $ 60,192 §$ 102,651 $ (42,459)
Service costs 1,772 — 1,772
Interest 4,458 _ 4,458
Difference between expected
and actual experience 2,743 _ 2,743
Contributions - member — 517 (517)
Net investment income _ 5,687 (5,687)
Benefit payments (3,846) (3,846) —
Administrative expense _— (123) 123
Net changes 5,127 2,235 2,892
Balances at 6/30/2019 $ 65,319 $§ 104,886 $ (39,567)
Pension Expense
At June 30, 2020, the employer recognized pension expense of $(114.0) thousand for the JRS.
Deferred Outflows and Inflows
As of the fiscal year ended June 30, 2020, remaining deferred outflows of resources and deferred inflows of
resources related to the JRS are from the following sources:
(in thousands)
Deferred Outflows Deferred Inflows
of Resources of Resources
Net difference between projected and actual
earnings on pension plan investments $ 2,273 $ 1,450
Changes of assumptions 966 _—
Differences between expected and actual
experience 463 _—
Contributions paid to JRS subsequent to the
measurement date — FY 2020 contributions 1,988 _
Totals $ 5,690 $ 1,450
Amounts reported as deferred outflows of resources related to pensions resulting from the employer’s contributions
made subsequent to the June 30, 2019 measurement date will be recognized as a reduction of the net pension
liability in the fiscal year ended June 30, 2021.
Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will
be recognized in pension expense as follows:
(in thousands)
Amount recognized in Pension
Expense as an increase or
Year ended June 30: (decrease) to Pension Expense
2021 $ 1,577
2022 (591)
2023 859
2024 407
Highway Patrol Officers’ Retirement System — The HPORS, administered by the MPERA, is a single-employer
defined benefit plan established on July 1, 1945, and governed by Title 19, chapters 2 & 6, MCA. This plan provides
retirement benefits to all members of the Montana Highway Patrol, including supervisory personnel. Benefits are
established by state law and can only be amended by the Legislature. The HPORS provides retirement, disability,
and death benefits to plan members and their statutory beneficiaries. Benefits are based on eligibility, years of
service, and highest average compensation. Member rights for death and disability are vested immediately. All other
member rights are vested after 5 or 10 years of service.
Section 19-6-709, MCA provides eligible members retired prior to July 1, 1991, or their survivors, an annual
supplemental lump-sum payment distributed each September. This lump-sum payment is funded by a statutory
appropriation requested by the PERB from the General Fund. Factors impacting eligibility include the number of
years the recipient has received a service retirement or disability benefit, the recipient’s age, and whether the
recipient is employed in a position covered by a retirement system under Title 19, MCA.
Deferred Retirement Option Plan (DROP)
Beginning October 1, 2015, eligible members of HPORS can participate in the DROP by filing a one-time
irrevocable election with the PERB. The DROP is governed by Title 19, Chapter 6, Part 10, MCA. A member must
have completed at least twenty years of membership service to be eligible. They may elect to participate in the
DROP for a minimum of one month and a maximum of 60 months and may only participate in the DROP once. A
participant remains a member of the HPORS, but will not receive membership service or service credit in the system
for the duration of the member’s DROP period. During participation in the DROP, all mandatory employer
contributions continue to the retirement system; mandatory employee contributions are deposited to the member's
DROP account. A monthly benefit is calculated based on salary and years of service to date as of the beginning of
the DROP period. The monthly benefit is paid into the member’s DROP account until the end of the DROP period.
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At the end of the DROP period, the participant may receive the balance of the DROP account in a lump-sum
payment or in a direct rollover to another eligible plan, as allowed by the IRS. If the participant continues
employment after the DROP period ends, they will again accrue membership service and service credit. The DROP
account cannot be distributed until employment is formally terminated. As of June 30, 2020, the balance held by
MPERA for HPORS DROP participants was approximately $3.8 million.
Summary of Benefits
Member’s highest average compensation (HAC)
Hired prior to July 1, 2013 — HAC during any consecutive 36 months;
Hired on or after July 1, 2013 — 110% annual cap on compensation considered as a part of a
member’s HAC.
Eligibility for benefit
20 years of membership service, regardless of age.
Early Retirement
Hired prior to July 1, 2013 — 5 years of membership service, actuarially reduced from age 60.
Hired on or after July 1, 2013 — 10 years of membership service, actuarially reduced from age 60.
Second Retirement (applies to retirement system members who return on or after July 1, 2017, to
active service covered by the system from which they retired):
a. If the member works more than 480 hours in a calendar year and accumulates less than
5 years of service credit before terminating again, the member:
. is not awarded service credit for the period of reemployment;
. is refunded the accumulated contributions associated with the period of
reemployment;
. starting the first month following termination of service receives the
same retirement benefit previously paid to the member; and
. does not accrue post-retirement benefit adjustments during the term of
reemployment but receives a GABA in January immediately following
the second retirement.
b. If the member works more than 480 hours in a calendar year and accumulates at least 5
years of service credit before terminating again, the member:
. is awarded service credit for the period of reemployment;
. starting the first month following termination of service, receives:
° the same retirement benefit previously paid to the member;
and
° a second retirement benefit for the period of reemployment
calculated based on the laws in effect as of the member's
rehire date; and
. does not accrue post-retirement benefit adjustments during the term of
reemployment but receive a GABA:
° on the initial retirement benefit starting January immediately
following second retirement; and
° on the second retirement benefit starting in January after
receiving that benefit for at least 12 months
c. A member who returns to covered service is not eligible for a disability benefit.
Vesting
Hired prior to July 1, 2013 — 5 years of membership service.
Hired on or after July 1, 2013 — 10 years of membership service.
Monthly benefit formula
Retire prior to July 1, 2013 — 2.5% of HAC per year of service credit.
Retire on or after July 1, 2013 — 2.6% of HAC per year of service credit.
Guaranteed Annual Benefit Adjustment (GABA)
Hired on or after July 1, 1997, or those electing GABA — after the member has completed 12 full
months of retirement, the member’s benefit increases by a maximum of 3.0% each January, inclusive
of all other adjustments to the member’s benefit.
Hired on or after July 1, 2013 — after the member has completed 36 full months of retirement, the
member’s benefit increase by a maximum of 1.5% each January, inclusive of all other adjustments to
the member’s benefit.
Minimum Monthly Benefit (non-GABA)
If hired prior to July 1, 1997, and member did not elect GABA — the minimum monthly benefit is
equal to 2% of the service credit multiplied by the current base compensation of a probationary
highway patrol officer. Any annual increase is limited to 5.0% over the current benefit and may not
exceed 60% of the current base salary of a probationary officer.
Contributions to the Plan
Rates are specified by state law for periodic employee and employer contributions. The Legislature has the authority
to establish and amend contribution rates to the plan.
Member contributions to the system — Contributions are deducted from each member’s salary and
remitted by participating employer.
Hired prior to July 1, 1997, and not electing GABA — Plan members are required to contribute
13.00%.
Hired after June 30, 1997, and electing GABA — Plan members are required to contribute 13.05%.
Employer contributions to the system — As the employer, the State is required to contribute 38.33% of
a member’s compensation. The first 28.15% is payable from the same sources used to pay a
member’s compensation. The remaining amount, equal to 10.18%, is payable from the General Fund
through a statutory appropriation.
Actuarial Assumptions
The total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of
June 30, 2018, with update procedures used to roll forward the total pension liability to June 30, 2019. The actuarial
assumptions used in the June 30, 2019, valuation were based on the results of the last actuarial experience study,
dated May 2017 for the six-year period ended June 30, 2016. There were several significant assumptions and other
inputs used to measure the total pension liability. Among those assumptions were the following:
¢« Investment Return 7.65%
¢ Administrative Expense as a % of Payroll 0.27%
* General Wage Growth 3.50%
¢ Inflation at 2.75%
¢« Merit Increases 0 to 6.30%
¢ Postretirement Benefit Increases — After the member has completed 12 full months of retirement, the
member’s benefit increases by the applicable percentage each January, inclusive of other adjustments to the
member’s benefit:
° If electing GABA or hired on or after July 1, 1997 — 3.00%
° Hired on or after July 1, 2013 — 1.50%
° Minimum Benefit Adjustment — Limited to 5% over the current benefit and may not
exceed 60% of a newly confirmed officer
¢ Mortality assumptions among contributing members, terminated vested members, service retired members
and beneficiaries are based on RP-2000 Combined Employee and Annuitant Mortality Tables projected to
2020 using Scale BB, set back one year for males.
¢ Mortality assumptions among Disabled Retirees are based on RP-2000 Combined Employee and Annuitant
Mortality Tables.
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Discount Rate
The discount rate used to measure the total pension asset was 7.65%. The projection of cash flows used to determine
the discount rate assumed that contributions from participating plan members and employers will be made based on
the PERB’s funding policy, which establishes the contractually required rates under MCA. The State contributes
10.18% of salaries paid by employers, however, this is considered an employer contribution since HPORS is a
single-employer plan and the State is the only employer. Based on those assumptions, the HPORS’s fiduciary net
position was projected to be adequate to make all the projected future benefit payments of current plan members
through the year 2129. Therefore, the long-term expected rate of return on pension plan investments was applied to
all periods of projected benefit payments to determine the total pension liability. A municipal bond rate was not
incorporated in the discount rate.
Target Allocations
The long-term expected return on pension plan assets is reviewed as part of the regular experience study prepared
for the HPORS. The most recent analysis, performed for the six-year period ended June 30, 2016, is outlined in a
report dated May 2017, and can be located on the MPERA website. The long-term expected rate of return on
pension plan investments was determined by considering information from various sources, including historical rates
of return, rate of return assumptions adopted by similar public pension systems, and by using a building-block
method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan
investment and inflation) are developed for each major asset class. These ranges were combined to produce the
long-term expected rate of return by weighing the expected future real rates of return by the target asset allocation
percentage and by adding expected inflation. Best estimates of the arithmetic real rates of return for each major
asset class included in the HPORS’s target asset allocation as of June 30, 2019, is summarized in the table that
follows:
Target Asset Long-term Expected
Asset Class Allocation Real Rate of Return
Cash Equivalents 3.00% 4.09%
Domestic Equity 36.00% 6.05%
Foreign Equity 18.00% 7.01%
Fixed Income 23.00% 2.17%
Private Equity 12.00% 10.53%
Real Estate 8.00% 5.65%
Total 100.00%
Sensitivity Analysis
In accordance with GASB 68 regarding the disclosure of the sensitivity of the net pension liability to changes in the
discount rate, the table below presents the net pension liability calculated using the discount rate of 7.65%, as well as
what the net pension liability would be if it were calculated using a discount rate that is 1.00% lower (6.65%) or
1.00% higher (8.65%) than the current rate.
(in thousands)
1.0% Decrease Current 1.0% Increase
(6.65%) Discount Rate (8.65%)
HPORS net pension liability $ 117,532 $ 84,950 $ 58,614
Net Pension Liability
In accordance with GASB 68, the employer is required to recognize and report certain amounts associated with its
participation in the HPORS. GASB 68 became effective June 30, 2015, and includes requirements for participant to
record and report its net pension liability (NPL), pension expense, deferred inflows or resources, and deferred
outflows of resources associated with pensions.
(dollars presented in thousands)
Net Pension Liability Net Pension Liability
as of 6/30/18 as of 6/30/19 Percent of NPL
Employer's proportionate share $ 78,382 $ 84,950 100%
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At June 30, 2020, the employer reported a liability of $85.0 million for its proportionate share of the net pension
liability. The net pension liability was measured as of June 30, 2019, and the total pension liability used to calculate
the net pension liability was determined by an actuarial valuation as of June 30, 2018, with update procedures used
to roll forward the total pension liability to June 30, 2019. The employer’s proportion of the net pension liability was
based on the employer’s contributions received by HPORS during the measurement period July 1, 2018, through
June 30, 2019, relative to the total employer contributions received from all of the HPORS participating employers.
Changes in actuarial assumptions and methods: There were no changes in assumptions or other
inputs that affected the measurement of the total pension liability.
Changes in benefit terms: There have been no changes in benefit terms since the previous
measurement date.
Changes in proportionate share: There were no changes between the measurement date of the net
pension liability and the employer’s reporting date that are expected to have a significant effect on
the employer’s proportionate share of the net pension liability.
Other Items Related to and Changes in Net Pension Liability
(in thousands)
Total Pension Plan Fiduciary Net Pension
Liability Net Position Liability
Balances at 6/30/2018 $ 227,581 $ 149,199 $ 78,382
Service costs 3,453 _ 3,453
Interest 16,926 _— 16,926
Difference expected and actual experience 2,413 _— 2,413
Contributions — employer _— 5,845 (5,845)
Contributions — non-employer (State) — 233 (233)
Contributions — member _— 2,002 (2,002)
Net investment income _— 8,269 (8,269)
Refund of contributions (582) (582) _—
Benefit payments (12,063) (12,063) _—
Administrative expense _— (127) 127
Other changes _— 2 (2)
Net changes 10,147 3,579 6,568
Balances at 6/30/2019 $ 237,728 $ 152,778 $ 84,950
Pension Expense
At June 30, 2020, the employer recognized pension expense of $12.1 million for the HPORS.
Deferred Outflows and Inflows
At June 30, 2020, the employer recognized a beginning deferred outflow of resources for fiscal year 2019
contributions of $6.1 million.
As of the fiscal year ended June 30, 2020, remaining deferred outflows of resources and deferred inflows of
resources related to the HPORS are from the following sources:
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(in thousands)
Deferred Outflows Deferred Inflows of
of Resources Resources
Difference between expected and actual experience $ 2,798 $ —
Changes of assumptions 1.973 _
Net difference between projected and actual
earnings on pension plan investments 733 _
Contributions paid to HPORS subsequent to the
measurement date —- FY 2020 contributions 6,209 —
Totals $ 11,713 $ =
Amounts reported as deferred outflows of resources related to pensions resulting from the employer’s contributions
made subsequent to the June 30, 2019, measurement date will be recognized as a reduction of the net pension
liability in the fiscal year ended June 30, 2021.
Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will
be recognized in pension expense as follows:
(in thousands)
Year ended Amount recognized in Pension
June 30: (decrease) to Pension Expense
2021 § 4,087
2022 (38)
2023 862
2024 593
Game Wardens’ & Peace Officers’ Retirement System — The GWPORS, administered by the MPERA, is a multi-
employer, cost-sharing defined benefit plan established in 1963, and governed by Title 19, chapters 2 & 8, MCA.
This plan provides retirement benefits to all persons employed as a game warden, warden supervisory personnel, or
state peace officer. Benefits are established by state law and can only be amended by the Legislature. The GWPORS
provides retirement, disability, and death benefits to plan members and their beneficiaries. Benefits are based on
eligibility, years of service, and highest average compensation.
The State of Montana and its discretely presented component units are the only employers who participate in the
GWPORS. Therefore, while the plan is considered to be a multi-employer, cost-sharing defined benefit plan for
actuarial valuation purposes, in accordance with GASB 68, the plan is treated as if it were a single-employer defined
benefit pension plan type for financial reporting.
Summary of Benefits
Member’s highest average compensation (HAC)
Hired prior to July 1, 2011 — highest average compensation during any consecutive 36 months;
Hired on or after July 1, 2011 — highest average compensation during any consecutive 60 months;
Hired on or after July 1, 2013 — 110% annual cap on compensation considered as a part of a
member’s HAC.
Eligibility for benefit
Service Retirement
Age 50, 20 years of membership service.
Early Retirement (reduced benefit)
Age 55, vested members who terminate employment prior to 20 years of membership service.
Vesting
5 years of membership service.
Monthly benefit formula
2.5% of HAC per year of service credit.
Guaranteed Annual Benefit Adjustment (GABA)
After the member has completed 12 full months of retirement, the member’s benefit increases by the
applicable percentage (provided below) each January, inclusive of all other adjustments to the
member’s benefit:
° 3.0% for members hired prior to July 1, 2007
° 1.5% for members hired on or after July 1, 2007
Contributions to the Plan
Rates are specified by state law for periodic employee and employer contributions. The Legislature has the authority
to establish and amend contribution rates to the plan.
Member contributions to the system — Contributions are deducted from each member’s salary and
remitted by participating employers. Plan members are required to contribute 10.56% of member’s
compensation.
Employer contributions to the system — State agency and university employers are required to
contribute 9.0% of a member’s compensation.
Actuarial Assumptions
The total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of
June 30, 2018, with update procedures used to roll forward the total pension liability to June 30, 2019. The actuarial
assumptions used in the June 30, 2019, valuation were based on the results of the last actuarial experience study,
dated May 2017 for the six-year period ended June 30, 2016. There were several significant assumptions and other
inputs used to measure the total pension liability. Among those assumptions were the following:
¢« Investment Return 7.65%
« Admin Expense as a % of payroll 0.23%
* General Wage Growth 3.50%
¢ Inflation at 2.75%
« Merit Increases 0% to 6.30%
¢ Postretirement Benefit Increases — After the member has completed 12 full months of retirement, the
member’s benefit increases by the applicable percentage each January, inclusive of other adjustments to the
member’s benefit:
° 3.00% for members hired prior to July 1, 2007
° 1.50% for members hired on or after July 1, 2007
¢ Mortality assumptions among contributing members, terminated vested members, service retired members
and beneficiaries are based on RP-2000 Combined Employee and Annuitant Mortality Tables projected to
2020 using Scale BB, set back one year for males.
¢ Mortality assumptions among Disabled Retirees are based on RP-2000 Combined Employee and Annuitant
Mortality Tables.
Discount Rate
The discount rate used to measure the total pension asset was 7.65%. The projection of cash flows used to determine
the discount rate assumed that contributions from participating plan members and employers will be made based on
the PERB’s funding policy, which establishes the contractually required rates under MCA. Based on those
assumptions, the GWPORS’s fiduciary net position was projected to be adequate to make all the projected future
benefit payments of current plan members through the year 2119. Therefore, the long-term expected rate of return
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on pension plan investments was applied to all periods of projected benefit payments to determine the total pension
liability. A municipal bond rate was not incorporated in the discount rate.
Target Allocations
The long-term expected return on pension plan assets is reviewed as part of the regular experience study prepared
for the GWPORS. The most recent analysis, performed for the six-year period ended June 30, 2016, is outlined in a
report dated May 2017, and can be located on the MPERA website. The long-term expected rate of return on
pension plan investments was determined by considering information from various sources, including historical rates
of return, rate of return assumptions adopted by similar public pension systems, and by using a building-block
method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan
investment and inflation) are developed for each major asset class. These ranges were combined to produce the
long-term expected rate of return by weighing the expected future real rates of return by the target asset allocation
percentage and by adding expected inflation. Best estimates of the arithmetic real rates of return for each major
asset class included in the GWPORS’s target asset allocation as of June 30, 2019, is summarized in the table that
follows:
Target Asset Long-term Expected
Asset Class Allocation Real Rate of Return
Cash Equivalents 3.00% 4.09%
Domestic Equity 36.00% 6.05%
Foreign Equity 18.00% 7.01%
Fixed Income 23.00% 2.17%
Private Equity 12.00% 10.53%
Real Estate 8.00% 5.65%
Total 100.00%
Sensitivity Analysis
In accordance with GASB 68 regarding the disclosure of the sensitivity of the net pension liability to changes in the
discount rate, the table below presents the net pension liability calculated using the discount rate of 7.65%, as well as
what the net pension liability would be if it were calculated using a discount rate that is 1.00% lower (6.65%) or
1.00% higher (8.65%) than the current rate.
(in thousands)
1.0% Decrease Current 1.0% Increase
(6.65%) Discount Rate (8.65%)
Primary government employer GWPORS net pension
liability $ 73,739 $ 38,635 $ 9,965
Discretely presented component units employer
GWPORS net pension liability 3,875 2,030 524
Total employer GWPORS net pension liability $ 77,614 $ 40,665 $ 10,489
Net Pension Liability
In accordance with GASB 68, employers are required to recognize and report certain amounts associated with their
participation in the GWPORS. Statement 68 became effective June 30, 2015, and includes requirements for
participants to record and report their proportionate share of the collective net pension liability (NPL), pension
expense, deferred inflows of resources and deferred outflows of resources associated with pensions.
(dollars presented in thousands)
Net Pension Net Pension
Liability Liability Percent of
as of 6/30/18 as of 6/30/19 Collective NPL
Primary government employer proportionate share $ 38,851 § 38,635 95.007027 %
Discretely presented component units employer 2.096 2.030
proportionate share 4.992973 %
Total employer GWPORS proportionate share $ 40,947 $ 40,665 100 %
At June 30, 2020, the employer reported a total liability of $40.7 million for its proportionate share of the net
pension liability. The net pension liability was measured as of June 30, 2019, and the total pension liability used to
calculate the net pension liability was determined by an actuarial valuation as of June 30, 2018, with update
procedures used to roll forward the total pension liability to June 30, 2019. The employer’s proportion of the net
pension liability was based on the employer’s contributions received by GWPORS during the measurement period
July 1, 2018, through June 30, 2019, relative to the total employer contributions received from all of GWPORS
participating employers.
Changes in actuarial assumptions and methods: There were no changes in assumptions or other inputs that
affected the measurement of the total pension liability.
Changes in benefit terms: There have been no changes in benefit terms since the previous measurement
date.
Changes in proportionate share: Between the measurement date of the collective net pension liability and
the employer’s reporting date, there were no changes in proportion that are expected to have a significant
effect on the employer’s proportionate share of the collective net pension liability.
Other Items Related to and Changes in Net Pension Liability
The State, as the primary government employer, has the following balances and changes related to the GWPORS’s
Net Pension Liability:
(in thousands)
Total Pension Plan Fiduciary Net Pension
Liability Net Position Liability
Balances at 6/30/2018 $ 222,467 $ 183,616 $ 38,851
Service costs 7,604 _— 7,604
Interest 16,738 — 16,738
Difference between expected
and actual experience (4,492) _— (4,492)
Contributions — employer _— 4,452 (4,452)
Contributions — member _— 5,288 (5,288)
Net investment income _— 10,569 (10,569)
Refunds of contributions (951) (951) _—
Benefit payments (6,983) (6,983) —
Administrative expense _— (192) 192
Other changes “ 296 245 51
Net changes 12,212 12,428 (216)
Balances at 6/30/2019 $ 234,679 $ 196,044 $ 38,635
‘) The Changes in Net Pension Liability table is only provided at the system level. The ending balances and the
components of the changes are derived from the primary government's proportionate share of the total plan
balances and the discretely presented component unit's proportionate share of the total plan balances. Due to
the change in proportionate share in each year, the other changes line item includes the difference between the
proportionate share of the balances and the preliminary calculated balances.
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The State’s discretely presented component units, as employers, have the following balances and changes related to
the GWPORS’s Net Pension Liability:
(in thousands)
Total Pension Plan Fiduciary Net Pension
Liability Net Position Liability
Balances at 6/30/2018 $ 12,003 $ 9,907 $ 2,096
Service costs 400 _— 400
Interest 880 _— 880
od actual experience (236 - (236
Contributions - employer _— 234 (234)
Contributions - member _— 278 (278)
Net investment income _— 556 (556)
Refunds of contributions (50) (50) _—
Benefit payments (367) (367) _—
Administrative expense _— (10) 10
Other changes (296) (244) (52)
Net changes 331 397 (66)
Balances at 6/30/2019 $ 12,334 $ 10,304 $ 2,030
‘” The Changes in Net Pension Liability table is only provided at the system level. The ending balances and the
components of the changes are derived from the primary government's proportionate share of the total plan
balances and the discretely presented component unit's proportionate share of the total plan balances. Due to
the change in proportionate share in each year, the other changes line item includes the difference between the
proportionate share of the balances and the preliminary calculated balances.
Pension Expense
At June 30, 2020, the employer recognized a total pension expense of $9.5 million for its proportionate share of the
GWPORS pension expense: $9.1 million related to the primary government and $441.3 thousand related to
component units.
Deferred Outflows and Inflows
At June 30, 2020, the State, as a primary government employer, recognized a beginning deferred outflow of
resources for fiscal year 2019 contributions of $4.4 million.
As of the fiscal year ended June 30, 2020, remaining deferred outflows of resources and deferred inflows of
resources for the primary government, as an employer, related to the GWPORS are from the following sources:
(in thousands)
Deferred Outflows Deferred Inflows of
of Resources Resources
Difference between expected and actual experience $ 5,203 $ 3,593
Net difference between projected and actual 820
earnings on pension plan investments ~~
Changes in assumptions 2,233 _
Changes in proportion and differences between
employer contributions and proportionate share 221 136
of contributions
Contributions paid to GWPORS subsequent to the 4.599
measurement date — FY 2020 contributions , ~~
Totals $ 13,076 $ 3,729
Amounts reported as deferred outflows of resources related to pensions resulting from the employer’s contributions
made subsequent to the June 30, 2019, measurement date will be recognized as a reduction of the net pension
liability in the fiscal year ended June 30, 2021.
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Other amounts reported as deferred inflows of resources related to pensions will be recognized in pension expense
as follows:
(in thousands)
Amount recognized in Pension
Expense as an increase or
Year ended June 30: (decrease) to Pension Expense
2021 $ 3,095
2022 1,487
2023 345
2024 (179)
The State’s discretely presented component units, as employers, recognized a beginning deferred outflow of
resources for fiscal year 2019 contributions of $225.2 thousand.
As of the fiscal year ended June 30, 2020, remaining deferred outflows of resources and deferred inflows of
resources for the State’s discretely presented component units, as employers, related to the GWPORS are from the
following sources:
(in thousands)
Deferred Outflows Deferred Inflows
of Resources of Resources
Difference between expected and actual experience $ 273 $ 189
Net difference between projected and actual 43 _
earnings on pension plan investments
Changes in assumptions 118 _—
Changes in proportion and differences between
employer contributions and proportionate share _— 85
of contributions
Contributions paid to GWPORS subsequent to the 238 _
measurement date —- FY 2020 contributions
Totals $ 672_ $ 274
Amounts reported as deferred outflows of resources related to pensions resulting from the employer’s contributions
made subsequent to the June 30, 2019, measurement date will be recognized as a reduction of the net pension
liability in the fiscal year ended June 30, 2021.
Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will
be recognized in pension expense as follows:
(in thousands)
Amount recognized in Pension
Expense as an increase or
Year ended June 30: (decrease) to Pension Expense
2021 $ 128
2022 43
2023 6
2024 (17)
(2) State as an Employer and/or a Nonemployer Contributing Entity to Cost-Sharing Multiple-Employer
Plans
Public Employees’ Retirement System - Defined Benefit Retirement Plan — The PERS-DBRP, administered by
the MPERA, is a multiple-employer, cost-sharing plan established July 1, 1945, and governed by Title 19, Chapters
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2 & 3, MCA. This plan covers employees of the State and local governments, and certain employees of the Montana
University System and school districts.
All new members are initially members of the PERS-DBRP and have a 12-month window during which they may
choose to remain in the PERS-DBRP or join the Public Employees’ Retirement System-Defined Contribution
Retirement Plan (PERS-DCRP) by filing an irrevocable election. Members may not be participants of both the
defined contribution and defined benefit retirement plans. All new members from the universities also have a third
option to join the university system’s Montana University System-Retirement Program (MUS-RP).
The PERS-DBRP provides retirement, disability, and death benefits to plan members and their beneficiaries.
Benefits are established by state law and can only be amended by the Legislature. Benefits are based on eligibility,
years of service, and highest average compensation.
Summary of Benefits
Member’s highest average compensation (HAC)
Hired prior to July 1, 2011 — HAC during any consecutive 36 months;
Hired on or after July 1, 2011 —HAC during any consecutive 60 months;
Hired on or after July 1, 2013 — 110% annual cap on compensation considered as a part of a
member’s HAC.
Eligibility for benefit
Service retirement:
Hired prior to July 1, 2011 —
Age 60, 5 years of membership service;
Age 65, regardless of membership service; or
Any age, 30 years of membership service.
Hired on or after July 1, 2011 -
Age 65, 5 years of membership service;
Age 70, regardless of membership service.
Early retirement, actuarially reduced:
Hired prior to July 1, 2011 —
Age 50, 5 years of membership service; or
Any age, 25 years of membership service.
Hired on or after July 1, 2011 — Age 55, 5 years of membership service.
Second retirement (all require retuning to PERS-covered employment or PERS service):
Retire before January 1, 2016, and accumulate less than 2 years’ additional service credit or
retire on or after January 1, 2016, and accumulate less than 5 years’ additional service credit:
¢« A refund of member’s contributions from second employment plus regular interest
(0.77%);
¢ No service credit for second employment;
¢ Start the same benefit amount the month following termination; and
¢ GABA starts again in the January immediately following second retirement
Retire before January 1, 2016, and accumulate at least 2 years of additional service credit:
¢ A recalculated retirement benefit based on laws in effect at second retirement; and
¢ GABA starts the January after receiving recalculated benefit for 12 months
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Retire on or after January 1, 2016, and accumulate 5 or more years of additional service
credit:
¢ The same retirement benefit as prior to their return to service;
« A second retirement benefit for second period of service based on laws in effect at
second retirement;
« GABA starts on both benefits in the January after receiving the original and new
benefit for 12 months
Vesting
5 years of membership service
Monthly benefit formula
Members hired prior to July 1, 2011 -
Less than 25 years of membership service: 1.785% of HAC per year of service credit;
25 years of membership service or more: 2% of HAC per year of service credit.
Members hired on or after July 1, 2011 -
Less than 10 years of membership service: 1.5% of HAC per year of service credit;
10 years or more, but less than 30 years of membership service: 1.785% of HAC per year of
service credit;
30 years or more of membership service: 2% of HAC per year of service credit.
Guaranteed Annual Benefit Adjustment (GABA) — After the member has completed 12 full months of
retirement, the member’s benefit increases by the applicable percentage (provided below) each
January, inclusive of other adjustments to the member’s benefit:
° 3.0% for members hired prior to July 1, 2007
° 1.5% for members hired between July 1, 2007 and June 30, 2013
° Members hired on or after July 1, 2013
°, 1.5% for each year PERS is funded at or above 90%;
°, 1.5% is reduced by 0.1% for each 2% PERS is funded below 90%; and,
°, 0% whenever the amortization period for PERS is 40 years or more.
Contributions to the Plan
Rates are specified by state law for periodic employee, employer, and nonemployer entity contributions. The
Legislature has the authority to establish and amend contribution rates to the plan.
Member contributions to the system: Contributions are deducted from each member’s salary and
remitted by participating Employers. Plan members are required to contribute 7.90% of member’s
compensation. The 7.90% member contribution rate is temporary and will be decreased to 6.9% on
January | following actuary valuation results that show the amortization period has dropped below
25 years and would remain below 25 years following the reduction of both the additional Employer
and additional member contribution rates.
Employer contributions to the system
State and University System employers are required to contribute 8.77% of member compensation.
Local government entities are required to contribution 8.67% of member compensation.
School district employers contributed 8.40% of member compensation.
Per the 2013 Legislative Session’s House Bill 454, section 4, effective July 1, 2013, PERS employer
contributions temporarily increased 1%. Beginning July 1, 2014, employer contributions will
increase an additional 0.1% a year over 10 years, through 2024. The Employer additional
contributions, including the 0.27% added in 2007 and 2009, terminates on January | following
actuary valuation results that show the amortization period of the PERS-DBRP has dropped below 25
years and would remain below 25 years following the reductions of both the additional employer and
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member contributions rates. As of January 1, 2020, the additional contributions will not be
terminated.
Effective July 1, 2013, employers are required to make contributions on working retirees’
compensation. Member contributions for working retirees are not required.
The portion of employer contributions allocated to the Plan Choice Rate (PCR) are included in the
employer's reporting. The PCR was paid off effective March 2016 and the contributions previously
directed to the PCR are now directed to member accounts.
Non-Employer Entity Contributions
Special Funding
The State contributes 0.1% of member compensation on behalf of local government entities.
The State contributes 0.37% of member compensation on behalf of school district entities.
The State contributes a Statutory Appropriation from the General Fund. Funding provided for
the year ended June 30, 2020, totaled $33.6 million.
Actuarial Assumptions
The total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of
June 30, 2018, with update procedures used to roll forward the total pension liability to June 30, 2019. There were
several significant assumptions and other inputs used to measure the total pension liability. The actuarial
assumptions used in the June 30, 2019, valuation were based on the results of the last actuarial experience study,
dated May 2017 for the six-year period ended June 30, 2016. Among those assumptions were the following:
¢« Investment Return 7.65%
¢« Admin Expense as a % of Payroll 0.26%
* General Wage Growth 3.50%
¢ Inflation at 2.75%
¢« Merit Increases 0 to 4.8%
¢ Postretirement Benefit Increases — After the member has completed 12 full months of retirement, the
member’s benefit increases by the applicable percentage each January, inclusive of all other adjustments to
the member’s benefit:
° 3.00% for members hired prior to July 1, 2007
° 1.50% for members hired between July 1, 2007 and June 30, 2013
° Members hired on or after July 1, 2013:
1.50% for each year PERS is funded at or above 90%
1.50% is reduced by 0.1% for each 2% PERS is funded below 90%; and
0% whenever the amortization period for PERS is 40 years or more
¢ Mortality assumptions among contributing members, terminated vested members, service retired members
and beneficiaries are based on RP-2000 Combined Employee and Annuitant Mortality Tables projected to
2020 using Scale BB, set back one year for males.
¢« Mortality assumptions among Disabled Retirees are based on RP-2000 Combined Employee and Annuitant
Mortality Tables.
Discount Rate
The discount rate used to measure the total pension liability was 7.65%. The projection of cash flows used to
determine the discount rate assumed that contributions from participating plan members, employers, and
nonemployer contributing entities will be made based on the PERB’s funding policy, which establishes the
contractually required rates under MCA. The State contributes 0.1% of salaries for local governments and 0.37% for
school districts. In addition, the State contributes a Statutory Appropriation from the General Fund. Based on those
assumptions, the PERS-DBRP’s fiduciary net position was projected to be adequate to make all the projected future
benefit payments of current plan members through the year 2122. Therefore, the long-term expected rate of return
on pension plan investments was applied to all periods of projected benefit payments to determine the total pension
liability. A municipal bond rate was not incorporated in the discount rate.
Target Allocations
The long-term expected return on pension plan assets is reviewed as part of the regular experience study prepared
for the PERS-DBRP. The most recent analysis, performed for the six-year period ended June 30, 2016, is outlined
in a report dated May 2017, and can be located on the MPERA website. The long-term expected rate of return on
pension plan investments was determined by considering information from various sources, including historical rates
of return, rate of return assumptions adopted by similar public pension systems, and by using a building-block
method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan
investment and inflation) are developed for each major asset class. These ranges were combined to produce the
long-term expected rate of return by weighing the expected future real rates of return by the target asset allocation
percentage and by adding expected inflation. Best estimates of the arithmetic real rates of return for each major
asset class included in the PERS-DBRP’s target asset allocation as of June 30, 2019, is summarized in the table that
follows:
Target Asset Long-term Expected
Asset Class Allocation Real Rate of Return
Cash Equivalents 3.00% 4.09%
Domestic Equity 36.00% 6.05%
Foreign Equity 18.00% 7.01%
Fixed Income 23.00% 2.17%
Private Equity 12.00% 10.53%
Real Estate 8.00% 5.65%
Total 100.00%
Sensitivity Analysis
In accordance with GASB 68 regarding the disclosure of the sensitivity of the net pension liability (NPL) to changes
in the discount rate, the table below presents the net pension liability calculated using the discount rate of 7.65%, as
well as what the net pension liability would be if it were calculated using a discount rate that is 1.00% lower (6.65%)
or 1.00% higher (8.65%) than the current rate.
(in thousands)
1.0% Decrease Current 1.0% Increase
(6.65%) Discount Rate (8.65%)
State as an employer in PERS-DBRP - net
pension liability $ 1,175,466 $ 818,162 $ 517,893
State as a nonemployer contributing entity to 733.123 510.277 393.003
PERS-DBRP - net pension liability
Net Pension Liability
In accordance with GASB 68, employers and the nonemployer contributing entities are required to recognize and
report certain amounts associated with their participation in the PERS-DBRP. GASB 68 became effective June 30,
2015, and includes requirements for participants to record and report their proportionate share of the collective net
pension liability, pension expense, deferred inflows of resources and deferred outflows of resources associated with
pensions. The proportionate shares were determined based on contributions made to the plan by employers and the
nonemployer contributing entity special funding.
In accordance with GASB 68, the PERS-DBRP has a special funding situation where the State is legally responsible
for making contributions directly to the PERS-DBRP on behalf of the employers. Due to the existence of this special
funding situation, the State is required to report a proportionate share of a local government or school district’s
collective net pension liability that is associated with the non-State employer.
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(dollars presented in thousands)
Net Pension Net Pension
Liability as of Liability as of Percent of
6/30/18 6/30/19 Collective NPL
State's proportionate share as an employer entity $ 825,387 $ 818,162 39.140686 %
State's proportionate share as a nonemployer
contributing entity 520,058 510,277 24.411533 %
State of Montana totals $ 1,345,445 $ 1,328,439 63.552219 %
At June 30, 2020, the State reported a liability of $1.3 billion for its proportionate share of the net pension liability as
an employer and nonemployer contributing entity. The net pension liability was measured as of June 30, 2019, and
the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of
June 30, 2018, with update procedures used to roll forward the total pension liability to June 30, 2019. The
proportion of the net pension liability is based on the employer’s and nonemployer's special funding contributions
received by the PERS-DBRP during the measurement period of July 1, 2018, through June 30, 2019, relative to the
total employer and nonemployer special funding contributions received from all PERS-DBRP participating
employers.
Changes in actuarial assumptions and methods: There were no changes in assumptions or other
inputs that affected the measurement of the total pension liability.
Changes in benefit terms: There have been no changes in benefit terms since the previous
measurement date.
Changes in proportionate share: Between the measurement date of the collective net pension liability
and the employer’s reporting date there were no changes in proportion that would have an effect on
the employer’s proportionate share of the collective net pension liability.
Employer Pension Expense and Nonemployer Contributing Entity Grant Expenses
At June 30, 2020, the State as an employer recognized a pension expense of $88.0 million for its proportionate share
of the PERS-DBRP’s pension expense. The State as a nonemployer contributing entity recognized grant expense of
$1.0 million for special funding support provided by the General Fund for its proportionate share of the PERS-
DBRP’s pension expense that is associated with local government and school district participants in the plan. The
State as a nonemployer contributing entity recognized grant expense of $33.6 million for special funding support
provided by the General Fund as a statutory appropriation for all participating employers in the plan. The State as a
nonemployer contributing entity recognized pension expense of $142.7 million that is actuarially allocated to the
State as a nonemployer. The total pension expense recognized by the State as a nonemployer was $177.3 million.
Total pension-related expenses recognized by the State, both as employer and nonemployer contributing entity at
June 30, 2020, were $265.3 million.
Deferred Outflows and Inflows
At June 30, 2020, the State as an employer recognized a beginning deferred outflow of resources for fiscal year 2019
contributions of $56.2 million.
As of the fiscal year ended June 30, 2020, the State as an employer has the following proportionate shares of the
PERS-DBRP’s deferred outflows of resources and deferred inflows of resources from the following sources:
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(in thousands)
Deferred Outflows Deferred Inflows
of Resources of Resources
Actual versus expected experience $ 38,795 $ 38,498
Net difference between projected and actual earnings on 9.920 _
pension plan investments ,
Change of assumptions 34,734 _—
Changes in proportion and differences between employer _ 116.912
contributions and proportionate share of contributions ,
Contributions paid to PERS-DBRP subsequent to the 58 504 _
measurement date —- FY 2020 contributions ,
Totals $ 141,953 $ 155,410
Amounts reported as deferred outflows of resources related to pensions resulting from the employer’s contributions
made subsequent to the June 30, 2019 measurement date will be recognized as a reduction of the net pension
liability in the fiscal year ended June 30, 2021.
Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will
be recognized in pension expense as follows:
(in thousands)
Amount recognized in Pension
Expense as an increase or
Year ended June 30: (decrease) to Pension Expense
2021 $ (11,352)
2022 (73,202)
2023 3,690
2024 8,903
At June 30, 2020, the State as a nonemployer contributing entity recognized a beginning deferred outflow of
resources for fiscal year 2019 contributions of $34.6 million.
As of the fiscal year ended June 30, 2020, the State as a nonemployer contributing entity reported its proportionate
share of the PERS-DBRP’s deferred outflows of resources and deferred inflows of resources from the following
sources:
(in thousands)
Deferred Outflows Deferred Inflows of
of Resources Resources
Actual versus expected experience $ 24,196 $ 24,011
Net difference between projected and actual earnings 6.187 _
on pension plan investments ,
Change of assumptions 21,663 _—
Changes in proportion and differences between
employer contributions and proportionate share of 191,364 _—
contributions
Contributions paid to PERS-DBRP subsequent to the 35,008 _
measurement date —- FY 2020 contributions ,
Totals $ 278,418 $ 24,011
Amounts reported as deferred outflows of resources related to pensions resulting from the nonemployer’s
contributions made subsequent to the June 30, 2019 measurement date will be recognized as a reduction to its share
of the net pension liability in the fiscal year ended June 30, 2021.
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Other amounts reported as deferred inflows of resources related to pensions will be recognized in grant expense as
follows:
(in thousands)
Amount recognized in Grant
Expense as an increase or
Year ended June 30: (decrease) to Grant Expense
2021 $ 125,389
2022 86,156
2023 2,301
2024 5,553
Sheriffs’ Retirement System — The SRS, administered by the MPERA, is a multiple-employer, cost-sharing
defined benefit plan established July 1, 1974, and governed by Title 19, chapters 2 & 7, MCA. This plan provides
retirement benefits to all Department of Justice criminal and gambling investigators hired after July 1, 1993, all
detention officers hired after July 1, 2005, and to all Montana sheriffs. Benefits are established by state law and can
only be amended by the Legislature. The SRS provides retirement, disability, and death benefits to plan members
and their beneficiaries. Benefits are based on eligibility, years of service, and highest average compensation.
Summary of Benefits
Member’s highest average compensation (HAC)
Hired prior to July 1, 2011 — highest average compensation during any consecutive 36 months;
Hired on or after July 1, 2011 — highest average compensation during any consecutive 60 months.
Hired on or after July 1, 2013 — 110% annual cap on compensation considered as a part of a
member’s HAC.
Eligibility for benefit
Service Retirement: 20 years of membership service, regardless of age.
Early Retirement: Age 50, 5 years of membership service, actuarially reduced.
Second Retirement (applies to retirement system members re-employed in a SRS position on or after
July 1, 2017):
a. If the member works more than 480 hours in a calendar year and accumulates less than 5
years of service credit before terminating again, the member:
. is not awarded service credit for the period of reemployment;
. is refunded the accumulated contributions associated with the period of
reemployment;
. starting the first month following termination of service receives the
same retirement benefit previously paid to the member; and
. does not accrue post-retirement benefit adjustments during the term of
reemployment but receives a GABA in January immediately following
the second retirement.
b. If the member works more than 480 hours in a calendar year and accumulates at least 5
years of service credit before terminating again, the member:
. is awarded service credit for the period of reemployment;
. starting the first month following termination of service receives:
° the same retirement benefit previously paid to the member;
and
° a second retirement benefit for the period of reemployment
calculated based on the laws in effect as of the member's
rehire date; and
. do not accrue post-retirement benefit adjustments during the term of
reemployment but receive a GABA:
° on the initial retirement benefit starting in January
immediately following second retirement; and
° on the second retirement benefit starting in January after
receiving that benefit for at least 12 months
c. A member who returns to covered service is not eligible for a disability benefit.
Vesting
5 years of membership service
Monthly benefit formula
2.5% of HAC per year of service
Guaranteed Annual Benefit Adjustment (GABA)
After the member has completed 12 full months of retirement, the member’s benefit increases by the
applicable percentage (provided below) each January, inclusive of all other adjustments to the
member’s benefit.
° 3.0% for members hired prior to July 1, 2007
° 1.5% for members hired on or after July 1, 2007
Contributions to the Plan
Rates are specified by state law for periodic employee and employer contributions and are a percentage of the
member’s compensation. The Legislature has the authority to establish and amend contribution rates to the plan.
Member contributions to the system — Contributions are deducted from each member’s salary and
remitted by participating employers. Plan members are required to contribute 10.495% of member’s
compensation.
Employer contributions to the system — The employers are required to contribute 13.115% of member
compensation. Employer contributions are required to be paid on working retiree compensation.
Member contributions are not required for working retirees.
Actuarial Assumptions
The total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of
June 30, 2018, with update procedures used to roll forward the total pension liability to June 30, 2019. The actuarial
assumptions used in the June 30, 2019 valuation were based on the results of the last actuarial experience study,
dated May 2017 for the six-year period ended June 30, 2016. There were several significant assumptions and other
inputs used to measure the total pension liability. Among those assumptions were the following:
Investment Return 7.65%
Administrative Expense as a % of Payroll 0.23%
General Wage Growth 3.50%
Inflation at 2.75%
Merit Increases 0.00% to 6.30%
Postretirement Benefit Increases — After the member has completed 12 full months of retirement, the
member’s benefit increases by the applicable percentage each January, inclusive of other adjustments to the
member’s benefit.
° 3.00% for members hired prior to July 1, 2007
° 1.50% for members hired on or after July 1, 2007
Mortality assumptions among contributing members, terminated vested members, service retired members
and beneficiaries are based on RP-2000 Combined Employee and Annuitant Mortality Tables projected to
2020 using Scale BB, set back one year for males.
Mortality assumptions among Disabled Retirees are based on RP-2000 Combined Employee and Annuitant
Mortality Tables.
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Discount Rate
The discount rate used to measure the total pension liability was 7.65%. The projection of cash flows used to
determine the discount rate assumed that contributions from participating plan members, employers, and
nonemployer contributing entities will be made based on the PERB’s funding policy, which establishes the
contractually required rates under MCA. SRS’s fiduciary net position was projected to be adequate to make all the
projected future benefit payments of current plan members through the year 2120. Therefore, the long-term expected
rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the
total pension liability. A municipal bond rate was not incorporated in the discount rate.
Target Allocations
The long-term expected return on pension plan assets is reviewed as part of the regular experience study prepared
for the SRS. The most recent analysis, performed for the six-year period ended June 30, 2016, is outlined in a report
dated May 2017, and can be located on the MPERA website. The long-term expected rate of return on pension plan
investments was determined by considering information from various sources, including historical rates of return,
rate of return assumptions adopted by similar public pension systems, and by using a building-block method in
which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment
and inflation) are developed for each major asset class. These ranges were combined to produce the long-term
expected rate of return by weighing the expected future real rates of return by the target asset allocation percentage
and by adding expected inflation. Best estimates of the arithmetic real rates of return for each major asset class
included in the SRS’s target asset allocation as of June 30, 2019, is summarized in the table that follows:
Target Asset Long-term Expected
Asset Class Allocation Real Rate of Return
Cash Equivalents 3.00% 4.09%
Domestic Equity 36.00% 6.05%
Foreign Equity 18.00% 7.01%
Fixed Income 23.00% 2.17%
Private Equity 12.00% 10.53%
Real Estate 8.00% 5.65%
Total 100.00%
Sensitivity Analysis
In accordance with GASB 68 regarding the disclosure of the sensitivity of the net pension liability to changes in the
discount rate, the table below presents the net pension liability calculated using the discount rate of 7.65%, as well as
what the net pension liability would be if it were calculated using a discount rate that is 1.00% lower (6.65%) or
1.00% higher (8.65%) than the current rate.
(in thousands)
1.0% Decrease Current 1.0% Increase
(6.65%) Discount Rate (8.65%)
Employer's SRS net pension liability $ 7,216 $ 4,067 $ 1,486
Net Pension Liability
In accordance with GASB 68, employers are required to recognize and report certain amounts associated with their
participation in the SRS. GASB 68 became effective June 30, 2015, and includes requirements for participants to
record and report their proportionate share of the collective net pension liability (NPL), pension expense, deferred
inflows of resources, and deferred outflows of resources associated with pensions.
(dollars presented in thousands)
Net Pension Liability Net Pension Liability Percent of
as of 6/30/18 as of 6/30/19 Collective NPL
Employer proportionate share $ 3,663 $ 4,067 4.876949 %
At June 30, 2020, the State, as an employer, reported a liability of $4.1 million for its proportionate share of net
pension liability. The net pension liability was measured as of June 30, 2019, and the total pension liability used to
calculate the net pension liability was determined by an actuarial valuation as of June 30, 2018, with update
procedures used to roll forward the total pension liability to June 30, 2019. The employer’s proportion of the net
pension liability was based on the employer’s contributions received by the SRS during the measurement period,
July 1, 2018, through June 30, 2019, relative to the total employer contributions received from all of SRS
participating employers.
Changes in actuarial assumptions and methods: There were no changes in assumptions or other
inputs that affected the measurement of the total pension liability.
Changes in benefit terms: There have been no changes in benefit terms since the previous
measurement date.
Changes in proportionate share: Between the measurement date of the collective net pension liability
and the employer’s reporting date, there were no changes in proportion that are expected to have a
significant effect on the Employer’s proportionate share of the collective net pension liability.
Pension Expense
At June 30, 2020, the employer recognized a pension expense/(income) of $63.0 thousand for its proportionate share
of the SRS pension expense/(income).
Deferred Outflows and Inflows
At June 30, 2020, the State as an employer recognized a beginning deferred outflow of resources for fiscal year 2019
contributions of $513.5 thousand.
As of the fiscal year ended June 30, 2020, the State, as an employer, reported its proportionate share of the SRS's
deferred outflows of resources and deferred inflows of resources from the following sources:
(in thousands)
Deferred Outflows Deferred Inflows of
of Resources Resources
Difference between actual and expected experience $ 262 $ 5
Net difference between projected and actual 79 _
earnings on pension plan investments
Changes of assumptions 1,273 2,196
Changes in proportion and differences between
employer contributions and proportionate share _— 312
of contributions
Contributions paid to SRS subsequent to the 530 _
measurement date —- FY 2020 contributions
Totals $ 2,144 $ 2,913
Amounts reported as deferred outflows of resources related to pensions resulting from the employer’s contributions
made subsequent to the measurement date of June 30, 2019, will be recognized as a reduction of the net pension
liability in the fiscal year ended June 30, 2021.
Other amounts reported as deferred inflows of resources related to pensions will be recognized in pension expense
as follows:
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(in thousands)
Amount recognized in Pension
Expense as an increase or
Year ended June 30: (decrease) to Pension Expense
2021 $ (460)
2022 (645)
2023 109
2024 97
Municipal Police Officers’ Retirement System — The MPORS, administered by the MPERA, is a multiple-
employer, cost-sharing defined benefit plan that was established in 1974 and is governed by Title 19, chapters 2 & 9,
MCA. This plan covers all municipal police officers employed by first- and second-class cities and other cities that
adopt the plan. Benefits are established by state law and can only be amended by the Legislature. The MPORS
provides retirement, disability, and death benefits to plan members and their beneficiaries. Benefits are based on
eligibility, years of service, and final average compensation.
Deferred Retirement Option Plan (DROP)
Beginning July 2002, eligible members of the MPORS can participate in the DROP by filing a one-time irrevocable
election with the PERB. The DROP is governed by Title 19, Chapter 9, Part 12, MCA. A member must have
completed at least twenty years of membership service to be eligible. They may elect to participate in the DROP for
a minimum of one month and a maximum of 60 months and may only participate in the DROP once. A participant
remains a member of the MPORS, but will not receive membership service or service credit in the system for the
duration of the member’s DROP period. During participation in the DROP, all mandatory contributions continue to
the retirement system. A monthly benefit is calculated based on salary and years of service to the date of the
beginning of the DROP period. The monthly benefit is paid into the member’s DROP account until the end of the
DROP period. At the end of the DROP period, the participant may receive the balance of the DROP account in a
lump-sum payment or a direct rollover to another eligible plan, as allowed by the IRS. If the participant continues
employment after the DROP period ends, they will again accrue membership service and service credit. The DROP
account cannot be distributed until employment is formally terminated. As of June 30, 2020, the balance held by
MPERA for MPORS DROP participants was approximately $10.7 million.
The State is not an employer participant in the MPORS plan. However, because the PERB is a fiduciary component
unit of the State, this CAFR presents certain information to help ensure compliance with GASB 67. In addition, the
State provides nonemployer entity contributions classified as special funding in accordance with GASB 68.
Disclosures made in this financial report for MPORS are meant to reflect the aforementioned relationships.
Summary of Benefits
Member’s final average compensation (FAC)
Hired prior to July 1, 1977 — average monthly compensation of final year of service;
Hired on or after July 1, 1977 — final average compensation (FAC) for last consecutive 36 months.
Hired on or after July 1, 2013 — 110% annual cap on compensation considered as a part of a
member’s FAC.
Eligibility for benefit
Service Retirement: Age 50, with 5 years of membership service, or 20 years of membership service,
regardless of age.
Second Retirement: Age 50, reemployed in a MPORS position
Vesting
Death and disability rights are vested immediately.
5 years of membership service.
Monthly benefit formula
2.5% of FAC per year of service credit.
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Second retirement benefit formula for members re-employed in a MPORS position after July 1, 2017:
1) If the member works more than 480 hours in a calendar year and accumulates less than 5
years of service credit before terminating again, the member:
a. Is not awarded service credit for the period of reemployment;
. Is refunded the accumulated contributions associated with the period of reemployment;
c. Starting the first month following termination of service receives the same retirement
benefit previously paid to the member; and
d. Does not accrue post-retirement benefit adjustments during the term of reemployment
but receives a Guaranteed Annual Benefit Adjustment (GABA) in January immediately
following second retirement.
2) If the member works more than 480 hours in a calendar year and accumulates at least 5
years of service credit before terminating again, the member:
a. Is awarded service credit for the period of reemployment;
b. Starting the first month following termination of service receives:
i. The same retirement benefit previously paid to the member, and
i. A second retirement benefit for the period of reemployment calculated based on
the laws in effect as of the member's rehire date; and
c. Does not accrue post-retirement benefit adjustments during the term of reemployment
but receives a GABA:
i. On the initial retirement benefit in January immediately following second
retirement, and
i. On the second retirement benefit starting in January after receiving that benefit
for at least 12 months.
3) A member who returns to covered service is not eligible for a disability benefit.
Guaranteed Annual Benefit Adjustment (GABA)
Hired on or after July 1, 1997, or those electing GABA — after the member has completed 12 full
months of retirement, the member’s benefit increases by a maximum of 3% each January, inclusive
of all other adjustments to the member’s benefit.
Minimum benefit adjustment (non-GABA) If hired before July 1, 1997, and member did not elect
GABA - the monthly retirement, disability, or survivor’s benefit may not be less than 50% of the
compensation of a newly confirmed officer of the employer where the member was last employed.
Contributions to the Plan
Rates are specified by state law for periodic employee, employer, and nonemployer entity contributions. The
Legislature has the authority to establish and amend contribution rates to the plan.
Member contributions — Contribution rates are dependent upon the date of hire as a police officer.
Contributions are deducted from each member’s salary and remitted by the participating Employer.
For fiscal year 2020:
¢ Ifhired prior to July 1, 1975, member contributions as a percentage of salary are 5.80%
¢ If hired after June 30, 1975, and prior to July 1, 1979, member contributions as a percentage of
salary are 7.00%;
¢ If hired after June 30, 1979, and prior to July 1, 1997, member contributions as a percentage of
salary are 8.50%; and,
¢ If hired on or after July 1, 1997, and for members electing GABA, member contributions as a
percentage of salary are 9.00%.
Employer Contributions — Employers are required to contribute 14.41% of a member’s
compensation.
Nonemployer Entity Contributions — The State contributes 29.37% of a member’s compensation from
the General Fund. These amounts are considered a special funding situation in accordance with
GASB 68.
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Actuarial Assumptions
The total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of
June 30, 2018, with update procedures used to roll forward the total pension liability to June 30, 2019. The actuarial
assumptions used in the June 30, 2019 valuation were based on the results of the last actuarial experience study,
dated May 2017 for the six-year period ended June 30, 2016. There were several significant assumptions and other
inputs used to measure the total pension liability. Among those assumptions were the following:
¢ Investment Return 7.65%
¢ Admin expense asa% of Payroll 0.23%
* General Wage Growth 3.50%
¢ Inflation at 2.75%
¢« Merit Increases 0.00% to 6.60%
¢ Postretirement Benefit Increases
° GABA
Hired on or after July 1, 1997, or those electing GABA — after the member has completed 12 full
months of retirement, the member’s benefit increases by a maximum of 3% each January,
inclusive of all other adjustments to the member’s benefit
° Minimum benefit adjustment (non-GABA)
If hired before July 1, 1997 and member did not elect GABA — the monthly retirement, disability
or survivor’s benefit may not be less than 50% the compensation of a newly confirmed officer in
the city that the member was last employed
¢ Mortality assumptions among contributing members, terminated vested members, service retired members
and beneficiaries are based on RP-2000 Combined Employee and Annuitant Mortality Tables projected to
2020 using Scale BB, set back one year for males.
¢« Mortality assumptions among Disabled Retirees are based on RP-2000 Combined Employee and Annuitant
Mortality Tables.
Discount Rate
The discount rate used to measure the total pension liability was 7.65%. The projection of cash flows used to
determine the discount rate assumed that contributions from participating plan members, employers, and
nonemployer contributing entities will be made based on the PERB’s funding policy, which establishes the
contractually required rates under MCA. The State contributes 29.37% of salaries paid by employers. Based on
those assumptions, the MPORS’s fiduciary net position was projected to be adequate to make all the projected future
benefit payments of current plan members through the year 2133. Therefore, the long-term expected rate of return
on pension plan investments was applied to all periods of projected benefit payments to determine the total pension
liability. A municipal bond rate was not incorporated in the discount rate.
Target Allocations
The long-term expected return on pension plan assets is reviewed as part of the regular experience study prepared
for the MPORS. The most recent analysis, performed for the six-year period ended June 30, 2016, is outlined in a
report dated May 2017, and can be located on the MPERA website. The long-term expected rate of return on
pension plan investments was determined by considering information from various sources, including historical rates
of return, rate of return assumptions adopted by similar public pension systems, and by using a building-block
method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan
investment and inflation) are developed for each major asset class. These ranges were combined to produce the
long-term expected rate of return by weighing the expected future real rates of return by the target asset allocation
percentage and by adding expected inflation. Best estimates of the arithmetic real rates of return for each major
asset class included in the MPORS’s target asset allocation as of June 30, 2019, is summarized in the table that
follows:
Target Asset Long-term Expected
Asset Class Allocation Real Rate of Return
Cash Equivalents 3.00% 4.09%
Domestic Equity 36.00% 6.05%
Foreign Equity 18.00% 7.01%
Fixed Income 23.00% 2.17%
Private Equity 12.00% 10.53%
Real Estate 8.00% 5.65%
Total 100.00%
Sensitivity Analysis
In accordance with GASB 68, regarding the disclosure of the sensitivity of the net pension liability to changes in the
discount rate, the table below presents the net pension liability calculated using the discount rate of 7.65%, as well as
what the net pension liability would be if it were calculated using a discount rate that is 1.00% lower (6.65%) or
1.00% higher (8.65%) than the current rate.
(in thousands)
1.0% Decrease Current 1.0% Increase
(6.65%) Discount Rate (8.65%)
State as a nonemployer entity net 5 196.248 $ 133,487 $ 83.247
pension liability
Net Pension Liability
In accordance with GASB 68, employers and nonemployer contributing entities are required to recognize and report
certain amounts associated with their participation in the MPORS. GASB 68 became effective June 30, 2015, and
includes requirements for participants to record and report their proportionate share of the collective net pension
liability, pension expense, deferred inflows of resources, and deferred outflows of resources associated with
pensions.
In accordance with GASB 68, the MPORS has a special funding situation in which the State is legally responsible
for making contributions directly to the MPORS on behalf of the employers. Due to the existence of this special
funding situation, the State is required to report a proportionate share of a local government’s collective net pension
liability that is associated with the non-State employer.
(dollars presented in thousands)
Net Pension Liability | Net Pension Liability Percent of
as of 6/30/18 as of 6/30/19 Collective NPL
State as a nonemployer contributing 5 114,956 $ 133,487 67.063878 %
entity — proportionate share
At June 30, 2020, the State, as a nonemployer contributing entity, reported a liability of $133.5 million for its
proportionate share of the net pension liability. The net pension liability was measured as of June 30, 2019, and the
total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of June
30, 2018, with update procedures used to roll forward the total pension liability to June 30, 2019. The
nonemployer’s proportion of the net pension liability was based on the nonemployer’s special funding contributions
received by the MPORS during the measurement period of July 1, 2018, through June 30, 2019, relative to total
contributions received from all of the MPORS’s participating employers and the nonemployer contributing entity.
Changes in actuarial assumptions and methods: There were no changes in assumptions or other inputs that
affected the measurement of the total pension liability.
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Changes in benefit terms: There have been no changes in benefit terms since the previous measurement date.
Changes in proportionate share: Between the measurement date of the collective net pension liability and
the employer’s reporting date, there were no changes in proportion that effect on the employer’s
proportionate share of the collective net pension liability.
Grant Expense Related to Special Funding
The State recognized grant expense of $21.0 million for special funding support provided by the General Fund for
its proportionate share of the MPORS’s pension expense that is associated with other employer participants in the
plan.
Deferred Outflows and Inflows
At June 30, 2020, the State as a nonemployer contributing entity recognized a beginning deferred outflow of
resources for fiscal year 2019 contributions of $15.9 million.
As of the fiscal year ended June 30, 2020, the State as a nonemployer reported its proportionate share of the deferred
outflows of resources and deferred inflows of resources related to MPORS from the following sources:
(in thousands)
Deferred Outflows Deferred Inflows
of Resources of Resources
Difference between expected and actual experience $ 11,847 $ 848
Net difference between projected and actual earnings
on pension plan investments 2,481 _—
Change of assumptions 2,685 _
Changes in proportion and differences between
employer contributions and proportionate share
of contributions 209 _—
tributions paid to MPORS subsequent to the
measurement date — FY 2020 Contributions 16,677 _
Totals $ 33,899 $ 848
Amounts reported as deferred outflows of resources related to pensions resulting from the nonemployer’s
contributions made subsequent to the June 30, 2019, measurement date will be recognized as a reduction of the net
pension liability in the fiscal year ended June 30, 2021.
Other amounts reported as deferred inflows of resources related to pensions will be recognized in grant expense as
follows:
(in thousands)
Amount recognized in Grant
Expense as an increase or
Year ended June 30: (decrease) to Grant Expense
2021 $ 7,579
2022 2,955
2023 4,590
2024 1,250
Firefighters’ Unified Retirement System — The FURS, administered by the MPERA, is a multiple-employer, cost-
sharing defined benefit plan established in 1981, and governed by Title 19, chapters 2 & 13, MCA. This system
provides retirement benefits to firefighters employed by first- and second-class cities, other cities and rural fire
district departments that adopt the plan, and to firefighters hired by the Montana Air National Guard on or after
October 1, 2001. Benefits are established by state law and can only be amended by the Legislature. The FURS
provides retirement, disability, and death benefits to plan members and their beneficiaries. Benefits are based on
eligibility, years of service, and compensation.
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Summary of Benefits
Member’s compensation
Hired prior to July 1, 1981 and not electing GABA — highest monthly compensation (HMC);
Hired after June 30, 1981, and those electing GABA — highest average compensation (HAC) during
any consecutive 36 months.
Hired on or after July 1, 2013 — 110% annual cap on compensation considered as a part of a
member’s highest average compensation.
Part-time firefighter — 15% of regular compensation of a newly confirmed full-time firefighter.
Eligibility for benefit
Service retirement: 20 years of membership service, regardless of age.
Early Retirement: Age 50, 5 years of membership service.
Vesting
Death and disability rights are vested immediately
5 years of membership service.
Monthly benefit formula
Members hired prior to July 1, 1981, and not electing GABA are entitled to the greater of:
2.5% of HMC per year of service; or
¢ if less than 20 years of service — 2% of HMC for each year of service;
¢ if more than 20 years of service — 50% of the member’s HMC plus 2% of the
member’s HMC for each year of service over 20 years.
Members hired on or after July 1, 1981, and those electing GABA: 2.5% of HAC per year of
membership service.
Guaranteed Annual Benefit Adjustment (GABA)
Hired on or after July 1, 1997, or those electing GABA — after the member has completed 12 full
months of retirement, the member’s benefit increases by a maximum of 3% each January, inclusive
of all other adjustments to the member’s benefit.
Minimum Benefit Adjustment (non-GABA)
If hired before July 1, 1997 and the member did not elect GABA, the monthly retirement, disability,
or survivor’s benefit may not be less than 50% of the compensation of a newly confirmed active
firefighter of the employer that last employed the member.
Contributions to the Plan
Rates are specified by state law for periodic employee, employer, and nonemployer entity contributions. The
Legislature has the authority to establish and amend contribution rates to the plan. Effective July 1, 2013, employer
and state contributions are required to be paid on working retiree compensation. Member contributions are not
required for working retirees.
Member contributions to the system — Contributions are deducted from each member’s salary and
remitted by the participating Employer. For members:
Hired prior to July 1, 1997, and not electing GABA, member contributions as a percentage of
salary are 9.50%;
Hired on or after July 1, 1997, and electing GABA, member contributions as a percentage of
salary are 10.70%.
Employer contributions to the system — Employers are required to contribute 14.36% of member’s
compensation.
Nonemployer entity contributions to the system — The State contributes 32.61% of a member’s
compensation from the General Fund.
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Actuarial Assumptions
The total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of
June 30, 2018, with update procedures used to roll forward the total pension liability to June 30, 2019. The actuarial
assumptions used in the June 30, 2019, valuation were based on the results of the last actuarial experience study,
dated May 2017 for the six-year period ended June 30, 2016. There were several significant assumptions and other
inputs used to measure the total pension liability. Among those assumptions were the following:
¢« Investment Return 7.65%
¢« Admin Expense as a % of Payroll 0.25%
* General Wage Growth 3.50%
¢ Inflation at 2.75%
¢« Merit Increases 0% to 6.30%
¢ Postretirement Benefit Increases
° GABA
Hired on or after July 1, 1997, or those electing GABA — after the member has completed 12 full
months of retirement, the member’s benefit increases by a maximum of 3% each January, inclusive of
all other adjustments to the member’s benefit.
° Minimum Benefit Adjustment (non-GABA)
Hired before July 1, 1997, and member did not elect GABA — the monthly retirement, disability, or
survivor’s benefit may not be less than 50% the compensation of a newly confirmed firefighter
employed by the city that last employed the member.
¢ Mortality assumptions among contributing members, terminated vested members, service retired members
and beneficiaries are based on RP-2000 Combined Employee and Annuitant Mortality Tables projected to
2020 using Scale BB, set back one year for males.
¢« Mortality assumptions among Disabled Retirees are based on RP-2000 Combined Employee and Annuitant
Mortality Tables.
Discount Rate
The discount rate used to measure the total pension liability was 7.65%. The projection of cash flows used to
determine the discount rate assumed that contributions from participating plan members, employers, and
nonemployer contributing entities will be made based on the PERB’s funding policy, which establishes the
contractually required rates under MCA. The State contributes 32.61% of salaries paid by employers. Based on
those assumptions, the FURS’s fiduciary net position was projected to be adequate to make all the projected future
benefit payments of current plan members through the year 2133. Therefore, the long-term expected rate of return
on pension plan investments was applied to all periods of projected benefit payments to determine the total pension
liability. A municipal bond rate was not incorporated in the discount rate.
Target Allocations
The long-term expected return on pension plan assets is reviewed as part of the regular experience study prepared
for the FURS. The most recent analysis, performed for the six-year period ended June 30, 2016, is outlined in a
report dated May 2017, and can be located on the MPERA website. The long-term expected rate of return on
pension plan investments was determined by considering information from various sources, including historical rates
of return, rate of return assumptions adopted by similar public pension systems, and by using a building-block
method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan
investment and inflation) are developed for each major asset class. These ranges were combined to produce the
long-term expected rate of return by weighing the expected future real rates of return by the target asset allocation
percentage and by adding expected inflation. Best estimates of the arithmetic real rates of return for each major
asset class included in the FURS’s target asset allocation as of June 30, 2019, is summarized in the table that
follows:
Target Asset Long-term Expected
Asset Class Allocation Real Rate of Return
Cash Equivalents 3.00% 4.09%
Domestic Equity 36.00% 6.05%
Foreign Equity 18.00% 7.01%
Fixed Income 23.00% 2.17%
Private Equity 12.00% 10.53%
Real Estate 8.00% 5.65%
Total 100.00%
Sensitivity Analysis
In accordance with GASB 68 regarding the disclosure of the sensitivity of the net pension liability to changes in the
discount rate, the table below presents the net pension liability calculated using the discount rate of 7.65%, as well as
what the net pension liability would be if it were calculated using a discount rate that is 1.00% lower (6.65%) or
1.00% higher (8.65%) than the current rate.
(in thousands)
1.0% Decrease Current Discount 1.0% Increase
(6.65%) Rate (8.65%)
State as an employer in FURS — net pension
liability $ 4033 $ 2,309 $ 919
State as a nonemployer contributing entity to 138.890 79.524 31.656
FURS — net pension liability
Net Pension Liability
In accordance with GASB 68, employers and nonemployer contributing entities are required to recognize and report
certain amounts associated with their participation in the FURS. GASB 68 became effective June 30, 2015, and
includes requirements to record and report their proportionate share of the collective net pension liability, pension
expense, deferred inflows of resources and deferred outflows of resources associated with pensions.
In accordance with GASB 68, the FURS has a special funding situation in which the State is legally responsible for
making contributions directly to the FURS on behalf of the employers. Due to the existence of this special funding
situation, the State is required to report a proportionate share of a local government or fire district’s collective net
pension liability that is associated with the non-State employer.
(dollars presented in thousands)
Net Pension Liability | Net Pension Liability Percent of
as of 6/30/18 as of 6/30/19 Collective NPL
State's proportionate share as an
employer entity 8 2,650 § 2,309 2.013129 %
State's proportionate share as a
nonemployer contributing entity 78,285 79,524 69.323577 %
State of Montana totals $ 80,935 $ 81,833 71.336706 %
At June 30, 2020, the State reported a liability of $81.8 million for its proportionate share of the net pension liability
as an employer and nonemployer contributing entity in relation to the FURS. The net pension liability was measured
as of June 30, 2019, and the total pension liability used to calculate the net pension liability was determined by an
actuarial valuation as of June 30, 2018, with update procedures used to roll forward the total pension liability to June
30, 2019. The proportion of the net pension liability was based on all employer and nonemployer contributions
received by the FURS during the measurement period, July 1, 2018, through June 30, 2019, relative to the total
contributions received from all FURS participating employers and the nonemployer contributing entity.
Changes in actuarial assumptions and methods: There were no changes in assumptions or other inputs that
affected the measurement of the total pension liability.
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Changes in benefit terms: There have been no changes in benefit terms since the previous measurement date.
Changes in proportionate share: Between the measurement date of the collective net pension liability and
the employer’s reporting date, there were no changes in proportion that effect the employer’s proportionate
share of the collective net pension liability.
Employer Pension Expense and Nonemployer Contributing Entity Special Funding Grant Expense
At June 30, 2020, the State as an employer recognized pension expense of $530.1 thousand for its proportionate
share of the FURS pension expense. The State also recognized grant expense of $17.0 million for special funding
support provided by the General Fund for its proportionate share of the FURS’s pension expense that is associated
with other employer participants in the plan. Total pension-related expenses at June 30, 2020, was $17.5 million.
Deferred Outflows and Inflows
At June 30, 2020, the State, as an employer, recognized a beginning deferred outflow of resources for fiscal year
2019 contributions of $493.5 thousand.
As of the fiscal year ended June 30, 2020, the State as an employer reported its proportionate share of deferred
outflows of resources and deferred inflows of resources related to the FURS from the following sources:
(in thousands)
Deferred Outflows
Deferred Inflows
of Resources of Resources
Difference between actual and expected experience $ 208 $ 24
Net difference between projected and actual 7 _
earnings on pension plan investments
Change of assumptions 170 _—
Changes in proportion and differences between
employer contributions and proportionate share 30 171
of contributions
Contributions paid to FURS subsequent to the 599
measurement date — FY 2020 contributions 7
Totals $ 1,084 $ 195
(in thousands)
Amount recognized in Pension
Expense as an increase or
Amounts reported as deferred outflows of resources related to pensions resulting from the employer’s contributions
made subsequent to the measurement date of June 30, 2019, will be recognized as a reduction of the net pension
liability in the fiscal year ended June 30, 2021.
Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will
be recognized in pension expense as follows:
Year ended June 30: (decrease) to Pension Expense
2021 $ 191
2022 7
2023 90
2024 50
2025 (48)
At June 30, 2020, the State recognized a beginning deferred outflow of resources as a nonemployer contributing
entity for fiscal year 2019 contributions of $16.2 million.
As of the fiscal year ended June 30, 2020, the State as a nonemployer contributing entity reported its proportionate
share of deferred outflows of resources and deferred inflows of resources related to FURS from the following
sources:
(in thousands)
Deferred Outflows Deferred Inflows
of Resources of Resources
Difference between expected and actual experience $ 7,149 $ 825
Net difference between projected and actual 2.650 _
earnings on pension plan investments ,
Change in assumptions 5,863 _—
Changes in proportion and differences between
employer contributions and proportionate share 1,186 _—
of contributions
Contributions paid to FURS subsequent to the 17.147 _
measurement date —- FY 2020 contributions ,
Totals $ 33,995 $ 825
Amounts reported as deferred outflows of resources related to pensions resulting from the nonemployer’s
contributions made subsequent to the June 30, 2019 measurement date will be recognized as a reduction of the net
pension liability in the fiscal year ended June 30, 2021.
Other amounts reported as deferred inflows of resources related to pensions will be recognized in grant expense as
follows:
(in thousands)
Amount recognized in Grant
Expense as an increase or
Year ended June 30: (decrease) to Grant Expense
2021 $ 5,294
2022 2,173
2023 4,693
2024 3,160
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Volunteer Firefighters’ Compensation Act — The VFCA, administered by the MPERA, is a multiple-employer,
cost-sharing defined benefit plan that was established in 1965, and governed by Title 19, chapter 17, MCA. All
members are unpaid volunteers and the State is the only contributor to the plan. Benefits are established by state law
and can only be amended by the Legislature. The VFCA provides pension, disability, and survivorship benefits for
all eligible volunteer firefighters who are members of qualified volunteer fire companies in unincorporated areas,
towns or villages, and includes volunteer fire departments, fire districts, and fire service areas under the laws of the
State. Benefits are based on eligibility and years of service. Member rights are vested after ten years of credited
service. The VFCA also provides limited benefits for death or injuries incurred in the line of duty. A member who
chooses to retire and draw a pension benefit may return to service with a volunteer fire department without loss of
benefits. However, a returning retired member may not be considered an active member accruing credit for service.
Summary of Benefits
Eligibility for benefit
Age 55, 20 years of credited service;
Age 60, 10 years of credited service.
Effective July 1, 2011, members who retire on or after July 1, 2011, and have greater than 30 years of
credited service will receive $7.50 per month for each additional year of credited service over 30
years if the pension trust fund is actuarially sound, amortizing any unfunded liabilities in 20 years or
less. This determination will be made annually and a member’s benefit will be capped at $250 a
month (30 years of credited service) if the amortization period grows to greater than 20 years.
Vesting
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10 years of credited service.
Monthly benefit formula (effective January 1, 2016)
$8.75 per year of credited service up to 20 years;
$7.50 per year of credited service after 20 years
Contributions to the Plan
The State, as a nonemployer contributing entity, is the only contributor to the VFCA. Contributions are 5% of fire
insurance premium taxes collected on certain fire risks. This requires the plan to be treated as a special funding
situation in accordance with GASB 68. The State Auditor makes annual payments from the General Fund to the
VFCA fund. Rates are specified by state law for contributions to the VFCA plan. The State legislature has the
authority to establish and amend contribution rates to the plan.
Actuarial Assumptions
The total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of
June 30, 2018, with update procedures used to roll forward the total pension liability to June 30, 2019. There were
several significant assumptions and other inputs used to measure the total pension liability. The actuarial
assumptions used in the June 30, 2019, valuation were based on the results of the last actuarial experience study,
dated May 2017 for the six-year period ended June 30, 2016. Among those assumptions were the following:
¢ Investment Return 7.65%
¢ — Inflation at 2.75%
¢ Mortality assumptions among contributing members, terminated vested members, service retired members
and beneficiaries are based on RP-2000 Combined Employee and Annuitant Mortality Tables projected to
2020 using Scale BB, set back one year for males.
¢ Mortality assumptions among Disabled Retirees are based on RP-2000 Combined Employee and Annuitant
Mortality Tables.
For VFCA, administrative expenses are assumed to equal $70.6 thousand. This dollar amount is added to normal
cost for valuation purposes.
Discount Rate
The discount rate used to measure the total pension liability was 7.65%. The projection of cash flows used to
determine the discount rate assumed that contributions from the nonemployer contributing entity will be made based
on the PERB’s funding policy, which establishes the contractually required rates under MCA. The State contributes
5% of fire insurance premium taxes paid on certain fire risks. Based on those assumptions, the VFCA’s fiduciary net
position was projected to be adequate to make all the projected future benefit payments of current plan members
through the year 2111. A municipal bond rate was not incorporated in the discount rate.
Target Allocations
The long-term expected return on pension plan assets is reviewed as part of the regular experience study prepared
for the VFCA. The most recent analysis, performed for the six-year period ended June 30, 2016, is outlined in a
report dated May 2017, and can be located on the MPERA website. The long-term expected rate of return on
pension plan investments was determined by considering information from various sources, including historical rates
of return, rate of return assumptions adopted by similar public pension systems, and by using a building-block
method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan
investment and inflation) are developed for each major asset class. These ranges were combined to produce the
long-term expected rate of return by weighing the expected future real rates of return by the target asset allocation
percentage and by adding expected inflation. Best estimates of the arithmetic real rates of return for each major
asset class included in the VFCA’s target asset allocation as of June 30, 2019, is summarized in the table that
follows:
Target Asset Long-term Expected
Asset Class Allocation Real Rate of Return
Cash Equivalents 3.00% 4.09%
Domestic Equity 36.00% 6.05%
Foreign Equity 18.00% 7.01%
Fixed Income 23.00% 2.17%
Private Equity 12.00% 10.53%
Real Estate 8.00% 5.65%
Total 100.00%
Sensitivity Analysis
In accordance with GASB 68 regarding the disclosure of the sensitivity of the net pension liability to changes in the
discount rate, the above table presents the net pension liability calculated using the discount rate of 7.65%, as well as
what the net pension liability would be if it were calculated using a discount rate that is 1.00% lower (6.65%) or
1.00% higher (8.65%) than the current rate.
(in thousands)
1.0% Decrease Current 1.0% Increase
(6.65%) Discount Rate (8.65%)
State as a nonemployer entity $ 11,433 $ 6,907 $ 3.069
net pension liability
Net Pension Liability
In accordance with GASB 68, employers and nonemployer contributing entities are required to recognize and report
certain amounts associated with their participation in the VFCA. GASB 68 became effective June 30, 2015, and
includes requirements to record and report proportionate shares of the collective net pension liability, pension
expense, deferred inflows of resources, and deferred outflows of resources associated with pensions.
In accordance with GASB 68, the VFCA has a special funding situation in which the State is legally responsible for
making contributions directly to the VFCA on behalf of volunteer employers. Due to the existence of this special
funding situation, the State is required to report a proportionate share of a volunteer fire company’s collective net
pension liability that is associated with the non-State volunteer employer.
(dollars presented in thousands)
Net Pension Liability | Net Pension Liability Percent of
as of 6/30/18 as of 6/30/19 Collective NPL
State as a nonemployer 5 7,667 $ 6.907 100 %
proportionate share
At June 30, 2020, the State reported a liability of $6.9 million for its proportionate share of the net pension liability.
The total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of
June 30, 2018, with update procedures used to roll forward the total pension liability to June 30, 2019. The
nonemployer’s proportion of the net pension liability was based on the nonemployer’s contributions received by the
VFCA during the measurement period, July 1, 2018, through June 30, 2019, relative to total contributions received.
Changes in actuarial assumptions and methods: There were no changes in assumptions or other
inputs that affected the measurement of the total pension liability.
Changes in benefit terms: There have been no changes in benefit terms since the previous
measurement date.
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Changes in proportionate share: There were no changes between the measurement date of the
collective net pension liability and the nonemployer’s reporting date that are expected to have a
significant effect on the nonemployer’s proportionate share of the collective net pension liability.
Grant Expense Related to Special Funding
The State as a nonemployer contributing entity recognized grant expense of $1.5 million for special funding support
provided by a portion of fire tax premiums paid to the State and transferred to MPERA for its proportionate share of
the VFCA pension expense that is associated with other employer participants in the plan.
Deferred Outflows and Inflows
At June 30, 2020, the State as a nonemployer contributing entity recognized a beginning deferred outflow of
resources for fiscal year 2019 contributions of $2.4 million.
As of the fiscal year ended June 30, 2020, the State as a nonemployer contributing entity reported its proportionate
share of deferred outflows of resources and deferred inflows of resources related to VFCA from the following
sources:
(in thousands)
Deferred Outflows Deferred Inflows of
of Resources Resources
Difference between expected and actual
experience $ — § 426
Net difference between projected and actual 363 _
earnings on pension plan investments
Contributions paid to VFCA subsequent to the 2.475 _
measurement date —- FY 2020 contributions ,
Totals $ 2,838 $ 426
Amounts reported as deferred outflows of resources related to pensions resulting from the State’s contributions
made subsequent to the June 30, 2019 measurement date will be recognized as a reduction of the net pension
liability in the fiscal year ended June 30, 2021.
Other amounts reported as deferred outflows and deferred inflows of resources related to pensions will be
recognized in grant expense as follows:
(in thousands)
Amount recognized in Grant
Expense as an increase or
Year ended June 30: (decrease) to Grant Expense
2021 $ (123)
2022 (210)
2023 99
2024 171
Teachers’ Retirement System — The TRS is administered by the Teachers’ Retirement Board (TRB), which is the
governing body of a mandatory multiple-employer cost-sharing defined benefit pension plan that provides
retirement services to persons in Montana employed as teachers or professional staff of any public elementary or
secondary school, community college, or unit of the university system. The TRS, as an employer, does not
participate in the plan and acts only as the administrator of the plan.
The TRB is the governing body of the TRS, and the TRS’s staff administer the TRS in conformity with the laws set
forth in Title 19, chapter 20, MCA, and administrative rules set forth in Title 2, chapter 44 of the Administrative
Rules of Montana.
Summary of Benefits
Through June 30, 2013, all members enrolled in TRS participated in a single-tiered plan ("Tier One"). Employees
with a minimum of 25 years of service or who have reached age 60 with 5 years of service are eligible to receive an
annual retirement benefit equal to creditable service years divided by 60 times the average final compensation. Final
compensation is the average of the highest three consecutive years of earned compensation. Benefits fully vest after
5 years of creditable service. Vested employees may retire at or after age 50 and receive reduced retirement benefits.
Benefits are established by state law and can only be amended by the Legislature.
Beginning July 1, 2013, new members in TRS participate in a second benefit tier ("Tier Two"), which differs from
Tier One as follows:
¢ Tier Two uses a 5-year average final compensation (as opposed to 3-year AFC in Tier One)
¢ Tier Two provides for unreduced service retirement benefits at age 60 with 5 years of creditable service or
at age 55 with at least 30 years of creditable service (rather than at age 60 with 5 years of service or at any
age with creditable service in 25 years in Tier One)
¢ Tier Two provides for early retirement benefits with 5 years of creditable service at age 55 (rather than age
50 in Tier One)
¢ Tier Two has one percent higher normal employee contribution rate (though a temporary 1% supplemental
employee contribution rate is also currently in place for Tier One members), and
¢ Tier Two provides for an enhanced benefit calculation—1.85% of the AFC multiplied by the years of
creditable service—for members retiring with at least 30 years of creditable service and at least 60 years of
age (rather than 1.6667 x AFC x years of creditable service)
A guaranteed annual benefit adjustment (GABA) is payable on January | of each calendar year for each retiree who
has received at least 36 monthly retirement benefit payments prior to that date. The GABA is applicable to both Tier
One and Tier Two members. The GABA for Tier 1 members is 1.5% of the benefit payable as of January 1. For Tier
Two members, the GABA each year may vary from 0.5% to 1.5% based on the retirement system’s funding status
and the period required to amortize any unfunded accrued actuarial liability as determined in the prior actuarial
valuation.
Contributions to the System
All active employees in the TRS, regardless of employer type, are required to provide a contribution equal to 8.15%
of their compensation.
All State and University employers are required to contribute 11.45% of compensation provided to an active, non-
reemployed member. All school districts and other employers are required to contribute 9.07% of an active, non-
reemployed, member's compensation to the System.
Section 19-20-605, MCA, requires each employer to contribute 9.85% of total compensation paid to all reemployed
TRS retirees employed in a TRS reportable position. Pursuant to Section 19-20-609, MCA, this amount shall
increase by 1.00% for fiscal year 2014 and increase by 0.10% each fiscal year through 2024 until the total employer
contribution is equal to 11.85% of reemployed retiree compensation.
The TRS receives a portion of the total required statutory contributions directly from the State for all employers. The
employers are considered to be in a special funding situation, and the State is treated as a nonemployer contributing
entity in the TRS. The System receives 0.11% of earned compensation from the General Fund for all TRS members.
The TRS also receives 2.38% of earned compensation from the General Fund for TRS members employed at school
districts, community colleges, educational cooperatives, and counties in Montana. Finally, the State is also required
to contribute $25 million in perpetuity payable July 1 of each year. The Legislature has the authority to establish and
amend contribution rates to the plan.
Actuarial Assumptions
The total pension liability as of June 30, 2019, is based on the results of an actuarial valuation date of July 1, 2019.
There were several significant assumptions and other inputs used to measure the total pension liability. The actuarial
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assumptions used in the July 1, 2019, valuation were based on the results of the last actuarial experience study, dated
May 2018. Among those assumptions were the following:
¢ Total Wage Increases 3.25% to 7.76% for non-university members
(includes 3.25% general wage increase assumption) 4.25% for university members
¢ Merit Increases 0 to 4.51% for non-university members
1.00% for university members
¢ Investment Return 7.50%
¢ — Price Inflation 2.50%
¢« Admin Expense as a % of Payroll 0.36%
¢ Postretirement Benefit Increases (starting three years after retirement)
° Tier One members: If the retiree has received benefits for at least three years, the retirement allowance
will be increased by 1.5% on January 1.
° Tier Two members: The retirement allowance will be increased by an amount equal to or greater than
0.5% but no more than 1.5% if the most recent actuarial valuation shows the TRS to be at least 90.0%
funded and the provisions of the increase is not projected to cause the funded ratio to be less than
85.0%. Since an increase in the amount of the GABA is not automatic and must be approved by the
TRS, the assumed increase was lowered from 1.5% to the current rate of 0.5% per annum.
* Mortality among contributing members, service retired members, and beneficiaries:
° For Males and Females: RP-2000 Healthy Combined Mortality Table projected to 2022 adjusted for
partial credibility setback for two years. The tables include margins for mortality improvements, which
are expected to occur in the future.
* Mortality among disabled members
° For Males: RP-2000 Disabled Mortality Table for Males, set back three years, with mortality
improvements projected by Scale BB to 2022.
° For Females: RP-2000 Disabled Mortality Table for Females, set forward two years, with mortality
improvements projected by Scale BB to 2022.
Discount Rate
The discount rate used to measure the total pension liability was 7.50%. The projection of cash flows used to
determine the discount rate assumed that contributions from participating TRS members, employers, and
nonemployer contributing entities will be made based on the TRB’s funding policy, which establishes the
contractually required rates under MCA. In addition to these contributions, the State General Fund will contribute
$25.0 million annually to the TRS payable July 1 of each year. Based on those assumptions, the TRS’s fiduciary net
position was projected to be adequate to make all the projected future benefit payments of current plan members
through the year 2124. Therefore, the long-term expected rate of return on pension plan investments was applied to
all periods of projected benefit payments to determine the total pension liability. No municipal bond rate was
incorporated in the discount rate.
Target Allocations
The assumed long-term expected return on pension plan assets is reviewed as part of the regular experience studies
prepared for the TRS. The most recent analysis, performed for the period covering fiscal years 2013 through 2017, is
outlined in a report dated May 3, 2018. Several factors are considered in evaluating the long-term rate of return
assumption, including long-term historical data, estimates inherent in current market data, and an analysis in which
best-estimate ranges of expected future real rates of return (expected return, net of investment expense and
inflation). Estimates of variability and correlations for each asset class were developed by the TRS's investment
consultant. These ranges were combined to develop the long-term expected rate of return by weighting the expected
future real rates of return by the target asset allocation percentage and then adding expected inflation. The long-term
rate of return assumption is intended to be a long-term assumption (30 to 50 years). It is not expected to change
absent a significant change in the asset allocation, a change in the inflation assumption, or a fundamental change in
the market that alters expected returns in future years. The average long term capital market assumptions published
in the Survey of Capital Market Assumptions 2019 Edition by Horizon Actuarial Service, LLC, yield a median real
return of 4.91%. Based on this information, the TRS's adopted assumption of 5.00% for the real return is reasonable.
Combined with the 2.50% inflation assumption, the resulting nominal return is 7.50%. Best estimates of arithmetic
real rates of return for each major asset class included in the TRS’s target asset allocation as of June 30, 2019, is
summarized in the table below:
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Target Asset Long-Term Expected
Asset Class Allocation Real Rate of Return
Broad US Equity 35.00% 6.05%
Broad International Equity 18.00% 7.01%
Private Equity 10.00% 10.53%
Natural Resources 3.00% 4.00%
Core Real Estate 7.00% 5.65%
TIPS 3.00% 1.40%
Intermediate Duration Bonds 19.00% 2.17%
High Yield Bonds 3.00% 4.09%
Cash 2.00% 0.78%
Total 100.00%
Sensitivity Analysis
In accordance with GASB 68 regarding the disclosure of the sensitivity of the net pension liability to changes in the
discount rate, the table below presents the net pension liability calculated using the discount rate of 7.50%, as well as
what the net pension liability would be if it were calculated using a discount rate that is 1.00% lower (6.50%) or
1.00% higher (8.50%) than the current rate.
(in thousands)
1.0% Decrease Current Discount 1.0% Increase
(6.50%) Rate (8.50%)
State as an employer in TRS — net
pension liability $ 63,590 $ 46,493 $ 32,168
State as a nonemployer contributing entity 978.810 715.637 495.140
to TRS — net pension liability
Net Pension Liability
In accordance with GASB 68, employers and nonemployer contributing entities are required to recognize and report
certain amounts associated with their participation in the TRS. GASB 68 became effective June 30, 2015, and
includes requirements for participants to record and report their proportionate share of the collective net pension
liability, pension expense, deferred inflows of resources, and deferred outflows of resources associated with
pensions. In accordance with GASB 68, the TRS has a special funding situation in which the State is legally
responsible for making contributions directly to TRS that are used to provide pension benefits to the retired
members of the TRS. Due to the existence of this special funding situation, the State is required to report a
proportionate share of a local government or school district’s collective net pension liability that is associated with
the non-State employer.
(dollars presented in thousands)
Net Pension Liability | Net Pension Liability Percent of
as of 6/30/18 as of 6/30/19 Collective NPL
State's as an employer entity $ 47,407 $ 46,493 2.411113 %
State's as a nonemployer entity 700,417 715,637 37.112880 %
State of Montana totals $ 747,824 $ 762,130 39.523993 %
At June 30, 2020, the State reported a liability of $762.1 million for its proportionate share of the net pension
liability as an employer and nonemployer contributing entity. The net pension liability was measured as of June 30,
2019, and the total pension liability used to calculate the net pension liability was determined by an actuarial
valuation as of July 1, 2019. The employer’s proportion of the net pension liability was based on the State’s
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contributions received by the TRS during the measurement period, July 1, 2018, through June 30, 2019, relative to
all contributions received from the TRS’s participating employers and the nonemployer contributing entity.
Changes in actuarial assumptions and methods: The GABA for Tier Two members is a variable rate
between 0.5% and 1.5% as determined by the TRS. Since an increase in the amount of the GABA is not
automatic and must be approved by the TRS, the assumed increase was lowered from 1.5% to the current
rate of 0.5% per annum.
Changes in benefit terms: There have been no changes in benefit terms since the previous measurement
date.
Changes in proportionate share: There were no changes between the measurement date of the collective
net pension liability and the employer’s reporting date.
Employer Pension Expense and Nonemployer Contributing Entity Special Funding Grant Expense
At June 30, 2020, the State as an employer recognized a pension expense of $15.2 million for its proportionate share
of the collective TRS pension expense. The State as a nonemployer contributing entity also recognized grant
expense of $69.3 million for special funding support provided by the State’s General Fund for its proportionate share
of the collective TRS pension expense that is associated with other employer participants in the TRS. Total pension-
related expenses for fiscal year 2020 was $83.4 million.
Deferred Outflows and Inflows
At June 30, 2020, the State as an employer recognized a beginning deferred outflow of resources for fiscal year 2019
contributions of $16.5 million.
As of the fiscal year ended June 30, 2020, the State as an employer reported its proportionate share of deferred
outflows of resources and deferred inflows of resources related to the TRS from the following sources:
(in thousands)
Deferred Outflows Deferred Inflows of
of Resources Resources
Difference between expected and actual
experience 8 308 $ ~~
Net difference between projected and actual 451 _
earnings on pension plan investments
Change of assumptions 2,321 104
Changes in proportion and differences between
employer contributions and proportionate 13,034 815
share of contributions
Contributions paid to TRS subsequent to the 16.686 _
measurement date —- FY 2020 contributions ,
Totals $ 32,800 $ 919
Amounts reported as deferred outflows of resources related to pensions resulting from the employer’s contributions
made subsequent to the June 30, 2019, measurement date will be recognized as a reduction of the net pension
liability in the fiscal year ended June 30, 2021.
Other amounts reported as deferred outflows of resources and inflows of resources related to pensions will be
recognized in pension expense as follows:
(in thousands)
Amount recognized in Pension
Expense as an increase or
Year ended June 30: (decrease) to Pension Expense
2021 $ 8,418
2022 4,854
2023 1,550
2024 373
At June 30, 2020, the State as a nonemployer contributing entity recognized a beginning deferred outflow of
resources for fiscal year 2019 contributions of $44.3 million.
As of the fiscal year ended June 30, 2020, the State as a nonemployer contributing entity reported its proportionate
share of deferred outflows of resources and deferred inflows of resources from the following sources:
(in thousands)
Deferred Outflows Deferred Inflows
of Resources of Resources
Difference between expected and actual experience $ 4737 $ _—
Net difference between projected and actual 6.937 _
earnings on pension plan investments ,
Changes of assumptions 35,734 1,604
Changes in proportion and differences between
employer contributions and proportionate share 5,011 28,569
of contributions
Contributions paid to TRS subsequent to the 44.841 _
measurement date —- FY 2020 Contributions ,
Totals $ 97,260 $ 30,173
Amounts reported as deferred outflows of resources related to
pensions resulting from the nonemployer’s
contributions subsequent to the June 30, 2019, measurement date will be recognized as a reduction of the net
pension liability in the fiscal year ended June 30, 2021.
Other amounts reported as deferred outflows and inflows of resources related to pensions will be recognized in grant
expense as follows:
(in thousands)
Amount recognized in Grant
Expense as an increase or
Year ended June 30: (decrease) to Grant Expense
2021 $
2022
2023
2024
D. Legal Actuarial Status of Plans
16,683
(173)
(8)
5,744
The Montana Constitution, Article VIII, Section 15, and Section 19-2-409, MCA state that public retirement systems
shall be funded on an actuarially sound basis. To maintain a fund on an actuarially sound basis, the rate of
contributions should fund the normal cost, in addition to amortizing the unfunded liability over a period not to
exceed 30 years.
A traditional funding actuarial valuation of each of the defined benefit plans is performed annually. The purpose of
the traditional funding actuarial valuation is to measure funding progress and to determine the actuarial determined
contribution, contribution sufficiency or deficiency, and other actuarial information necessary for monitoring
funding position. The most recent actuarial valuation was performed for fiscal year ended June 30, 2020. The
statutory funding rate is tested in the valuation of each public retirement plan to determine if it is sufficient to cover
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the normal cost rate plus an amortization payment of the unfunded actuarial liability, if any, within 30 years. As of
June 30, 2020, the Game Warden & Peace Officers’ Retirement System (GWPORS), the Highway Patrol Officers’
Retirement System (HPORS), and the Public Employees’ Retirement System-Defined Benefit Retirement Plan
(PERS-DBRP) were not in compliance and do not amortize within 30 years.
E. Public Employee Defined Contribution Retirement Plans
Public Employees’ Retirement_System-Defined Contribution Retirement Plan — The Public Employees’
Retirement System - Defined Contribution Retirement Plan (PERS-DCRP) is a multiple Employer plan established
July 1, 2002, and governed by Title 19, Chapters 2 & 3, MCA. This plan is available to eligible employees of the
State, Montana University System, local governments, and school districts. All new PERS members are initially
members of the PERS-DBRP and have a 12-month window during which they may choose to transfer to the PERS-
DCRP, or remain in the PERS-DBRP, by filing an irrevocable election. If an election is not filed, the member
remains in the PERS-DBRP. Members may not be members of both the defined contribution and defined benefit
retirement plans. The PERS-DBRC provides retirement, disability, and death benefits to plan members and their
beneficiaries.
Member and Employer contribution rates are established by state law and may be amended only by the Legislature.
Employees contribute at a rate of 7.90% of their compensation. Contributions made to the plan by an employee
remain 100% vested in their interest. Members who achieve 5 years of employment are vested in the plan. Should
they terminate prior to this 5-year period, all employer contributions are forfeited to the plan. Amounts forfeited are
held in a separate plan forfeiture account and can only be used to pay the administrative expenses, including startup
costs, of the plan. Total pension expense for the State as a PERS-DCRP employer for the year ended June 30, 2020,
is $8.3 million and, contribution forfeitures were $448.6 thousand.
Local government entities contribute 8.67% of member compensation. School district employers contributed 8.40%
of member compensation. The State contributes 0.10% of member compensation on behalf of local government
entities and 0.37% of member compensation on behalf of school district entities. Each State agency and University
employer contributed 8.77% of member compensation.
The total contribution rate of 8.77%, referenced in the preceding paragraph, is allocated as follows: 8.43% to the
member’s retirement account; 0.04% to the defined contribution education fund; and 0.30% to the defined
contribution Other Post Employment Benefit (OPEB) disability plan.
The PERS-DCRP also administers an OPEB disability plan. Refer to PERB's annual financial report for additional
information related to this portion of the plan.
457-Deferred Compensation Plan — The 457-Deferred Compensation Plan (457-Plan) is a voluntary supplemental
retirement savings plan established in 1974. The Deferred Compensation Plan is governed by Title 19, Chapter 50,
MCA, in accordance with Internal Revenue Code (IRC) Section 457. This plan is available to all employees of the
State, Montana University System, and contracting political subdivisions. The State and 60 non-state entity
employers participate in the 457-Plan.
Assets of the Deferred Compensation Plan are required to be held in trusts, custodial accounts, or insurance
company contracts for the exclusive benefit of participants and their beneficiaries. Empower Retirement™ is the
record keeper for the plan. Participants elect to defer a portion of their salary, within IRC limits. The deferred salary
is not available to employees until separation from service, retirement, death, or upon an unforeseeable emergency
while still employed, provided IRS-specified criteria are met.
F. Montana University System Retirement Program
Montana University System-Retirement Program (MUS-RP) — This system was established in January 1988 and
is underwritten by the Teachers Insurance and Annuity Association (TIAA). Effective July 1, 1993, MUS-RP was
made the mandatory retirement plan for new faculty and administrative staff with contracts under the authority of
the Board of Regents, previously referred to as the Optional Retirement Program (ORP). The MUS-RP is a defined
contribution retirement plan governed by Title 19, Chapter 21, MCA. Combined contributions to the faculty and
professional staff plan cannot exceed 13% of the participant’s compensation per Section 19-21-203, MCA.
Combined contributions to the classified staff plan are 16.67% per Section 19-3-316, MCA and Section 19-3-315,
MCA.
The benefits at retirement depend upon the amount of contributions, amount of investment gains and losses, and
investment allocations by the participant. Individuals are immediately vested for both employee and employer
contributions. The Montana University System records employee/employer contributions, and remits monies to
TIAA. Total contributions made to the plan by the employer were $17.2 million, and the total employee
contributions were $19.9 million for the fiscal year ended June 30, 2020.
G. Method Used to Value Investments
The Montana Board of Investments (BOI) manages the investments, as authorized by state law, for the defined
benefit retirement plans in two investment pools, the Consolidated Asset Pension Pool (CAPP) and the Short-Term
Investment Pool (STIP). CAPP is an internal investment pool and STIP is an external investment pool. Each
retirement plan’s ownership in the pools is based on the funds contributed. Individual investments in the pools are
not specifically identified to the respective retirement plan. Investments are reported at either fair value or cost,
depending on the underlying investment type. Fixed income and equity investments classified in Level | of the fair
value hierarchy are valued using prices quoted in active markets for those securities. Fixed income investments
classified in Level 2 of the fair value hierarchy are valued using a Matrix pricing technique. Matrix pricing is used to
value securities based on the securities' relationship to benchmark quoted prices. Mortgages are present value
adjusted. Investment valuation not classified within the fair value measurement levels are reported at Net Asset
Value. Further detail related to investments is provided in Note 3.
H. Long-term Contracts for Contributions
Per Section 19-2-706, MCA, the Montana Legislature enacted a provision of the Employee Protection Act (EPA)
allowing state and university system employees who are eligible for a service retirement and whose positions have
been eliminated, to have their employer pay a portion of the total cost of purchasing up to three years of “1-for-5”
additional service. In fiscal year 2020, 261 employees participated in the program.
The Employer has up to ten years to complete payment for the service purchases and is charged the actuarially
required rate of return as established by MPERA on the unpaid balance. Total contributions received (including
interest) during fiscal year 2020 totaled $17.9 thousand. The outstanding balance at June 30, 2020, totaled $9.2
thousand.
I. Litigation
Tadman, et al. v. State. A retired member of the Sheriffs' Retirement System filed a class action in the Eighth
Judicial District of Montana against the State of Montana on October 6, 2015, alleging the inappropriate advising,
reporting, and withholding of state and federal income taxes on certain line-of-duty disability benefits before
conversion to a normal retirement benefit. The State was served with the Complaint on November 25, 2015, and is
represented by Jean Faure and Jason Holden of the Faure Holden law firm in Great Falls, Montana. On June 11,
2019, the Court issued an Order granting Plaintiff's Motion to Certify Class. The Court has defined the prospective
class of plaintiffs in this matter and the parties were instructed by the Court to meet and confer to agree on the class
form of notice and notice plan concerning the matter. Counsel representing the class are Lawrence A. Anderson
from Great Falls, Montana and Tom and Sean Morrison from Helena, Montana.
Murnion v. MPERA and PERB. A retired member of the Public Employees' Retirement System appealed a Final
Order of the PERB upholding the Hearing Examiner's Proposed Findings of Fact and Conclusions of Law
determining that the retired member was not entitled to full-time PERS service credit for his part-time years of
employment. On March 15, 2019, the retired member filed a Petition for Appeal of Agency Action and Complaint in
the First Judicial District of Montana to appeal the PERB's Final Order under the provisions of the Montana
Administrative Procedure Act (MAPA). On June 26, 2019, MPERA filed a motion to vacate any forthcoming
Scheduling Order, set a briefing schedule to control the judicial review of this matter, and dismiss the retired
member's Count II and II for failure to state a claim within the Court's jurisdiction, or, in the alternative, confine
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any review of each claim to the administrative record. On July 12, 2019, a Scheduling Order was issued by the Court
calling for additional periods for discovery and setting a date for a two-day non-jury bench trial beginning on July 8,
2020. On July 15, 2019, Petitioner filed a response to MPERA's motion, and MPERA filed a reply on July 19, 2019.
MPERA filed a notice of submittal on July 22, 2019. On August 21, 2020, an amended Scheduling Order was issued
by the Court extending deadlines for periods of discovery as well as all pre-trial dates. This matter was settled
between the parties on October 8, 2020.
PERB y. Lewis and Clark County. On May 1, 2020, the PERB filed a Complaint for Declaratory Relief in the First
Judicial District of Montana against Lewis and Clark County. This complaint asked the Court to rule that the
Montana Constitution, Article VIII, Section 15, vests the PERB with the authority to actuarially determine the
amount of the unfunded pension liabilities attributable to a component unit of Lewis and Clark County that has
terminated its participation in a PERB administered defined benefit plan, and compel the payment of and collect this
unfunded pension liability upon this component unit's termination. On May 13, 2020, Lewis and Clark County filed
a motion to dismiss the Complaint. This motion has been fully briefed by both parties and the PERB awaits a ruling
from the Court. On Junel, 2020, the PERB filed its First Amended Complaint amending its original pleading to add
a claim for breach of contract against Lewis and Clark County. On June 18, 2020, Lewis and Clark County filed a
motion to dismiss PERB's First Amended Complaint. This motion has been fully briefed and the PERB awaits a
ruling from the Court.
Montana Association of Counties (MACo), Lewis and Clark County, and Cascade County v. PERB and MPERA.
On May 1, 2020, the MACo filed a Complaint for Declaratory Judgement, Injunctive Relief, and a Writ of
Prohibition against the PERB and MPERA in the First Judicial District Court of Lewis and Clark County. This
Complaint asked the Court to rule that the Montana Constitution, Article VIII, Section 15, does not vest the PERB
with the authority to determine and collect unfunded pension liabilities owed to the PERS-DBRP trust as a result of
partial withdrawals of employees or reductions in force, and that the 1947 Contract between the PERB and Lewis
and Clark County and Cascade County, as well as other similar agreements between the PERB and all other
Montana counties, does not vest the PERB with the authority to determine and collect unfunded pension liabilities
owed to the PERS-DBRP trust as a result of partial withdrawals of employees or reductions in force, and that MACo
is entitled to a preliminary and permanent injunction enjoining PERB from assessing withdrawal penalties against
Montana counties, and that MACo is entitled to a Writ of Prohibition arresting the PERB from assessing withdrawal
penalties against Montana counties. On May 15, 2020, MACo amended its original pleading by filing its First
Amended Complaint. This amendment added the additional parties of Lewis and Clark County and Cascade County
to this action as plaintiffs as well as the additional claims for breach of express and implied contract. On June 25,
2020, the PERB filed a Motion to Dismiss, or in the Alternative, Partial Summary Judgement with regard to the
Plaintiffs' Count II, IV, V, and VI. This motion has been fully briefed by all parties and PERB awaits a ruling from
the Court.
NOTE 7. OTHER POSTEMPLOYMENT BENEFITS (OPEB)
A. General Information Non-trust Plans
The State of Montana (State) and the Montana University System (MUS) provide optional postemployment
healthcare benefits in accordance with Section 2-18-704, MCA to the following employees and dependents who
elect to continue coverage and pay administratively established contributions: (1) employees and dependents who
retire under applicable retirement provisions and (2) surviving dependents of deceased employees. Medical, dental,
and vision benefits are available through this plan. The State and MUS offer OPEB plans that are not administered
through trusts; as such, there are no plan assets accumulated to offset the total OPEB liability.
In accordance with Section 2-18-704, MCA, the State provides post-retirement health insurance benefits to eligible
employees who receive retirement benefits from the Public Employees’ Retirement System (PERS) or various other
State retirement systems, and elect to start medical coverage within 60 days of leaving employment. Retirement
eligibility criteria differ by State retirement plan. Further detail on State Retirement Plans is provided in Note 6.
MUS provides post-retirement health insurance benefits to eligible employees who receive retirement benefits from
their plan, or an annuity under the MUS-RP, and have been employed by MUS for at least five years, are age 50, or
have worked 25 years with MUS. They must elect to start medical coverage within 60 days of leaving employment.
Spouses, unmarried dependent children, and surviving spouses are also eligible for both plans.
Montana State Fund, a discretely presented component of the State and participant in the State OPEB plan, by
statute, prepares separately issued financial statements on a calendar year-end basis. Due to the difference in
reporting period, there will be a variance between the note disclosures and the financial statements for OPEB related
information.
B. Plan Descriptions
Both healthcare OPEB plans for the State and MUS are reported as single-employer plans. In addition to the primary
government, the participating employers under the State OPEB plan are Facility Finance Authority, Montana Board
of Housing, Public Employees’ Retirement System, Montana State Fund, and Teachers’ Retirement System. The
participating employers under the MUS OPEB plan are Office of Commissioner of Higher Education (OCHE),
Montana State University - Billings (MSU-Billings), Montana State University - Bozeman (MSU-Bozeman), Great
Falls College MSU, Montana State University - Northern (MSU-Northern), Montana Technological University,
Helena College UM, University of Montana - Missoula (UM-Missoula), and University of Montana - Western (UM-
Western). Participating employers under MUS, but excluded from the total OPEB liability due to not qualifying as
component units, are Dawson Community College (Dawson CC), Flathead Valley Community College (Flathead
CC), and Miles Community College (Miles CC). Each participating employer is required to disclose additional
information as required per GASB Statement No. 75, Accounting and Financial Reporting for Postemployment
Benefits Other than Pensions (GASB 75).
The State and MUS pay for post-employment healthcare benefits on a pay-as-you-go basis. Section 2-18-812, MCA
gives authority for establishing and amending the funding policy to the Department of Administration for the State
group health insurance plan. Section 20-25-1310, MCA gives authority for establishing and amending the funding
policy to the Board of Regents for the MUS group health insurance plan. The healthcare OPEB plans allow retirees
to participate, as a group, at a rate that does not cover all of the related costs. This results in reporting the total OPEB
liability in the related financial statements and note disclosures. Reported contributions are not a result of direct
funding to the plans or for associated liabilities, but are a measure of the difference in retiree payments into the plans
and actual medical costs associated with those individuals paid for by the plans.
As of December 31, 2019, the State OPEB plan’s administratively established retiree medical premiums vary
between $448.00 and $1,777.00 per month, depending on the medical plan selected, family coverage, and Medicare
eligibility. Administratively established dental premiums vary between $41.10 and $70.00 per month and vision
hardware premiums vary between $7.64 and $22.26 per month, depending on the coverage selected. The plan
provides different coinsurance amounts and deductibles depending on whether members use in-network or out-of-
network providers. Once retiree members become Medicare eligible, the plan automatically processes claim
reimbursement as the secondary insurer, even if the member is not enrolled in Medicare.
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As of June 30, 2020, the MUS OPEB plan’s administratively established retiree medical premiums vary between
$368.00 and $2,746.00 per month. Retiree dental premiums vary between $52.00 and $156.00 per month, while
vision premiums vary from $10.70 to $31.18, depending on the types and number of dependents enrolled and which
medical Third Party Administrator (TPA) was selected. The plan provides different coinsurance amounts and
deductibles depending on whether members use in-network or out-of-network providers. The plan automatically
reduces claim reimbursement for members eligible for Medicare, even if the member is not enrolled in Medicare.
The premium changes were based on actual claims experience and actuarial projections based on the experience and
trends.
C. Basis of Accounting
Total OPEB liability is reported on an accrual basis on the proprietary and fiduciary fund financial statements, the
government-wide financial statements, and the component unit financial statements. Total OPEB liability is not
reported on the governmental fund financial statements, as it is considered a long-term liability. Plan member
contributions are recognized in the period in which the contributions are made. Benefits and refunds are recognized
when due and payable in accordance with the terms of each plan.
Both OPEB plans state, that an employee enrolled in the OPEB plan, who (a) at least meets the early retirement
criteria defined by Montana Public Employees’ Retirement Administration (MPERA); and (b) makes arrangements
with their respective benefit office, within 60 days of the date active employee coverage ends, to continue post-
retirement coverage, may continue with the OPEB plan on a self-pay basis, retroactive back to the date active
employee coverage was lost, and adhere to these provisions. Therefore, each plan does not include terminated
employees who have accumulated benefits but are not yet receiving them. There have been no significant changes in
the number covered or the type of coverage as of June 30, 2020.
The number of State Plan participants as of March 31, 2020, follows:
State Plan Participants
Facility Montana — public Employee Montana teachers
Finance Board Retirement State Retirement
Enrollment State Authority” — of Housing ” Board ”) Fund” System” Total
Active employees 12,056 1 12 48 279 21 12,417
Retired employees,
spouses, and
surviving spouses 2,514 2 3 1 20 6 2,546
Total 14,570 3 15 49 299 27 14,963
The number of MUS Plan participants as of March 31, 2020, follows:
MUS Plan Participants
UM-
MSU- UM- MSU- MSU- MSU- UNM- MT UM-
Enrollment GFc” HC” Billings” Bozeman™ Northern® OCHE™ Missoula” Tech” Western” Total
Active employees 110 82 451 3,136 171 63 1,874 388 191 6,466
Retired employees,
spouses, and
surviving spouses 7 14 117 493 34 17 500 102 56 1,340
Total 117 96 568 3,629 205 80 2,374 490 247 7,806
) Primary Government
®) Discrete Component Units of Primary Government
D. Schedule of Changes in Total OPEB liability
The following table presents the other items related to and changes in the total OPEB liability:
Annual OPEB Cost & Changes in Total OPEB liability
(in thousands)
State Plan MUS Plan
Discrete Discrete
Primary | Component Primary Component
Government __ Unit Total Government Unit Total
Total OPEB OPEB Total State | Total OPEB OPEB Total MUS
Liability Liability Plan Liability Liability Plan
Balances at 6/30/2019 $ 54,593 $ 1,104 $ 55,697 | $ 425 $ 38,923 $ 39,348
Changes for the year:
Service cost 1,899 47 1,946 11 1,725 1,736
Interest 1,554 32 1,586 12 1,118 1,130
Difference between expected and
actual experience (9,504) 95 (9,409) (162) (14,853) (15,015)
irate of assumptions or other (1,828) (49) (1,877) (18) (1,73) (1,791)
Benefit payments (585) (16) (601) 15 1,426 1,441
Net changes (8,464) 109 (8,355) (142) (12,357) (12,499)
Balances at 6/30/2020 " $ 46,129 $ 1,213 $ 47,342 1$ 283 $ 26,566 $ 26,849
(") State and discretely presented component units proportion of the collective total OPEB liability as of the measurement date for fiscal years 2019 and
2020 for the State Plan was 100% both years and for the MUS Plan is 95.59% and 94.92%, respectively.
E. Actuarial Methods and Assumptions
The total OPEB liability (TOL) measured under GASB 75 is based upon service cost and more standardized
reporting assumptions than prior GASB Statements. As a pay-as-you-go public entity, GASB 75 requires a 20-year
current municipal bond discount rate to establish an Actuarially Determined Contribution (ADC). The GASB 75
valuation is further required to show both historical and projected future net changes in TOL, as well as sensitivity to
changes in key underlying assumptions. Actuarially determined amounts are subject to continual revisions, meaning
actual results are compared with past expectations and new estimates are made about the future. Actuarial
calculations reflect a long-term perspective. The projection of benefits for financial reporting purposes does not
explicitly incorporate the potential effects of legal or contractual funding limitations on the pattern of cost-sharing
between the employer and plan members in the future.
The schedule of changes in the State’s and MUS's TOL and related ratios, presented as required supplementary
information following the notes to the financial statements is designed to present multi-year trend information about
whether the actuarial value of plan TOL is increasing or decreasing over time relative to the actuarial liabilities for
benefits. The schedule of changes in the State’s and MUS's TOL and related ratios are based on the substantive plan
(the plan as understood by the employer and the plan members). This includes the types of benefits provided at the
time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members
to that point.
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The State's OPEB Plan TOL on December 31, 2019, rolled forward to March 31, 2020, actuarial valuation was
determined using the following actuarial assumptions and other inputs, applied to all periods included in the
measurement, unless otherwise specified:
Other Postemployment Benefits
State Single Employer Plan
Retiree/Surviving
Spouse Spouse
Contributions (weighted average):
Before Medicare eligibility $ 14,772 $ 5,470
After Medicare eligibility 5,376 4,659
Actuarial valuation date December 31, 2019
Experience study period January 1, 2017 through December 31, 2019
Actuarial measurement date — March 31, 2020
Actuarial cost method Entry age normal funding method
Amortization method Open basis
Asset valuation method Not applicable since no assets meet the definition
of plan assets under GASB 75
Actuarial assumptions:
Discount rate 2.15%
Projected payroll increases 2.50%
Participation:
Future retirees 40.00%
Future eligible spouses 70.00%
Marital status at retirement 70.00%
) Updated procedures were used to roll forward the total OPEB liability to the measurement date.
Mortality - Health: For TRS, healthy mortality is assumed to follow the RP-2000 Healthy Annuitant
Mortality Table for ages 50 and above and the RP-2000 Combined Healthy Annuitant Mortality Table for
ages below 50, set back four years for males, set back two years for females, with mortality improvements
projected by Scale BB to 2018. For all other groups, healthy mortality is assumed to follow the RP-2000
Combined Mortality Table with improvements projected by Scale BB to 2020, set back one year for males.
Mortality - Disabled: For TRS, disabled mortality is assumed to follow the RP-2000 Disabled Mortality
Table, set forward one year for males and set forward five years for females, with mortality improvements
projected by Scale BB to 2018. For all other groups, disabled mortality is assumed to follow the RP-2000
Combined Mortality Table with no projections.
Changes in actuarial assumptions and methods since last measurement date: Changes in actuarial
assumptions include a participation rate reduction from 55% to 40% based on recent experience study, a
revision to rates per the Retirement System pension valuations as of July 1, 2019, and the interest/discount
rate was based on the average of multiple March 31, 2020 municipal bond rate sources.
Changes in benefit terms since last measurement date: None
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Additional information as of the latest actuarial valuation for MUS OPEB plan follows:
Other Postemployment Benefits
MUS Single Employer Plan
Retiree/Surviving
Spouse Spouse
Contributions (in thousands):
Before Medicare eligibility $ 11,212 $ 9,199
After Medicare eligibility 4,301 5,295
Actuarial valuation date December 31, 2019
Actuarial measurement date March 31, 2020
Experience study period January 1, 2017 through December 31, 2019
Actuarial cost method Entry age normal funding method
Amortization method Open basis
Asset valuation method Not applicable since no assets meet the definition of
plan assets under GASB 75
Actuarial assumptions:
Discount rate 2.15%
Projected payroll increases 2.50%
Participation:
Future retirees 40.00%
Future eligible spouses 70.00%
Marital status at retirement 70.00%
“) Updated procedures were used to roll forward the total OPEB liability to the measurement date.
Mortality - Healthy: For TRS and MUS-RP, healthy mortality is assumed to follow the RP-2000 Healthy
Annuitant Mortality Table for ages 50 and above and the RP-2000 Combined Healthy Annuitant Mortality
Table for ages below 50, set back four years for males, set back two years for females, with mortality
improvements projected by Scale BB to 2018. For all other groups, healthy mortality is assumed to follow
the RP-2000 Combined Mortality Table with improvements projected by Scale BB to 2020, set back one
year for males.
Mortality - Disabled: For TRS For TRS and MUS-RP, disabled mortality is assumed to follow the RP-2000
Disabled Mortality Table, set forward one year for males and set forward five years for females, with
mortality improvements projected by Scale BB to 2018. For all other groups, disabled mortality is assumed
to follow the RP-2000 Combined Mortality Table with no projections.
Changes in actuarial assumptions and methods since last measurement date: Changes in actuarial
assumptions include a participation rate reduction from 55% to 40% based on recent experience study, a
revision to rates per the Retirement System pension valuations as of July 1, 2019, and the interest/discount
rate was based on the average of multiple March 31, 2020 municipal bond rate sources.
Changes in benefit terms since last measurement date: Changes in benefit terms include increased annual
deductible and out-of-pocket maximums.
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Sensitivity of the TOL to changes in the discount rate
The following presents the TOL of the State and MUS OPEB plans, as well as what they would be if calculated
using a discount rate that is 1-percentage-point lower (1.75 percent) or 1-percentage-point higher (3.75 percent) than
the current discount rate:
State OPEB plan (in thousands)
Current Discount Rate
1.0% Decrease (1.75%) (2.75%) 1.0% Increase (3.75%)
Primary Government $ 59,852 $ 46,129 $ 36,138
Discrete Component Units 1,616 1,213 916
Total OPEB liability $ 61,468 $ 47,342 $ 37,054
MUS OPEB plan (in thousands)
Current Discount Rate
1.0% Decrease (1.75%) (2.75%) 1.0% Increase (3.75%)
Primary Government $ 382 $ 283 §$ 211
Discrete Component Units 35,949 26,566 19,794
Total OPEB liability $ 36,331 $ 26,849 $ 20,005
Sensitivity of the TOL to changes in the healthcare cost trend rates
The following presents the TOL of the State and MUS OPEB plans, as well as what they would be if calculated
using healthcare cost trend rates that are 1-percentage-point lower (5.0 percent) or 1-percentage-point higher (7.0
percent) than the current healthcare cost trend rates:
State Plan (in thousands)
Current Healthcare Cost
1.0% Decrease (5.0%) Trend Rate (6.0%) 1.0% Increase (7.0%)
Primary Government $ 36,175 $ 46,129 $ 60,223
Discrete Component Unit 915 1,213 1,630
Total OPEB liability $ 37,090 $ 47,342 $ 61,853
MUS Plan (in thousands)
Current Healthcare Cost
1.0% Decrease (5.0%) Trend Rate (6.0%) 1.0% Increase (7.0%)
Primary Government $ 211 §$ 283 §$ 384
Discrete Component Unit 19,731 26,566 36,276
Total OPEB liability $ 19,942 $ 26,849 $ 36,660
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OPEB Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to OPEB
For the year ended June 30, 2020, the State OPEB plan's OPEB expense is $2.5 million and the MUS OPEB plan's
OPEB expense is $1.5 million.
At June 30, 2020, the State OPEB plan deferred outflows and inflows of resources are from the following sources:
State Plan (in thousands)
Deferred Outflows of Deferred Inflows of
Resources Resources
Primary Government
Difference between expected and actual experience $ — $ 12,210
Changes of assumptions or other inputs 16,160 15,732
Total $ 16,160 $ 27,942
Discrete Component Units
Difference between expected and actual experience $ 132 $ 137
Changes of assumptions or other inputs 431 420
Amounts associated with transactions subsequent to the
measurement date of the total OPEB liability’ 4 _—
Total $ 567 $ 557
In prior years, the amounts deferred for transactions subsequent to the measurement date of the total OPEB liability were employer contributions. In the year
ending June 30, 2020, such contributions were significantly reduced or nonexistent because fewer medical claims were experienced during the period
subsequent to the measurement date. This was due to postponement of procedures, by hospitals and clinics, in response to the COVID-19 pandemic.
At June 30, 2020, MUS OPEB plan deferred outflows and inflows of resources are from the following sources:
MUS Plan (in thousands)
Deferred Outflows of Deferred Inflows of
Resources Resources
Primary Government
Difference between expected and actual experience $ — $ 159
Changes of assumptions or other inputs 106 113
Total $ 106 $ 272
Discrete Component Units
Difference between expected and actual experience $ — $ 14,663
Changes of assumptions or other inputs 10,352 11,070
Total $ 10,352 $ 25,733
In prior years, the amounts deferred for transactions subsequent to the measurement date of the total OPEB liability were employer contributions. In the year
ending June 30, 2020, such contributions were significantly reduced or nonexistent because fewer medical claims were experienced during the period
subsequent to the measurement date. This was due to postponement of procedures, by hospitals and clinics, in response to the COVID-19 pandemic.
Deferred outflows of resources and deferred inflows of resources related to TOL will be recognized as OPEB
expense as follows:
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Amount recognized in OPEB expense as an increase or (decrease) to OPEB
expense
State Plan (in thousands)
Discrete Component
Year ended June 30 Primary Government Units State Plan Total
2021 $ (1,057) $ (1) $ (1,058)
2022 (1,057) (1) (1,058)
2023 (1,057) (1) (1,058)
2024 (1,057) (1) (1,058)
2025 (1,057) (1) (1,058)
Thereafter (6,497) 11 (6,486)
Amount recognized in OPEB expense as an increase or (decrease) to OPEB
expense
MUS Plan (in thousands)
Discrete Component
Year ended June 30 Primary Government Units MUS Plan Total
2021 $ (14) $ (1,321) $ (1,335)
2022 (14) (1,321) (1,335)
2023 (14) (1,321) (1,335)
2024 (14) (1,321) (1,335)
2025 (14) (1,321) (1,335)
Thereafter (96) (8,776) (8,872)
F. General Information Trust Plan
General Information
Section 19-3-2141, MCA, establishes a long-term disability plan trust fund (PERS-DCRP Disability) for all State of
Montana employees that participate in the Public Employee Retirement System-Defined Contribution Retirement
Plan (PERS-DCRP). All new PERS members are initially members of the Public Employee Retirement System-
Defined Benefit Retirement Plan (PERS-DBRP) and have a 12-month window during which they may choose to
transfer to the PERS-DCRP or remain in the PERS-DBRP by filing an irrevocable election. If an election is not
filed, the member remains in the PERS-DBRP. Members may not be members of both the defined contribution and
defined benefit retirement plans. Only those participants that choose the PERS-DCRP are covered by the PERS-
DCRP Disability plan.
Plan Description
The PERS-DCRP Disability is a multiple-employer cost-sharing plan that covers employees of the State, local
governments, and certain employees of the university system and school districts, who are not covered by a separate
retirement system governed by Title 19, MCA. The PERS-DCRP Disability plan provides disability benefits to
PERS-DCRP plan members who are vested in the plan and are currently ineligible for retirement.
A separate trust has been established for purposes of providing disability benefits to PERS-DCRP Disability plan
members, and it is accounted for as a fiduciary fund. The assets are held in a trust capacity for the beneficiaries. The
Public Employee Retirement System issues publicly available annual reports, which include financial statements and
required supplemental information for the plan. Those reports may be obtained online (http://mpera.mt.gov) or by
contacting the following:
Public Employees’ Retirement Board
100 North Park, Suite 200
P.O. Box 200131
Helena, MT 59620-0131
G. Termination Benefits
During the year ended June 30, 2020, the State made the following termination benefit arrangements: continued
coverage of group health insurance benefits for one employee provided for up to six months, one-time lump-sum
incentive payments for 15 employees, and paid administrative leave for 15 employees.
During the year ended June 30, 2020, component units of the State made the following termination benefit
arrangements: continued coverage of health insurance benefits and/or one-time incentive payments for 12
employees.
During the year ended June 30, 2020, the cost of termination benefits for the fiscal year was $107.1 thousand and
$366.4 thousand for the State and its component units, respectively.
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NOTE 8. RISK MANAGEMENT
There are three primary government public entity risk pools and one claims-servicing pool that are reported within
the enterprise funds. These pools include Hail Insurance, the Montana University System (MUS) Group Insurance
Plan, the MUS Workers Compensation Program, and the Subsequent Injury claims-servicing pool. The State of
Montana (Old Fund) provides risk financing as an entity other than a public entity risk pool. The liability and
payment of the workers' compensation claims for incidents occurring before July 1, 1990, are reported in the
government-wide financial statements within the primary government. Unpaid claims and claim adjustment
expenses are estimated based on the ultimate cost of settling the claims, including the effects of inflation and other
societal/economic factors. Additionally, the primary government reports its own risk management activity within
two internal service funds: Employees Group Benefits Plans and Administration Insurance Plans. In all of these
funds, there are no significant reductions in insurance coverage from the prior year. These funds use the accrual
basis of accounting. By statute, these funds cannot invest in common stock. Investments are recorded at fair value.
Premiums and discounts are amortized using the straight-line method over the life of the securities.
A. Public Entity Risk Pools
(1) Hail Insurance — Any Montana producer engaged in growing crops subject to destruction or damage by hail
may participate in the Hail Insurance program. The Hail Insurance program issued 532 policies during the 2020
growing season. This fund accounts for premium assessments paid by producers for crop acreage insured,
investment and interest earnings, administrative costs, and claims paid for hail damage. Depending upon the reserve
fund's actuarial soundness and the damage in a season, producers may receive a premium refund. Anticipated
investment income is considered in computing a premium deficiency, of which there is none.
A claim must be submitted to the State Board of Hail Insurance within 14 days of a loss occurrence. The claim must
indicate whether the grain is stemming, in the boot, heading out, in the milk, in the stiff dough, ready to bind, or
combine. If beans, peas, or other crops are damaged, the growth-stage must also be indicated. Inspection of a crop
will occur as promptly as possible after claim receipt. The liability on all insured crops expires after October 1. The
insurance only covers loss or damage to growing grain that exceeds 5.0% destruction by hail.
To reduce its exposure to large losses, the fund purchased Crop Hail Quota Share Reinsurance for the 2020 growing
season, with a 75.0% share of premiums and losses allotted to the Reinsurer and a 25.0% share of each allotted to
the State Hail Insurance. The fund recorded a liability of $11.1 thousand, which is 25.0% of the estimated claims
($42.6 thousand) plus adjustment expenses through June 30, 2020. The amount deducted from the estimated claims
as of June 30, 2020, for reinsurance was $31.9 thousand (75.0% of estimated claims). The premiums ceded to the
Reinsurer through June 30, 2020, were $844.6 thousand, which was 75.0% of total premiums of $1.1 million.
Any crop insurance liability is paid to the producers within one year of occurrence; therefore, liabilities are not
discounted. The fund has no excess insurance or annuity contracts.
(2) Montana University System (MUS) Group Insurance Plan — This plan is authorized by the Board of Regents
and in Section 20-25-13, MCA. The Plan's purpose is to provide medical, dental, prescription drug, and related
group benefits coverage to employees of the Montana University System and affiliates, and their dependents,
retirees, and COBRA members. The MUS Group Benefits Plan is fully self-insured, except for life insurance, long-
term care, long-term disability, and accidental death and dismemberment insurance. Delta Dental administers the
dental plan, Blue Cross and Blue Shield of Montana administers the vision plan, and Navitus is the administrator for
the prescription drug program. Allegiance Benefit Plan Management, Blue Cross and Blue Shield of Montana, and
Pacific Source are the three third-party claims administrators for the self-insured managed care plan. Allegiance
Benefit Plan Management, Blue Cross and Blue Shield of Montana, and Pacific Source have contracts for utilization
management. The utilization management program consists of hospital pre-authorization and medical necessity
review as well as large case management. Premiums are collected from employees through payroll deductions and
recorded in the MUS Group Insurance enterprise fund. The claims liability is calculated by Actuaries Northwest and
estimated to be $10.3 million as of June 30, 2020, based on prior year experience. A liability is reported in the
accompanying financial statements for these estimated claims.
(3) Montana University System (MUS) Workers’ Compensation Program — This plan was formed to provide
self-insured workers compensation coverage for MUS employees. The MUS Board of Regents provides workers’
compensation coverage under Compensation Plan Number One (Section 39-7-2101, MCA). The program is self-
insured for workers’ compensation claims with losses in excess of $750.0 thousand per occurrence ($500.0 thousand
for claims occurring prior to July 1, 2013) and $1.0 million per aircraft occurrence covered by reinsurance with a
commercial carrier. Employer’s liability claims are covered to a maximum of $1.0 million above the self-insured
amount of $750.0 thousand ($500.0 thousand for claims occurring prior to July 1, 2013). During fiscal year 2020,
the program ceded $361.2 thousand in premiums to reinsurers.
The MUS Workers' Compensation Program Committee establishes premium rates for all participating campuses
based on actuarial calculations of premium need and composite premium rate. Premium rates are adjusted
periodically based on inflation, claims experience, and other factors. Premiums are recorded as revenue in the MUS
Workers’ Compensation Program in the period for which coverage is provided. Members may be subject to
supplemental assessments in the event of deficiencies. The program considers anticipated investment income in
determining if a premium deficiency exists.
The fund recorded a liability of $4.8 million for estimated claims at June 30, 2020. The liability is based on the
estimated ultimate cost of settling the reported and unreported claims, claims reserve development, including the
effects of inflation, and other societal and economic factors. Estimated amounts of subrogation and reinsurance
recoverable on unpaid claims are deducted from the liability for unpaid claims. Estimated claims liabilities are
recomputed periodically based on a current review of claims information, experience with similar claims, and other
factors. Adjustments to estimated claims liabilities are recorded as an increase or decrease in claims expense in the
period the adjustments are made.
(4) Subsequent Injury — The purpose of the Subsequent Injury Fund (SIF) is to assist individuals with a permanent
impairment that may create an obstacle to employment by limiting workers' compensation exposure for employers
who hire SIF-certified individuals. The program is funded through an annual assessment for Montana self-insured
employers and a surcharge on premium for private insured and Montana State Fund policyholders.
The Employment Relations Division sets the assessment and surcharge rates annually. The amount assessed is
calculated by adding the amount of paid losses reimbursed by SIF from April 1 of the previous calendar year
through March 31 of the current calendar year, plus administration expenses, less other income earned. Employers
share in the reimbursement in two ways: (1) If self-insured, the reimbursement is based on their share of overall paid
losses in the previous calendar year. (2) If insured through a private carrier or Montana State Fund, the
reimbursement is based on both overall paid losses in the previous calendar year, and the amount of the employer's
premium paid for their business.
The SIF program reduces the liability of the employer (if self-insured) or insurer by placing a limit of 104 weeks on
the amount an employer (if self-insured), or the employer’s insurer, will have to pay for medical and wage loss
benefits in the event a worker who is SIF-certified becomes injured or re-injured on the job. SIF will assume liability
for the claim when the 104 weeks is reached. For an insured employer, since the insurer's liability is limited to 104
weeks on the claim, this can favorably impact the employer’s modification factor, which in turn could keep
premiums lower than would otherwise be the case without SIF. For a self-insured employer, it provides a direct
recovery of expenses paid for a workers’ compensation claim. If a certified worker does become injured on the job,
the worker remains entitled to all benefits due under the Workers’ Compensation Act.
An estimated liability is recorded based on a projected cost analysis and total population of registered SIF
participants. As of June 30, 2020, this liability amount was estimated to be $2.4 million.
(5) Changes in Claims Liabilities for the Past Two Years — As indicated above, these funds establish liabilities
for both reported and unreported insured events, including estimates of future payments of losses and related claim
adjustment expenses. The following tables present changes (in thousands) in those aggregate liabilities during the
past two years. All information in these tables is presented at face value and has not been discounted.
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MUS Group MUS Workers
Hail Insurance Insurance Plan Compensation
2020 2019 2020 2019 2020 2019
Unpaid claims and claim adjustment
expenses at beginning of year $ 17 $ 35 $ 10,000 $ 10,200 $ 6,789 $ 5,831
Incurred claims and claim
adjustment expenses:
provision for insured events
of the current year 793 422 92,564 88,473 1,992 2,023
Increase (decrease) in provision for
insured events of prior years (5) 96 _ _ (2,485) 93
Total incurred claims and claim
adjustment expenses 788 518 92,564 88,473 (493) 2,616
Payments:
Claims and claim adjustment
expenses attributable to insured
events of the current year (782) (405) (92,264) (88,673) (539) (644)
Claims and claim adjustment
expenses attributable to
insured events of prior years (12) (131) _ _ (920) (1,014)
Total payments (794) (536) (92,264) (88,673) (1,459) (1,658)
Total unpaid claims and claim
adjustment expenses at end of year $ 11 $ 17 $ 10,300 $ 10,000 $ 4837 $ 6,789
B. Entities Other Than Pools
(1) Administration Insurance Plans — This self-insurance plan provides coverage for general liability, automobile
liability, automobile physical damage, foster care liability, and State-administered foreclosure of housing units. The
State self-insures the $2.0 million deductible per occurrence for most property insurance, as well as various
deductible amounts for other State property. The State also self-insures against property losses below $2.0 million of
value, with State agencies paying the first $1.0 thousand. Commercial property insurance protects approximately
$5.8 billion of State-owned buildings and contents. The State’s property insurance includes separate earthquake and
flood protection coverage, with deductibles of $2.0 million for earthquake and $2.0 million for flood per occurrence.
Premiums are collected from all state agencies, including component units, and recorded as revenue in the
Administration Insurance Fund.
An annual actuarial study prepared by Willis Towers Watson Company, and issued for the accident period July 1,
2010, through June 30, 2020, is the basis for estimating the liability for unpaid claims and is supported by historical
loss data. As of June 30, 2020, the estimated claims liability was $53.8 million. Of the $53.8 million estimated
claims liability, $36.4 million is related to a catastrophic property loss for which the insurance proceeds were
received prior to the incurred expenses.
(2) Employee Group Benefits Plans — The medical and dental health plans provided by the State are fully self-
insured with the State assuming the risk for claims incurred by employees of the State, elected officials, retirees,
former employees covered by COBRA benefits, and their dependents. The State contracted with Allegiance as the
third-party administrator for medical coverage. Delta Dental is the administrator for dental coverage. Navitus is the
administrator for the pharmacy program. Contributions are collected through payroll deductions, deductions through
the Public Employees Retirement Administration, the Legislative Branch, and self-payments. The contributions are
recorded as revenue in the Employee Group Benefits internal service fund. As of June 30, 2020, estimates for claims
liabilities, which include both incurred but not reported claims and grandfathered claims resulting from a 1998
change in period for which the benefit coverage is available, as well as other actuarially determined liabilities, were
$19.0 million as provided by Actuaries Northwest, a consulting actuarial firm. In fiscal year 2021, $18.8 million of
these claims liabilities are estimated to be paid.
(3) State of Montana (Old Fund) — State of Montana (Old Fund) covers workers’ compensation claims that were
incurred before July 1, 1990. Old Fund was originally a risk financing insurance entity, but upon depletion of all of
its assets, is now financed by the General Fund. The participants within the pool are individuals outside of
governmental entities.
An actuarial study prepared by Willis Towers Watson, as of June 30, 2020, estimated the cost of settling claims that
have been reported but not settled and claims that have been incurred but not reported. At June 30, 2020, $48.3
million of unpaid claims and claim adjustment expenses were reported at face value.
(4) Changes in Claims Liabilities for the Past Two Years — These funds establish liabilities for both reported and
incurred but not reported claims. Grandfathered claims are not included as they relate to future claims not yet
incurred. The following table presents changes in the balances of claims liabilities during the past two fiscal years
(in thousands).
Administration Employers Group State of Montana
Insurance Plans Benefits Plan Old Fund
2020 2019 2020 2019 2020 2019
Amount of claims liabilities at the
beginning of each fiscal year $ 16,157 $ 15,180 $ 18896 $ 17,723 $ 44,266 $ 31,109
Incurred claims:
Provision for insured events
of the current year 7,091 4,803 170,812 175,435 — —
Increase (decrease) in provision for
insured events of prior years 1,120 12,348 (4,377) (1,672) 12,616 22,193
Total incurred claims 8,211 17,151 166,435 173,763 12,616 22,193
Payments:
Claims attributable to insured
events of the current year (3,063) (2,167) (151,950) (156,695) _— _—
Claims attributable to
insured events of prior years (3,874) (14,007) (14,399) (15,895) (8,602) (9,036)
Total payments (6,937) (16,174) (166,349) (172,590) (8,602) (9,036)
Total claims liability at end of
each fiscal year $17,431 $ 16,157 $ 18,982 $ 18896 $ 48,280 $ 44,266
{) $36.4 million of additional claims for the Administration Insurance Plans not included in the table above, are related to a catastrophic
property loss for which the insurance proceeds were received prior to the incurred expenses.
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NOTE9. COMMITMENTS
A. Highway Construction
At June 30, 2020, the Department of Transportation had contractual commitments of approximately $281.5 million
for construction of various highway projects. Funding for these highway projects is to be provided from federal
grants and matched with state special revenue funds.
B. Capital Construction
At June 30, 2020, the Department of Administration, Architecture & Engineering Division, had commitments of
approximately $60.9 million for capital projects construction. The primary government will fund $40.4 million of
these projects, with the remaining $20.5 million funded from the Montana University System.
At June 30, 2020, Fish, Wildlife, and Parks had contractual commitments of approximately $1.9 million for
engineering and construction of various capital projects. The majority of the funding for these projects is to be
provided by federal grants and state special revenue funds.
C. Loan and Mortgage Commitments
The Montana Board of Investments (BOI) makes firm commitments to fund commercial loans, residential
mortgages, and Veterans' Home Loan Mortgages (VHLM) from the Coal Severance Tax Permanent Trust Fund.
These commitments have expiration dates and may be extended according to BOI policies. As of June 30, 2020,
BOI had committed, but not yet purchased, $21.7 million in loans from Montana lenders. In addition to the above
commitments, lenders had reserved $8.1 million for loans as of June 30, 2020. As of June 30, 2020, another $825.9
thousand represented lender reservations for the VHLM residential mortgage purchases with no purchase
commitments.
The BOI makes reservations to fund mortgages from the State’s pension funds. As of June 30, 2020, there were no
mortgage reservations. All BOI residential mortgage purchases are processed by the Montana Board of Housing
(MBOH). The MBOH does not differentiate between a mortgage reservation and a funding commitment.
The BOI makes firm commitments to fund loans from the INTERCAP loan program. The BOI’s outstanding
commitments to eligible Montana governments, as of June 30, 2020, totaled $29.6 million.
D. Department of Corrections Bond Commitments
At June 30, 2020, the outstanding tax-exempt bonds distributed by the Facility Finance Authority were issued in the
amount of $10.3 million, of which $1.8 million in principal payments are scheduled to be paid by June 30,
2021. These bonds have been issued to facilities operating treatment and pre-release centers. The Department of
Corrections agrees to provide payment on behalf of the contractors for the total principal and interest regarding these
outstanding bonds. These costs are then recovered through the center's monthly billing for inmate room and board.
E. Department of Labor and Industry Commitments
At June 30, 2020, the Department of Labor and Industry, had $1.9 million contractual commitments for Montana
State AmeriCorps Programs and a $1.8 million commitment for information technology contracts. The funding for
these programs is federal grants, state special revenue funds, and proprietary funds.
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F. Proprietary Fund Commitments
Budgets are administratively established in the enterprise and internal service funds, excluding depreciation,
compensated absences, and bad debt expense. Appropriations may be committed for goods/services that are not
received as of fiscal year-end. These executory commitments are included in unrestricted net position in the
accompanying financial statements as follows (in thousands):
Enterprise Funds Amount
BOI Municipal Finance Programs $ 12
Liquor Warehouse 186
State Lottery Fund 19
Prison Industries 3
Other Enterprise Funds 1
Subtotal - Enterprise funds $ 221
Internal Service Funds
SABHRS Finance and Budget Bureau $ 218
Investment Division 49
Labor Central Services 1,193
Subtotal - Internal Service funds $ 1,460
G. Encumbrances
As of June 30, 2020, the State of Montana encumbered expenditures as presented in the table below (in thousands):
Nonmajor
Federal Special Governmental State Special
Revenue Fund General Fund Funds Revenue Fund Total
Encumbrances $ 39,219 $ 16,769 $ 939 $ 50,452 $ 107,379
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NOTE 10. LEASES/INSTALLMENT PURCHASES PAYABLE
The State has entered into various capital and operating leases for land, buildings, equipment, and computer
software. Lease contracts are required by law to contain a clause indicating if the continuation of the lease is subject
to funding by the Legislature. It is expected, in the normal course of operations, that most of these leases will be
replaced by similar leases.
A. Capital Leases/Installment Purchases
Obligations under capital leases/installment purchases at June 30, 2020, were as follows (in thousands):
Governmental Business-Type
Fiscal Year Ending June 30: Activities Activities
2021 $ 5,918 §$ 12
2022 4,419 11
2023 2,905 4
2024 2,003 _
2025 1,571 —
2026 - 2030 3,877 _
2031 - 2035 1,660 —
Total minimum payments 22,353 27
Less: interest (1,736) (1)
Present value of minimum payments $ 20,617 $ 26
Assets acquired under capital leases for the primary government by asset class were as follows (in thousands):
Asset Class
Buildings $ 1,596
Equipment 38,568
Less: Accum Depreciation (13,137)
Net Book Value $ 27,027
B. Operating Leases
Primary government rental payments for operating leases in fiscal year 2020 totaled $26.3 million. Future rental
payments under operating leases are as follows (in thousands):
Governmental Business-Type
Fiscal Year Ending June 30: Activities Activities
2021 $ 23,465 $ 663
2022 21,675 611
2023 19,999 562
2024 17,047 563
2025 14,235 537
2026 - 2030 48,192 1,441
2031 - 2035 26,588 758
Thereafter 13,604 735
Total future rental payments $ 184,805 $ 5,870
NOTE 11. STATE SHORT-TERM DEBT AND LONG-TERM LIABILITIES
A. General Information
The State has no constitutional limit on its power to issue obligations or incur debt, other than a provision that no
debt may be created to cover deficits incurred because appropriations exceeded anticipated revenues. No State debt
shall be created unless authorized by a two-thirds vote of the members of each house of the Legislature or a majority
of the electors voting thereon. The Board of Examiners (consisting of the Governor, Secretary of State, and Attorney
General) is authorized, pursuant to various enabling acts, to issue bonds and notes of the State.
B. Short-term Debt
The Board of Examiners, upon recommendation of the Department of Administration, may issue notes in
anticipation of the receipt of taxes and revenues. Notes may not be issued to refund outstanding notes.
During fiscal year 2020, the State issued two bond anticipation notes. The proceeds of the State Revolving Fund
Programs Wastewater 2020D and Drinking Water 2019D issuances were used to fund wastewater and drinking
water system improvements and rehabilitation. The State made some payments to Drinking Water 2019A, as well as
paid off Wastewater 2019B, during fiscal year 2020. An additional bond anticipation note has been authorized, but
not issued as of fiscal year-end. The following schedule summarizes the activity for the year ended June 30, 2020 (in
thousands):
Bond Anticipation Notes Beginning Balance Additions Reductions Balance
Water/Wastewater - 2019B 1,190 1,910 3,100 —
Drinking Water - 2019A 1,400 1,500 2,300 600
Drinking Water - 2019D — 1,300 — 1,300
Water/Wastewater — 2020D "” — 1,100 — 1,100
) These bond anticipation notes have not been fully drawn at fiscal year-end.
The Board of Investments (BOI) of the State is authorized to issue Intermediate-Term Capital (INTERCAP) bonds
under the Municipal Finance Consolidation Act. These bonds may not aggregate more than $190.0 million, as
amended by the 2007 Legislature. The purpose of the bonds is to provide funds for BOI to make loans to eligible
government units. The bonds are not a debt or liability of the State. The bonds are limited obligations of BOI,
payable solely from (1) repayments of principal and interest on loans made by BOI to participating eligible
governmental units, (2) investment income under the indenture, and (3) an irrevocable pledge by BOI. BOI has no
taxing power. The bonds may be redeemed, at the bondholder's option, any March 1, prior to maturity. BOI did not
enter into an arms-length financing agreement to convert the bonds "put," or tender, and did not resell the bonds into
some other form of long-term obligation. Accordingly, these bonds, considered demand bonds, are included in short-
term debt. The amounts issued and outstanding at June 30, 2020, were as follows (in thousands):
Amount Balance
Series Issued June 30, 2020
2003 $ 15,000 $ 14,310
2004 18,500 17,975
2007 15,000 14,620
2010 12,000 11,880
2013 12,000 11,960
2017 20,000 19,925
$ 90,670
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The following schedule summarizes the activity relating to the demand bonds during the year ended June 30, 2020
(in thousands):
Beginning Pe : Ending
Balance Additions Reductions Balance
Demandbonds $ 105,065 $ — $ 14,395 $ 90,670
C. Long-term Debt
The full faith, credit, and taxing powers of the State are pledged for the payment of all general obligation debt.
Revenue and mortgage bonds are secured by a pledge from the facilities to which they relate and by certain other
revenues, fees, and assets of the State and the various colleges and universities. Primary government bonds and
notes outstanding at June 30, 2020, were as follows (in thousands):
Principal Payments
Amount Interest Fiscal Year _In Year of Balance
Governmental Activities Series Issued Range (%)"” 2021 Maturity” — June 30, 2020
General obligation bonds
Hard Rock Mining Reclamation 2002C 2,500 3.5-4.7 180 200 (2023) 570
CERCLA Program ©) 2005D 2,000 3.25-4.3 115 140 (2026) 765
Energy Conservation Program “ 2006B 3,750 4.0-6.0 320 330 (2022) 650
Long-Range Bldg Program 2008D 3,100 3.375-4.35 160 220 (2028) 1,495
Long-Range Bldg Program Refunding 2010A 20,220 2.0-4.0 710 710 (2021) 710
Trust Land (Taxable) 2010F 21,000 1.55-4.9 1,000 1,450 (2031) 13,265
Long-Range Bldg Program 2010G 550 1.5-2.7 60 60 (2021) 60
Long-Range Bldg Program Refunding 2011D 5,755 3.0-3.25 670 720 (2023) 2,085
Long-Range Bldg Program Refunding 2013C 6,780 2.0-4.0 685 115 (2025) 3,010
Long-Range Bldg Program Refunding 2014 28,810 1.5-5.0 2,085 820 (2028) 17,555
Water Pollution Control Revolving Fund ”) 2015C =. 24,365 3.0-5.0 905 1,860 (2036) 21,185
Long-Range Bldg Program 2020C 28,900 2.0-5.0 2,605 3,465 (2030) 28,900
Total general obligation bonds $147,730 $ 9,495 $ 90,250
Special revenue bonds
Renewable Resource Program (Taxable) ” 2010C 6,720 0.9-4.2 410 170 (2031) 3,540
Renewable Resource Program ” 2013A 2,259 2.0-3.625 145 155 (2024) 595
Renewable Resource Program (Taxable) 2013B 3,390 1.0-4.75 210 290 (2029) 2,215
U.S. Highway 93 GARVEE Refunding ®) 2016 = 22,540 0.74-1.86 3,390 3,740 (2023) 10,685
State Hospital Project ©) 2018 = 4,575 4.0-5.05 1,130 1,165 (2022) 2,295
Total special revenue bonds $ 39,480 $ 5,285 $ 19,330
Principal Payments
Amount Interest Fiscal Year In Year of Balance
Governmental Activities Issued — Range (%) 2021 Maturity — June 30, 2020
Notes Payable
Middle Creek Dam Project 3,272 8.125 96 226 (2034) 1,854
Tongue River Dam Project “”) 11,300 — 290 290 (2038) 5,215
ITSD IBM Professional Services 758 0.19 167 72 (2023) 409
Total notes payable $ 15,330 $ 553 $ 7,478
Subtotal governmental activities,
before unamortized balances 117,058
Unamortized premium 10,348
Total governmental activities $202,540 $ 15,333 $ 127,406
SBS
The interest range is over the life of the obligation.
Year of maturity refers to fiscal year.
This bond provides matching funds to enable the State to obtain capitalization grants from the U.S Environmental Protection Agency for water system
development loans to state political subdivisions.
Bonds issued for financing the design, construction, and installation of energy conservation projects at various state buildings.
The CERCLA (Comprehensive Environmental Response, Compensation, and Liability Act) Program Bonds were issued for the purpose of financing the
costs of State of Montana participation in the remedial actions under Section 104 of the CERCLA 42 United States Code Sections 9601-9657, and State of
Montana costs for maintenance of sites under CERCLA. The CERCLA Bonds are secured additionally by a pledge of monies received by the State as cost
recovery payments and revenues derived from the resource indemnity and groundwater assessment tax in the event cost recovery payments are
insufficient.
Facility Finance Authority loan to the Department of Public Health and Human Services for the Montana State Hospital Project.
Issued by the Department of Natural Resources and Conservation and backed by a pledge of coal severance taxes and project revenues.
The U.S. Highway 93 GARVEES (Grant Anticipation Revenue Vehicles) Bonds were issued for the purpose of improving a 44.8-mile stretch of U.S.
Highway 93. Repayment of the bonds is secured by a pledge of certain federal aid revenues.
U.S. Bureau of Reclamation loan to the Department of Natural Resources & Conservation.
Northern Cheyenne Tribe loan to the Department of Natural Resources & Conservation. The loan will not accrue interest and will be repaid over 39 years.
Loan repayment is secured by the issuance of a coal severance tax bond to the tribe.
Debt Service Requirements
Primary government debt service requirements at June 30, 2020, were as follows (in thousands):
Governmental Activities
General Obligation Bonds Special Revenue Bonds Notes Payable
Year Ended June 30: Principal Interest Principal Interest Principal Interest
2021 $ 9,495 $ 3,656 $ 5,285 $ 913 $ 553 $ 8
2022 8,845 3,571 5,910 678 560 44
2023 8,905 3,104 4,565 432 465 41
2024 8,320 2,137 860 209 398 41
2025 7,965 2,350 745 141 403 41
2026 - 2030 35,350 6,765 2,195 271 2,095 204
2031 - 2035 9,510 1,547 170 5 2,135 163
2036 - 2040 1,860 47 _— — 869 —
Total $ 90,250 $ 23,777 $ 19,330 $ 2,649 $ 7,478 $ 542
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E. Summary of Changes in Long-term Liabilities
Primary government long-term liability activities for the year ended June 30, 2020, were as follows (in thousands):
Amounts
Amounts Dueln More
Beginning Ending DueWithin ThanOne
Balance Additions Reductions Balance One Year Year
Governmental activities
Bonds/notes payable
General obligation bonds $ 73,090 $ 28900 $ 11,740 $ 90,250 $ 9,495 $ 80,755
Special revenue bonds 38,425 — 19,095 19,330 5,285 14,045
Notes payable 8,150 — 672 7,478 553 6,925
119,665 28,900 31,507 117,058 15,333 101,725
Unamortized discount (7) 7 _ _ _ —
Unamortized premium 7,461 2,887 _ 10,348 _ 10,348
Total bonds/notes payable *) 127,119 31,794 31,507 127,406 15,333 112,073
Other liabilities
Lease/installment purchase payable 12,545 16,653 8,581 20,617 5,634 14,983
Operating lease rent holiday 8 — 8 — — —_
Compensated absences payable “”) 101,685 59,366 51,758 109,293 51,621 57,672
Estimated insurance claims “®) 79,318 187,262 145,482 121,098 46,576 74,522
Pollution remediation 177,850 — 4,358 173,492 14,250 159,242
Net pension liability 2,220,765 49,435 27,116 — 2,243,084 — 2,243,084
Total OPEB liability 54,012 — 8,419 45,593 — 45,593
Total other liabilities 2,646,183 312,716 245,722 = 2,713,177 118,081 2,595,096
Total governmental activities long-term
liabilities $_ 2,773,302 $ 344,510 $ 277,229 $ 2,840,583 $ 133,414 $ 2,707,169
Business-type activities
Lease/installment purchase payable $ 18 $ 53 $ 45 $ 26 $ 1 $ 15
Compensated absences payable 2,022 1,055 860 2,217 860 1,357
Arbitrage rebate tax payable 44 21 43 22 — 22
Estimated insurance claims 19,069 92,423 93,969 17,523 12,942 4,581
Net pension liability 11,943 662 1,095 11,510 — 11,510
Total OPEB liability 1,004 — 187 817 — 817
Total business-type activities long-term
liabilities $34,100 $ 94214 $ 96199 $ 32115 $ 13,813 $ 18,302
The compensated absences liability attrioutable to the governmental activities will be liquidated by several of the governmental and internal service funds.
The Employee Group Benefits and Administration Insurance internal service funds will liquidate the estimated insurance claims liability.
$36.4 million Administration Insurance Plans included in the table above, are related to a catastrophic property loss for which the insurance proceeds were
received prior to the incurred expenses.
Deferred outflows, including those related to bonds payable, are reported separately on the Statement of Net Position based on GASB Statement No. 65.
Total OPEB liability and Pension benefits payable beginning balances were restated due to prior period adjustments.
F. Refunded and Early Retired Debt
Prepayments
The Department of Natural Resources and Conservation (DNRC) used current available resources to make several
prepayments: $1.2 million on Series 2010B general obligation bond, $450.0 thousand on Series 2013D general
obligation bond, $1.2 million on Series 2013E general obligation bond, $805.0 thousand on Series 2003A special
revenue bond, $1.1 million on Series 2010B state special revenue bond, and $865.0 thousand on Series 2013A
special revenue bond. The prepayments on all three general obligation bonds, as well as those made to special
revenue bonds Series 2003A and Series 2010B, resulted in payoffs.
G. No-Commitment Debt
Information is presented below for financing authorities participating in debt issues. The related debt issued does not
constitute a debt, liability, obligation, or pledge of faith and credit of the State. Accordingly, these bonds and notes
are not reflected on the accompanying financial statements.
Montana Board of Investments (BOD
BOI is authorized to issue Qualified Zone Academy Bonds (QZAB) under the Municipal Finance Consolidation Act
as conduit (no-commitment) debt. The revenues, and in some cases, the taxing power of the borrower, are pledged to
repay the bonds. At June 30, 2020, QZAB debt outstanding aggregated $5.0 million.
BOI is also authorized to issue Qualified School Construction Bonds (QSCB) under the Municipal Finance
Consolidation Act as conduit (no-commitment) debt. The revenues of the borrower are pledged to repay the bonds.
At June 30, 2020, QSCB debt outstanding aggregated $3.9 million.
H. Estimated Pollution Remediation Obligation
Estimated pollution remediation obligations are obligations to address the current or potential detrimental effects of
existing pollution by participating in pollution remediation activities such as site assessments and cleanups. The
estimates are derived using the expected cash flows method as well as technical estimates from record of decisions,
consent decrees, and/or settlement agreements. There may be factors influencing the estimates that are not known at
this time. Prospective recoveries from other responsible parties may reduce the State’s obligation.
The State’s estimated pollution remediation liability as of June 30, 2020, was $173.5 million. Of this liability, $4.5
million resulted in settlement agreements to provide restoration of natural resources, water supplies, and natural
resource-based recreational opportunities up to the settlement amount; $162.5 million is based on decrees or
settlements for remediation activities. Other estimated liabilities have been recorded for soil and Polychlorinated
Biphenyls (PCB) contamination, as well as removal of asbestos contamination. The estimated pollution remediation
liability was recorded in compliance with accounting and reporting standards and does not constitute the State’s total
acceptance of the liability or responsibility on these matters.
I. Non-Exchange Financial Guarantee
BOI provides loan guarantees from the Coal Severance Tax Fund to the Facility Finance Authority (FFA). BOI
exposure to bond issues, surety bonds, and designated loans of the FFA totaled $88.3 million as of June 30, 2020.
FFA is a discretely presented component unit of the State of Montana. FFA guarantee requests are submitted to BOI
for review and approval. BOI’s participation, either duration or any other consideration, to either purchase bonds or
loans or to lend money for deposit into FFA’s statutorily allowed capital reserve account is explicitly limited by
statute, which requires BOI to act prudently. The guarantee requests from FFA pertain to bonds issued by FFA with
a term of up to 40 years. BOI receives a credit enhancement fee at FFA bond closing based on the term of the
financing, the type of bond, the rating of the borrower, and the type of reserve fund. BOI and FFA have entered into
an agreement detailing repayment to BOI. The credit enhancement fee received during the fiscal year was $54.0
thousand. BOI has not had to perform on any loan guarantee in the past.
The following schedule summarizes the activity related to the non-exchange financial guarantee during the year
ended June 30, 2020 (in thousands):
Beginning Ending
Balance Additions Reductions Balance
$ 88,941 $ 4,000 $ 4,595 $ 88,346
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NOTE 12. INTERFUND BALANCES AND TRANSFERS
A. Balances Due From/To Other Funds
Balances due from/to other funds arise when there is a time lag between the dates that reimbursable expenditures
and interfund services provided/used are recorded in the accounting system and the dates on which payments are
made. Balances also arise when there is a time lag between the dates transfers between funds are recorded and the
dates on which payments are made. Balances due from/to other funds also include the current portion of balances
related to amounts loaned by the Municipal Finance Programs to other funds, under the Board of Investments'
INTERCAP loan program. Balances due from/to other funds are expected to be repaid within one year from
origination.
Balances due from/to other funds at June 30, 2020, consisted of the following (in thousands):
Due to Other Funds
Coal Federal Internal Nonmajor Nonmajor State
Severance Special General Service Land Enterprise Governmental Special
Tax Revenue Fund Funds Grant Funds Funds Revenue Total
Due from Other Funds
Coal Severance Tax $ — $ — $ — $ —$ —$ — $ 8 $ — $ 8
Federal Special Revenue — — 2,871 — — — _— 11 2,882
General Fund _— 1,499 _— _— _— 15,954 _— 9,018 26,471
Internal Service Funds 40 26 — — — — — 43 109
Nonmajor Governmental
Funds _— 308 29 _— _— _— _— 1,110 1,447
State Special Revenue “? 550 18 170 — 1,750 125 524 — 3,137
Total $ 590 $ 1,851 $ 3,070 $ 1,924 $1,750 $ 16,079 $ 1,946 $ 10,182 $ 37,392
‘Total due from other funds to the state special revenue fund on the fund financial statement is reported as $13.7 million. The difference of $10.6
million between the amount reported above of $3.1 million and the amount reported in the fund financial statement relates to long-term receivables.
The receivables are reported on the fund financial statement, and the long-term liabilities are reported on the government-wide statement.
Total due to other funds from the non-major enterprise funds on the fund financial statement is reported as $16.3 million. The difference of $245.1
thousand between the amount reported above of $16.1 million and the amount reported on the fund financial statement relates to loans payable. The
receivables are reported on the government-wide statement, and the liabilities are reported on the fund financial statement.
B. Interfund Loans Receivable/Payable
Montana statutes include a provision for interfund loans when the expenditure of an appropriation is necessary, and
the cash balance in the account from which the appropriation was made is insufficient to pay the expenditure.
Interfund loans receivable/payable are expected to be repaid within one year from the date of origination.
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Interfund loans receivable/payable at June 30, 2020, consisted of the following (in thousands):
Interfund Loans Payable
Coal Federal _Internal Nonmajor Nonmajor State
Severance Special Service Governmental Enterprise Special Land Unemployment
Tax Revenue Funds Funds Funds Revenue Grant Insurance Total
Interfund Loans
Receivable
General Fund $ 1,332 $ 88,769 $ 258 $ 257 $ 80 $ 5,283 $ — $ — $ 95,979
Nonmajor
Enterprise Funds _ 61 _ = — — _ — 61
Nonmajor
Governmental Funds — — = — — 5 — _ 5
State Special
Revenue _— 100,225 19 200 _— _— 10 1,500 101,954
Total $ 1,332 $ 189,055 $ 277 $ 457 $ 80 $ 5,288 $ 10 $ 1,500 $197,999
C. Advances To/From Other Funds
Advances to/from other funds represent the portion of interfund loans that are not expected to be repaid within one
year from the date of origination. Advances to/from other funds also include the noncurrent portion of balances
related to amounts loaned by the Municipal Finance Programs to other funds, under the Board of Investments'
INTERCAP loan program. For more information on the INTERCAP loan program, refer to Note 11.
Advances to/from other funds at June 30, 2020, consisted of the following (in thousands):
Advances from Other Funds
Federal Internal Nonmajor State
Special Service Governmental Special
Revenue Funds Funds Revenue Total
Advances to Other Funds
Coal Severance Tax $ — $ — $ 2,507 $ — $ 2,507
General Fund 355 _— _— _— 355
Municipal Finance Programs _— 5,407 1,601 _— 7,008
Nonmajor Governmental Funds _— _— _— 6,065 6,065
State Special Revenue 25,131 — 3,217 _— 28,348
Total $ 25,486 $ 5,407 $ 7,325 $ 6,065 $ 44,283
Additional detail for certain advance balances at June 30, 2020, follows (in thousands):
Advances from the Municipal Finance Programs
under the INTERCAP Loan Program
Departmental Function Balance
Natural Resources and Conservation $ 1,601
Fish, Wildlife, and Parks 756
Transportation 4,651
Total $ 7,008
D. Interfund Transfers
Routine transfers between funds are recorded to (1) transfer revenues from the fund legally required to receive the
revenue to the fund authorized to expend the revenue, (2) transfer resources from the General Fund and special
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revenue funds to debt service funds to support principal and interest payments, (3) transfer resources from enterprise
funds to the General Fund to finance general government expenditures, and (4) provide operating subsidies.
Interfund transfers for the year ended June 30, 2020, consisted of the following (in thousands):
Transfers Out
Coal Federal Internal Nonmajor — Nonmajor State
Severance Special General Service Land Enterprise Governmental Special
Tax Revenue Fund" Funds” Grant Funds © Funds Revenue _Total
Transfers In
Coal Severance Tax $ — $ — $ — $ —$ —$ — $ 2 $ — $ 2
General Fund " 21,600 114 — — 5 50,522 — 14,532 86,773
Land Grant _— _— 5 _— _— _— _— 1 6
Nonmajor Governmental Funds 589 31,838 19,685 — 2,187 — 1,376 12,987 68,662
State Special Revenue 11,598 16,681 55,839 391 59,393 8,752 23,559 — 176,213
Total $33,787 $ 48,633 $ 76,949 $ 391 $61,585 $ 59,274 §$ 24,937 $ 64,180 $369,736
$57.1 million was transferred from the General Fund to the Budget Stabilization Reserve Fund; however, those funds are combined for reporting
purposes. Therefore the transfer is not accounted for in the above table as both the transfer-in and the respective transfer-out have been eliminated
as required for proper financial reporting.
Total transfers-out for internal service funds on the fund financial statements is reported as $944.0 thousand. The difference of $553.3 thousand
between the amount reported above of $390.7 thousand and the amount reported on the fund financial statements relates to the transfer of capital
assets between a governmental fund type and the internal service fund type. When capital assets are transferred between these fund types, the
transferring fund reports the net book value of the capital asset as a transfer-out, and the receiving fund reports the net book value of the capital
asset as a capital contribution.
Total transfers-out for nonmajor enterprise funds on the fund financial statements is reported as $59.4 million. The difference of $120.9 thousand
between the amount reported above of $59.3 million and the amount reported on the fund financial statements relates to the transfer of capital assets
between a governmental fund type and the nonmajor enterprise fund type. When capital assets are transferred between these fund types, the
transferring fund reports the net book value of the capital asset as a transfer-out, and the receiving fund reports the net book value of the capital
asset as a capital contribution.
NOTE 13. FUND EQUITY DEFICITS
The following funds have a deficit net position remaining at June 30, 2020, as follows (in thousands):
Fund Type/Fund Deficit “
Governmental Funds
Federal Special Revenue ” $ (6,800)
Federal/Private Construction Grants (710)
Internal Service Funds
Information Tech Services $ (16,334)
Building and Grounds (1,171)
Admin Central Services (1,817)
Labor Central Services (5,962)
Commerce Central Services (1,377)
OPI Central Services (2,227)
DEQ Indirect Cost Pool (3,623)
Payroll Processing (1,638)
Warrant Processing (8)
Investment Division (2,298)
Aircraft Operation (678)
Justice Legal Services (709)
Personnel Training (159)
Other Internal Services (345)
SABHRS Finance & Budget Bureau (252)
Enterprise Fund
State Lottery $ (1,898)
Subsequent Injury (1,313)
Local Government Audits (163)
The allocation of net pension liability and total OPEB liability
is a significant factor in creating these deficits. For more detail
related to these liabilities, see Notes 6 and 7, respectively.
Delayed fire season federally reimbursable costs, which are
currently reported as unavailable revenues within deferred
inflow of resources, is a significant factor creating this deficit.
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NOTE 14. MAJOR PURPOSE PRESENTATION
Special Revenue and Fund Balances Classifications by Purpose — In the governmental fund financial statements,
classifications of special revenue fund revenues and fund balances are presented in the aggregate. The tables
presented below further display the special revenue fund revenues and fund balances by major purpose for the year
ending June 30, 2020.
State Special Revenue By Source (in thousands)
Health and
General Public Human Natural
Government Safety Transportation Services Education Resources Total
Licenses/permits $ 124482 $ 46545 $ 22,478 § 3,280 $ 156 $ 88698 $ 285,639
Taxes 212,989 5,091 260,331 _ _ 16,733 495,144
Charges for services 26,865 18,209 9,307 33,009 2,346 16,905 106,641
Investment earnings 700 11,852 507 491 1,513 24,100 39,163
Securities lending income _— 27 _— _— 3 45 15
Sale of documents/
merchandise/property 1,386 3,417 89 84 6 7,554 12,536
Rentals/leases/royalties 298 16 672 50 7 303 1,346
Contributions/premiums 28,290 — — 5,204 — 315 33,809
Grants/contracts/donations 1,495 767 276 10,545 1,791 4,629 19,503
Federal 6,184 _— 1 430 27 _ 6,642
Federal indirect cost
recoveries — — 52,086 43 — 5,380 57,509
Other revenues 2,112 429 291 140 193 784 3,949
Transfers in 35,320 8,602 1,536 8,034 1,264 121,457 176,213
Total State Special
Revenue $440,121 $ 94955 $ 347,574 $ 61,310 $ 7,306 $ 286,903 $ 1,238,169
Federal Special Revenue By Source (in thousands)
Health and
General Public Human Natural
Government Safety Transportation Services Education Resources Total
Charges for services $ 818 $ 6 $ — $ 6,531 $ 1 $ 2 $ 7,358
Investment earnings 456 17 _— _— 57 138 668
Securities lending income 37 _ _ _ _ _ 37
Grants/contracts/donations _ _ _ 13 59 _ 72
Federal 204,771 18,983 565,747 2,071,021 193,655 126,323 3,180,500
Federal indirect cost
recoveries — — — 91,703 58 1,526 93,287
Other revenues 6 9 — 1,269 2 3 1,289
Transfers in — 1,356 — 109 20 — 1,485
Total Federal Special
Revenue $ 206,088 $ 20,371 $ 565,747 $ 2,170,646 $ 193,852 $ 127,992 $ 3,284,696
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NOTE 15. RELATED PARTY TRANSACTIONS
The Montana School for the Deaf and Blind is associated with a foundation, which is a nonprofit organization
outside of state government. The school’s foundation is governed by a board of directors that annually approves a
budget for the financial support to be provided to the school. This budget defines the allowable expense categories
for the year. A school employee is the person approving the expenses to be paid by the foundation based on its
budget. The employee submits the approved invoices to the foundation’s bookkeeper, who then prepares the checks
and submits them to a board member who reviews backup documentation and signs the checks.
The Department of Labor and Industry's Workforce Services Division rents space in Libby, MT, from Mineral
Plaza, LLC, in which one of the owners is a local job service manager. The term of the lease is July 1, 2013 and
ending June 30, 2021. The annual lease amount is currently set at $21.3 thousand.
The Department of Labor and Industry Workforce Services Division rents space in Cut Bank, MT from Glacier
Community Health Center, Inc., in which one of the active board members is a local job service manager. The term
of the lease is July 1, 2019 and ending June 30, 2022. The annual lease amount is currently set at $35.0 thousand.
The relative of a member of Montana Department of Transportation’s (MDT) management team is part owner of a
business that holds a State term contract for supplies. A term contract is a contract in which a source for supplies is
established for a specific period of time at a predetermined unit price. The term contracts are issued by the State
Procurement Bureau of the Department of Administration (DOA) and state agencies are required to use the DOA
issued term contracts for such supplies. MDT purchased supplies from this business in the amount of $95.9 thousand
for the fiscal year ended June 30, 2020.
A relative of a member of MDT's Management Team is part owner of a business which has been granted the right by
the local airport to operate and provide related services. There is only one such operator at this airport. Given this
exclusivity, MDT had transactions with this business. MDT purchased services in the amount of $16.9 thousand for
the fiscal year ended June 30, 2020.
Per Section 85-1-617 and 85-1-624, MCA, Renewable Resource Grant and Loan Program, the Department of
Natural Resources and Conservation (DNRC) is eligible to issue General Obligation (GO) bonds for the purpose of
making private sale loans. DNRC has applied and received “recycled loan funds” from the SRF program for the
non-point source private loan program. The loans are GO private sale bonds. The balances for loans in repayment
for fiscal year 2020 was $3.1 million. The loans have interest rates of 2.5% and are repaid over 15 years. These
loans are presented as Advances to Other Funds on the balance sheets.
Per Administrative Rules of Montana 17.58.101, the Montana Petroleum Tank Release Compensation Board
(Board) is an independent board that is attached to Department of Environmental Quality (DEQ) for administrative
purposes only. Board members are required to follow Montana's code of ethics, which includes recusing oneself in
matters related to a conflict of interest. DEQ is required to go through a competitive bidding process to ensure this
State law is followed. Four Board members were identified as having related party transactions with DEQ. These
relationships include members who are: 1) an employee of a company that had a release and is receiving funds; 2) an
agent for an insurer that covered a station tank release and is receiving funds; 3) an officer in a bank that receives
funds; and 4) a contractor for DEQ, that is responsible for clean-up oversight, and is also a shareholder of a separate
company that receives funds. A DEQ employee's spouse is an elected City Commissioner for the City of Helena
which was awarded $25.5 thousand in VW Settlement funds for three electric charging stations by DEQ. Total
payments to all related parties were direct payments to the contractors in the amount of $282.2 thousand and $34.0
thousand, and indirect payments to the bank and the insurance company in the amount of $45.1 thousand and $12.1
thousand, respectively, for the fiscal year ended June 30, 2020.
All lotteries that offer multi-state games transact with the Multi-State Lottery Association (MUSL), which requires
the lottery directors from each of the states to be on the MUSL board of directors. The Director of the Montana
Lottery is on the MUSL board, and serves as the Secretary of its board of directors. As such, the Director of the
Montana Lottery is in a management position for both MUSL and the Montana Lottery, which have significant
transactions between each other. The Montana Lottery has prize reserves with MUSL in the amounts of $1.1 million
for the fiscal year ended June 30, 2020. The prize reserve monies are assets of the Montana Lottery and would be
returned if the Montana Lottery were to quit any of the multi-state games. Weekly, MUSL collects each state’s share
of prize expenses to go towards respective jackpots. If a state has a large enough prize amount or number of winners
for any particular draw, MUSL would then reimburse any state for the excess prize payments. The Montana Lottery
paid MUSL $5.4 million for its share of prizes and received reimbursements for prizes in the amount of $3.0 million
for the fiscal year ended June 30, 2020.
There are campus-affiliated foundations within the Montana University System (MUS) as identified in the Montana
Board of Regents of Higher Education Policy 901.9 — Campus-A ffiliated Foundations; Montana University System
Foundation. The private foundations affiliated with campuses of the MUS provide support to their respective
campuses, consistent with the mission and priorities of such campus. As such, transactions occur between the
Commissioner of Higher Education and said foundations as reimbursements for hosting MUS constituents and other
related events and gatherings. These transactions do not affect the financial statements in any way; however, total
such transactions were $7.3 thousand for the fiscal year ended June 30, 2020.
In addition, the MUS Group Insurance Program offers insurance coverage and receives insurance premiums from
other related parties such as the campus-affiliated foundation and the community colleges. This premium revenue
for campus-affiliated foundations and the community colleges approximately amounts to $6.5 million for the fiscal
year ended June 30, 2020.
Montana Higher Education Student Assistance Corporation (MHESAC) has no employees and its business
operations are managed by the Student Assistance Foundation (SAF). A Board of Regents board member is also a
MHESAC Board of Directors member, an Office of the Commissioner of High Education OCHE staff member is a
MHESAC officer, and the Commissioner of Higher Education is an Ex-Officio member of the board.
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NOTE 16. CONTINGENCIES
Litigation
The State is party to legal proceedings, which normally occur in government operations. The legal proceedings are
not, in the opinion of the State's legal counsel and the Department of Administration, likely to have a material
adverse impact on the State's financial position, except where listed below.
In State of Montana v. Philip Morris, Inc., No. CDV 97-306 (Mont. first Jud. Dist. Lewis & Clark County), the State
of Montana filed various claims against six tobacco manufacturers seeking recovery of an unspecified amount of
damages, penalties, and attorney’s fees. The lawsuit was resolved eventually through two settlements. The State first
settled its claims against one of the manufacturers, Liggett & Meyers, Inc., for $1.0 million to be paid over a 20-year
period. Next, Montana was among the Settling States that signed onto the 1998 Master Settlement Agreement
(MSA) and settled its claims against the remaining manufacturers for a settlement amount calculated annually on
cigarette sales by Participating Manufacturers in perpetuity. The base amount was augmented by $90.0 million in
1999 for a strategic contribution portion for those states instrumental in obtaining the settlement, with the additional
amount to be paid in equal installments over a 10-year period beginning in 2007 and ending in 2017. Multiple other
tobacco product manufacturers joined the MSA after the initial signing period. Collectively, the signing
manufacturers are known as “Participating Manufacturers.”
The settlement provides that the tobacco product manufacturers may potentially offset, against their payment in any
year, certain amounts of money if it is found that the Participating Manufacturers have lost more than 2% of their
national market share (from 1997) to non-settling manufacturers (known as NPMs) and that the disadvantages
imposed by the settlement were a “significant factor” in the market share loss. The settlement further provides that
the offset, known as the “NPM adjustment,” may not be taken against the payments to any state that has enacted a
“Qualifying Statute” and diligently enforced the statute during the year in question. Montana enacted such a
Qualifying Statute in 1999, Section 16-11-401 to 404, MCA, and complementary legislation in 2003, Section
16-11-501 to 512, MCA.
In March 2006, a determination was made (pursuant to the settlement) that the Participating Manufacturers had lost
sufficient market share in 2003 to trigger an NPM adjustment analysis and that disadvantages caused by the
settlement were a significant factor in the market share loss. Similar findings have been made or agreed to for years
2004 through 2017. The State filed a motion in the Montana lawsuit seeking a declaration that it diligently enforced
its Qualifying Statute during 2003. The Participating Manufacturers moved to compel arbitration of the question.
The First Judicial District Court ordered arbitration but was overruled on appeal to the Montana Supreme Court.
Virtually all of the other Settling States filed similar motions or new actions in their various court systems,
preferring to litigate their diligent enforcement disputes in court rather than in the tobacco companies proposed
nationwide arbitration. Montana was the only state to prevail on its argument against arbitration before its highest
state court. Montana then successfully defended the favorable ruling from a petition for rehearing in Montana and,
ultimately, a certiorari petition to the U.S. Supreme Court filed by tobacco companies, which the Court rejected.
Simultaneously, arbitration between the other Settling States and the tobacco companies commenced and proceeded
to discovery. After the U.S. Supreme Court denied cert regarding Montana’s participation in the arbitration, the
tobacco companies sought and received a stay of Montana’s litigation pending completion of the nationwide
arbitration, effectively shutting Montana out of any opportunity for input or influence over standards for determining
what constitutes “diligent enforcement,” and potentially subjecting Montana to whatever standards may ultimately
result from the ongoing nationwide arbitration for lack of any alternative interpretative precedent. Thereafter, the
Montana Supreme Court granted Montana’s writ for supervisory control, overturned the stay, and allowed the
State’s district court action to proceed to discovery.
The Montana litigation ended with entry of a stipulated consent decree on June 25, 2012, reflecting the tobacco
companies’ determination after initial discovery that they would not contest Montana’s diligent enforcement during
2003. In the nationwide arbitration, and as applied to Montana’s consent decree, a “no contest” determination for an
individual state means that state would not participate in the NPM Adjustment for 2003 (i.e., as a “no contest” state
Montana had no reduction to its annual OPM settlement payments for 2003).
However, the “no contest” for 2003 has no precedential effect in any subsequent year for Montana or any other
state’s case. Accordingly, Montana was not subject to the 2003 NPM Adjustment. Still the consent decree
specifically articulated that Defendants’ consent to its terms “is not a factual concession that Montana, in fact, did or
did not diligently enforce the Montana Qualifying Statute in 2003 or any other year.”
Despite Montana’s successful defense of its 2003 and 2004 enforcement actions no precedential protections exist,
and the State remains vulnerable to further expected litigation regarding its diligent enforcement in 2005-2017. The
Participating Manufacturers have already received a determination that MSA terms were a “substantial factor”
reducing their market share and triggering an NPM Adjustment analysis with the potential to reduce annual
payments for those Settling States which failed to enforce their statutes diligently.
The Participating Manufacturers conceded that Montana enacted a qualifying statute within the meaning of the
MSA, which was in full force and effect during 2005-2016 and thereafter to date. Factual arguments exist to show
that Montana diligently enforced its Qualifying Statute during 2005-2017. However, legal and procedural
uncertainties exist that make an adverse determination possible. An adverse determination on the diligent
enforcement issue could result in the loss of some or all of the MSA annual payments to the State for years
2005-2017, which would be recouped through an offset of payments due to Montana in future years. The
Participating Manufacturers will assert claims for NPM adjustments for future years as well. The outcome of these
claims is also uncertain.
In 2015, certain Settling States and Participating Manufacturers commenced multi-state arbitration of the issue of
diligent enforcement for calendar year 2004. Montana is not a party to this arbitration; this arbitration continues.
Montana filed a Declaratory Judgment Motion in 2017 for the 2004 NPM Adjustment to have its MSA Court (First
Judicial District) declare that Montana had a qualifying statute in place and diligently enforced its Qualifying Statute
for the 2004 calendar year. The Participating Manufacturers conceded that Montana has a Qualifying Statute. As
part of this action, Montana successfully obtained a ruling from its MSA Court on the burden of proof whereby the
Participating Manufacturers must prove that Montana did not diligently enforce its Qualifying Statute to succeed
under the NPM Adjustment. Montana is the only state party to the MSA with this ruling on the burden of proof. On
the eve of trial, the Participating Manufacturers settled with Montana for all of the 2004 NPM Adjustment funds
previously withheld plus interest and earnings. The settlement does not provide a precedent for future NPM
Adjustment proceedings, except for the ruling on the burden of proof.
A stipulated dismissal with prejudice was filed on November 17, 2020 following a settlement of $65.3 million to be
paid to the State for withheld payments from the disputed payment account. The State also secured ongoing relief
for the next eleven years preventing the participating manufacturers from claimed the State did not diligently enforce
the Master Settlement Agreement.
PPL v. Montana involves ownership of sections of riverbed on the Missouri, Clark Fork, and Madison rivers. The
case originated in 2003, when a group of parents of school-age children sued Petitioner PPL Montana, LLC (PPL),
in Federal Court, alleging that the company must pay rent for the use of state-owned riverbeds to generate
hydroelectric power. After the Federal Court dismissed the case for lack of jurisdiction, PPL filed an action in state
district court seeking a declaration that the state could not charge them rent for the use of the riverbeds at issue. The
State intervened in the case and counterclaimed for a declaration that PPL and its co-plaintiffs unlawfully occupied
state lands and must compensate the State land trust on behalf of its public beneficiaries for the use of those lands.
The legal test for ownership of the riverbeds is whether the rivers at issue were navigable at the time of
statehood. Based upon the historical record, the District Court granted the State summary judgment on the question
of navigability, and the case proceeded to trial on the issue of compensation for the use of trust lands. In June of
2008, the Court issued its ruling and ordered that PPL owed the State almost $41.0 million for past use of the
riverbeds.
PPL appealed the decision to the Montana Supreme Court. The case was briefed and argued before the Court. In
March of 2010, the Montana Supreme Court issued a decision upholding the district court’s finding of navigability
and determination of compensation.
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PPL appealed the case to the United States Supreme Court. The case was briefed and argued, and in February of
2012, the Court reversed the Montana Supreme Court’s decision. The United States Supreme Court concluded that
the Montana courts had applied an incorrect legal standard for determining a river’s navigability. The Court clarified
that navigability had to be determined on a segment-by-segment basis. The Court remanded the case for further
proceedings, and the case currently is pending in the Montana First Judicial District, Lewis and Clark County, Judge
Michael McMahon presiding. The cause number is CDV 2004-846. Additional detail is provided below as the case
has been remanded to the United States District Court, District of Montana, Helena Division.
The most obvious impact of the Supreme Court’s decision is that the State is no longer entitled to the $41.0 million
judgment. The monetary amount that the State may be entitled to depends on the navigability of the rivers, which
will have to be determined under the Supreme Court’s segment-by-segment approach. Going forward, the litigation
will focus on applying the Supreme Court’s segmentation approach to determine the navigable reaches of the
Madison, Clark Fork, and Missouri Rivers. At this stage, it is difficult to predict an outcome of this litigation.
A less obvious financial impact is the bill of costs that PPL submitted to the district court following the remand. PPL
requested that the district court tax the State of Montana with $1.2 million for PPL’s costs relating to the appellate
proceedings. All, but approximately $31.0 thousand, relate to premiums that PPL paid for a supersedeas bond in
support of staying the $41.0 million judgment. In May 2012, the State filed its response to PPL’s bill of costs and
agreed to costs for $31.3 thousand. However, the State moved the court to deny PPL’s request for costs related to the
supersedeas bond. The parties stipulated to hold this issue in abeyance until the court rules on all remaining matters
in the case. Counsel for the State has agreed to release the supersedeas bond. In the opinion of counsel, there are
good legal arguments that support the State’s position that it should not be required to pay the supersedeas bond
premiums; however, legal and procedural uncertainties exist that make an adverse determination reasonably
possible.
This case, now known as State of Montana v. Talen Montana, LLC et_al. (Cause No. CV 16-35-H-DLC-JCL), is
scheduled for a bench trial beginning September 27, 2021. All Defendants have answered the State's amended
complaint, including the recently added Defendant United States. The State's expert witnesses have been disclosed
and Defendants! expert witnesses are required to be disclosed in February 2021. Discovery will close May 21, 2021.
The State's claims against the utilities remain unchanged and the State still holds the opinion that no further potential
liability to the State is expected relative to this action and no additional updates are necessary in regard to the
outstanding litigation.
Diaz et al. v. Blue Cross and Blue Shield of Montana et al. (Diaz) was a lawsuit filed in the Montana First Judicial
District Court, Lewis and Clark County, Cause No. BVD-2008-956, in October 2008, by plaintiffs Jeanette Diaz,
Leah Hoffman-Bernhardt, and Rachel Laudon, individually, and on behalf of others similarly situated, naming Blue
Cross and Blue Shield of Montana (BCBS), New West Health Services (New West), Montana Comprehensive
Health Association, and the State of Montana (State) as defendants. The complaint alleges that the defendants have
violated the made-whole laws of Montana and illegally given themselves subrogation rights.
On June 12, 2009, the Plaintiffs filed with the District Court a motion for class certification. The District Court
Judge denied the Plaintiffs’ motion for class certification on December 16, 2009. The Plaintiffs appealed this
decision to the Montana Supreme Court. As part of the review of the underlying decision denying class certification,
the Montana Supreme Court remanded the case to the District Court to determine the question of whether the made-
whole laws, codified in Section 2-18-902 and 33-30-1102, MCA, apply to the various types of third-party
administrators (TPAs) at issue in Diaz. The District Court held that these laws do not apply to TPAs. The Plaintiffs
appealed this decision.
On December 21, 2011, the Supreme Court issued its decision, holding that the District Court abused its discretion
in denying a class action and that BCBS and New West, as TPAs of the State’s health plan, are not subject to the
made-whole laws as “insurers” under Section 2-18-901 to 902, MCA, or under a third-party beneficiary theory.
On June 20, 2012, the District Court ruled on the State’s summary judgment motion seeking an order from the court
that the State has not violated the made-whole laws in the administration of its health plan. The court denied the
State’s motion, ruling that the State is an insurer for the purposes of the made-whole laws and that it must conduct a
made-whole analysis before exercising and subrogation/coordination of benefits rights. The State filed with the
District Court a motion requesting that the court certify its decision to the Montana Supreme Court. The District
Court granted the motion, and the Montana Supreme Court, over Plaintiffs’ objection, ultimately agreed in a
November 27, 2012, Order to hear this issue. The Plaintiffs also appealed to the Montana Supreme Court, the
District Court’s definition of the class action.
On August 6, 2013, the Montana Supreme Court issued its opinion, affirming the Montana First Judicial District
Court’s decision defining the class action to include only those State benefit plan members who had timely filed
claims for covered benefits within eight years before the filing of the Plaintiffs’ complaint, which was October 23,
2008.
On November 6, 2013, the Montana Supreme Court issued its opinion, affirming the District Court’s June 20, 2012
decision that the applicable made-whole laws apply to the State benefit plan.
On September 8, 2014, the District Court issued an order ruling on several motions that the parties had filed. The
principal rulings were: (i) the Court authorized Plaintiffs to proceed with additional discovery to determine if the
class definition should be altered or amended; (ii) given its order to allow additional discovery, the Court held in
abeyance its decision on the State’s Motion for Summary Judgment requesting that the class be limited to those who
timely filed claims within the one-year filing restriction contained in the State’s policy; (iii) the Court granted the
Plaintiffs’ motions asking the Court to require the State to conform its health plans, procedures, notices and practices
to comply with the Montana Supreme Court’s rulings in this case and to pay covered medical expenses, await the
resolution of claims against liability carriers, and then conduct a made-whole determination before it can exercise
subrogation or accept reimbursements from its members or providers; and (iv) the Court ordered the parties to
develop a class notice to be sent to past and current plan members dated back to eight years before this suit was
filed. The State and Plaintiffs’ counsel developed the notice that has been sent to class members.
On April 13, 2015, the District Court issued an Order on Interest to Be Paid, requiring the State to include in the
payments ultimately made to class members' interest at the rate of 10.0% per annum. For claims arising before
December 24, 2009, interest will begin 30 days following the Montana Supreme Court’s decision in Blue Cross and
Blue Shield of Montana, Inc. v. Montana State Auditor. For any claims arising after December 24, 2009, interest
will begin starting on the day the underlying medical expenses were incurred.
On October 5, 2015, the Plaintiffs filed with the District Court a motion directing the State to pay attorney fees
arising from the class action suit. On November 9, 2015, the District Court issued an order denying Plaintiffs’
motion for attorney fees.
On December 14, 2015, the District Court issued an order certifying that its orders concerning interest and attorney
fees were final for purposes of an appeal to the Montana Supreme Court. On January 12, 2016, the Plaintiffs filed a
Notice of Appeal with the Montana Supreme Court, appealing the interest and attorney fee orders.
Pursuant to the Montana Supreme Court’s mandatory mediation process, the parties reached a settlement on attorney
fee payments; however, the parties did not reach agreement on the interest issue. On October 25, 2016, the Montana
Supreme Court issued its ruling on the interest issue, finding that November 14, 2009, is the date that interest
commences; and, for claims arising after November 14, 2009, interest will begin starting on the day the underlying
medical expenses were incurred.
On April 28, 2017, the District Court appointed a Special Master to consider and resolve issues regarding expanding
the class to persons with unsubmitted claims; whether to include claims after 2009; whether the State must identify
members from third party administrators other than Blue Cross/Blue Shield; whether, if at all, the State must reform
its systematic practices; supervising the payment and notice process; which party or parties should pay the Special
Master for her time and expenses; whether the District Court should approve a partial payment of attorney fees;
setting a time frame for making claims; setting a time for ending the class action; determining payment of residual
funds; any other issues as necessary to facilitate the swift and equitable resolution of the case.
As of June 30, 2017, the State paid Plaintiffs $1.4 million in based payments plus interest.
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On June 21, 2017, the Special Master issued a report and recommended order regarding the partial payment of the
Plaintiffs’ counsels’ attorney fees. This recommendation was based on a stipulation the State and the Plaintiffs’
counsel had reached, agreeing that the State would pay counsel $400.8 thousand for claims made by individuals that
could be documented. The State has paid this amount to class counsel.
The Special Master issued a second report and recommended order expanding the class on August 8, 2018. The
principal findings of this recommendation were to expand the class definition to include those individuals who did
not submit claims to the State for processing; to expand the class to end June 30, 2016; and to redefine the class as
(a) employees, employee dependents, retirees, and retiree dependents who participate or participated in the State of
Montana’s health benefit plan(s), administered or operated by the State and/or the third party administrators whose
claims for covered benefits took place no earlier than eight years prior to the filing of the complaint in this action,
which was October 23, 2008; (b) who were injured through the legal fault of persons who have legal obligations to
compensate them for all damages sustained; and (c) who have not been made whole for their damages (or for whom
the State and TPAs conducted no made whole analysis) because the State and the third party administrators
programmatically failed to pay benefits for their covered medical costs. On October 29, 2018, the District Court
Judge issued an Order Adopting the Special Master's Report Expanding the Class.
As of June 30, 2018, the State paid Plaintiffs $1.7 million in based payments plus interest.
On April 23, 2019, the District Court Judge approved the parties' motion for a process to identify and distribute
residual funds for known class members on the master list for Blue Cross Blue Shield of Montana claims. On May 2,
2019, the State issued payment of $122.0 thousand to the Hunt Law Firm for the residual funds and interest thereon.
On May 1, 2019, the parties filed the Notice to Special Master of Agreement on Notice Procedure. Pursuant to that
notice, the State distributed notices to all former and current State employees enrolled in the State health plan
between January 1, 2010 through June 30, 2016. Notice was distributed through email and first-class mail. The
initial distribution of notices was May 23, 2019. The deadline for a claimant to return a claim to the State is
November 30, 2019.
As of June 30, 2019, the State paid Plaintiffs $2.0 million, including the payment for residual funds and interest.
As of June 30, 2020, the State paid Plaintiffs $2.9 million for claim payments, interest, and attorney fees for
Plaintiffs' counsel.
Since the case is ongoing, the State does not have sufficient information to determine the ultimate cost to the State.
Disability Rights Montana v. Batista (Cause # CV-15-22) is a civil rights case filed by the ACLU of Montana on
behalf of Plaintiff, alleging deliberate indifference in the provision of mental health care to seriously mentally ill
inmates at Montana State Prison. The District Court dismissed the case for failure to state a claim, which order was
appealed by Plaintiffs to the Ninth Circuit Court of Appeals. The Ninth Circuit Court of Appeals overturned the
district court’s ruling and remanded the case back to the district court in front of a new judge. As a result, the
Department of Corrections (Department) has participated in on-going discovery, with the aid of outside expert
witnesses and the defense of the case through outside legal counsel. The parties had previously exchanged
settlement proposals without success. Because of legislation enacted during the 2019 legislative session, the
department implemented significant changes in the use of restrictive housing, especially as related to seriously
mentally ill inmates. The Plaintiff has made several unreasonable demands that would cost the Department millions
of dollars and at least $800.0 thousand in attorney’s fees and undisclosed expert witness fees. At this time, the
Department continues to be unable to specify an anticipated amount of financial obligation imposed either by
settlement or by judgment.
Kila Shepherd v. Montana Department of Corrections (Department) (Cause # BDV-2020-302/DA 20-0376) is a Step
Ill Grievance proceeding, in accordance with 2.21.8017, Administrative Rules of Montana (ARM), and the
Department has hired outside legal counsel to represent it regarding Ms. Shepherd's termination from her position at
the Department. Ms. Shepherd sought in excess of $1.0 million for punitive damages, lost wages, loss of benefits,
emotional distress, and attorney's fees. A hearing on the Step III grievance before an administrative law judge (ALJ)
was held in January 2019. The ALJ issued a decision in February 2020, finding in favor of the Department and
recommending denial of the grievance. The Department concurred with the decision and issued its final
administrative decision denying Ms Shepherd's grievance over the termination. Ms. Shepherd then filed a lawsuit in
Lewis & Clark County district court, alleging wrongful discharge. The Department filed a motion to dismiss on the
grounds that the suit had been filed after the statute of limitations had run. The district court granted the motion after
full briefing. Ms. Shepherd has appealed that decision to the Montana Supreme Court and the matter is now fully
briefed.
Cascade County v. State of Montana, Montana and Department of Corrections (Department) (Cause #
CDV-2019-1181) is a case filed by Cascade County, suing for breach of contract, unjust enrichment and breach of
implied covenant of good faith and fair dealing, seeking over $766.0 thousand in unpaid jail reimbursement costs
plus interest at 10.0% per annum. This case involves interpretation of contract and statutory language. This matter
has been referred to the Department of Justice Agency Legal Services for representation of the Department. The
likelihood of success is reasonably probable.
Vincent, Benner, and Hoch v. DPHHS (CDV-19-0314, Eighth Judicial District Court, Cascade County) was filed on
May 17, 2019, by Montana Optometric Association members seeking class certification of all licensed Montana
optometrists who are participating providers in Montana Medicaid. The named plaintiffs claim the department’s
Medicaid rate structure discriminates against them because they are paid less than physicians (doctors of medicine or
doctors osteopathy) for performing the same services. They cite Section 37-10-104, MCA, as the basis of the
discrimination claim. They seek declaratory relief and permanent injunctive relief in their claims of discrimination,
violations of MAPA, and breach of contract and implied covenant of good faith. They request damages, interests,
costs, and attorney fees, which would amount to more than $1 million.
Moody's Market, Inc. et al. v. Montana State Fund, Montana Board of Investments, and State of Montana (Cause #
DV-18-12) is a case filed by a group of Montana State Fund (MSF) policyholders, in Lake County District Court.
MSF Policyholders filed this in an effort to prevent the Board of Investments (BOI) from charging a 3.0%
management fee on any single investor whose average portfolio balance held by BOI is greater than $1.0 billion.
This fee was implemented per Senate Bill (SB) 4, passed during the 2017 Legislative Special Session. The District
Court issued a decision dismissing MSF as a party and subsequently dismissed the case against the State of Montana
and Board of investments. The plaintiffs appealed the District Court Decision to the Montana Supreme Court.
The Montana Supreme Court dismissed the appeal on justiciability grounds because SB4 had terminated by its own
terms, thereby sustaining the District Court's decision dismissing the underlying case. While plaintiffs have indicated
they may attempt to continue litigating the case, no new complaint or other pleading has been filed.
LL Liquor v. State of Montana (District of Montana, D.C. No. 6:15-cv-00071-SEH) 912 F.3d 533 is a case in which
LL Liquor sued the Department of Revenue (Department) for breach of contract for changes to the Montana agency
liquor stores' commission rates. The Ninth Circuit Court held that the Department breached the agency liquor store
franchise agreement. On remand for damages, the Federal District Court confirmed a settlement of $5.0 million. The
Ninth Circuit Court recently held that the Department must pay 10.0% interest on the settlement amount, in
accordance with section 18-1-404, MCA. That additional amount, currently at $586.3 thousand, continues to accrue.
The resulting amount of $5.6 million is a set financial loss. The Department is asking the Legislature for a
supplemental under House Bill No. 3 for the amount. However, the Department has since asked the Federal District
Court to reconsider and that petition has not been ruled on.
The Public Employee Retirement Board (PERB) has four items of outstanding litigation in relation to the Sheriffs’
Retirement System (SRS) and the Montana Public Employee's Retirement Administration (MPERA). Refer to Note
6, section I, for additional disclosure in relation to this legal proceeding.
The Montana State Fund, a discretely presented component unit of the State, has two items of litigation, in addition
to the case listed above, in relation to their operations and underlying statutory authority governing the program.
Refer to Note 18, section O, for additional disclosure in relation to these legal proceedings.
Federal Contingencies
Federal Grants - The State receives significant financial assistance from the Federal government in the form of
grants and entitlements, including several non-cash programs (which are not included in the basic financial
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statements). Receipt of grants is generally conditioned upon compliance with terms and conditions of the grant
agreements and applicable Federal regulations, including the expenditure of resources for eligible purposes.
Substantially all grants are subject to either the Federal Single Audit Act or financial and compliance audits by the
granter agencies of the Federal government or their designees. Disallowances and sanctions as a result of these
audits may become liabilities of the State. The State is currently involved in administrative and legal proceedings,
with certain federal agencies, contesting various disallowances and sanctions related to federal assistance programs
ranging from $1.8 million to $5.0 million at June 30, 2020. The State's management believes ultimate disallowances
and sanctions, if any, will not have a material effect on the basic financial statements.
Food Distribution Program — The amount reported for Food Distribution programs (CFDA #10.555, #10.565,
#10.567, #10.569, and #93.053) represents the dollar value of food commodities distributed to eligible recipients
during the year. The U.S. Department of Agriculture provides the current value of the commodities used by the State
to compute the amount reported. The amount of funds received to administer the program is also included in the
reported amount. The State also distributes food commodities to other states in the western region of the United
States, the value of which is excluded from the reported amounts. During fiscal year 2020, the State distributed $1.2
million of food commodities under CFDA #10.567 to other states.
The State distributed $12.2 million in commodities in fiscal year 2020. The value at June 30, 2020, of commodities
stored at the State’s warehouse, is $4.7 million, for which the State is liable in the event of loss. The State has
insurance to cover this liability.
Miscellaneous Contingencies
Loan Enhancements — As of June 30, 2020, the Board of Investments (BOI) had provided loan guarantees from the
Coal Severance Tax Permanent Fund to the Municipal Finance Programs and the Facility Finance Authority (a
component unit of the State of Montana), totaling $179.0 million. The BOI’s exposure to bond issues of the
Municipal Finance Programs was $90.7 million, while exposure to bond issues, surety bonds, and designated loans
of the Facility Finance Authority were $88.3 million. The BOI has not been held responsible for any loan guarantee
in the past.
Gain Contingencies — Certain natural resource and corporate tax assessments are not reported on the State's financial
statements because they are being protested administratively. As of June 30, 2020, the following assessments (by
fund type) were outstanding (in thousands):
Taxes General Fund
Corporate Tax $ 6,693
The collectability of these contingencies is dependent upon the decisions of the court, other authorities, or agreed
upon settlements. The corporate tax assessments include material estimates that could result in a significant
reduction of the tax assessed once actual numbers are provided. Interest related to corporate tax assessments is
distributed to the General Fund and is included in the assessment total above.
Loss Contingencies — Certain corporations have requested refunds that are not reported on the State’s financial
statements as of June 30, 2020. The corporations have appealed the Department of Revenue's decision to deny or
adjust the refund. As of June 30, 2020, these include $11.2 million of General Fund corporate tax refunds. It is
estimated that most of these corporation tax refunds would consist primarily of tax and could be significantly
reduced or eliminated due to audits and appeals currently in process.
Certain companies have protested property taxes that have been included as revenue on the State’s financial
statements as of June 30, 2020. As of June 30, 2020, these include $16.3 thousand of protested property taxes
recorded in the General Fund and $18.4 thousand recorded in the State Special Revenue Fund.
NOTE 17. SUBSEQUENT EVENTS
Investment Related Issues
Since June 30, 2020, the Board of Investments (BOI) made additional commitments to fund loans from the
INTERCAP loan program in the amount of $8.1 million.
Since June 30, 2020, BOI has committed $228.5 million within the Real Estate Pension Asset Class of Consolidated
Asset Pension Pool (CAPP).
Since June 30, 2020, BOI has committed and funded another $1.5 million to Montana lenders from the Coal
Severance Tax Permanent Fund's In-State Loan Program and committed, but not yet funded, an additional $1.8
million. On top of these commitments, lenders have also reserved $6.5 million in new loans. Of the reservations in
effect as of June 30, 2020, $7.0 million have expired. Additional reservations in the amount of $2.4 million were
made for the Veteran's Home Loan Mortgage Program residential mortgage purchases.
In August 2020, BOI approved an additional loan guarantee from the Coal Severance Tax Permanent Fund to
Facility Finance Authority totaling $20.0 million.
Other Subsequent Events
In August 2020, Department of Natural Resources & Conservation (DNRC) received $10.1 million from
Department of Fish, Wildlife & Parks in payment for the permanent recreation easement at Big Arm State Park.
On August 26, 2020, the Board of Examiners authorized a $1.5 million Non-Point Source Renewable Resource
2020F bond, which was issued on October 15, 2020.
On September 11, 2020, DNRC issued Series 2020E bonds, in the amount of $2.8 million, for the St. Mary's Project.
On September 29, 2020, the Department of Administration issued a total of $50.9 million in three new general
obligation bond series. Bond Series 2020G, authorized by 2019 HB652, was issued at par value of $32.5 million.
Bond Series 2020H, for the Long-Range Building Montana Historical Society project, was issued at par value of
$5.9 million. Bond Series 20201 was issued at $12.5 million for the refunding of outstanding Potomac Trust Lands
general obligation bond Series 2010F.
On October 20, 2020, DNRC issued Series 2020J bonds for the Water Pollution Control State Revolving Fund, in
the amount of $24.9 million. The bond proceeds will be used to refund the outstanding balance of Series 2015C
bonds of $19.3 million and the remaining will be used for new loans within the program.
On November 16, 2020, the Department of Justice reached a settlement of $49.0 million to be recovered from
tobacco companies as a result of wrongly withheld taxes from a 1998 settlement.
On November 16, 2020, The Board of Examiners authorized the following:
* $1.0 million Series 2020K general obligation bonds, which were issued on December 3, 2020,
¢ $14.0 million Coal Severance Tax Series 2020L bonds, whose proceeds will be used to refund the
outstanding balance on existing Coal Severance Tax bonds, which were issued on December 23, 2020,
¢ $1.7 million Coal Severance Tax Series 2020M bonds, which were issued on December 23, 2020, and
¢ $8.0 million general obligation bond anticipated note, $4.0 million for the Water Pollution Control and $4.0
million for the Drinking Water State Revolving Fund Programs, neither of which have been issued.
On December 23, 2020, DNRC issued taxable Series 2020N general obligation bond anticipation note for the
Drinking Water State Revolving Fund Program, in the amount of $3.2 million.
Though nearly $100.0 million was spent during fiscal year 2020, the total amount of the Coronavirus Aid, Relief,
and Economic Security (CARES) Act funding granted to Montana by the federal government, $1.25 billion, is
expected to be expended during fiscal year 2021 for COVID-19 related grants and expenditures incurred. The
allocation of these funds is estimated to be distributed, most notably, as follows:
¢ 22% through the Business Stabilization, Adaptability, and Innovation programs,
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¢ 22% through local government and state agency reimbursements,
¢ 20% through additional Unemployment Insurance benefits,
¢ 7% through public and private school programs,
* 6% through working capital loans and loan deferments,
¢ 5% through child care programs, and
« 4% through social services grants to nonprofits.
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NOTE 18. COMPONENT UNITS
A. Condensed Financial Statements
Below are the condensed financial statements of the component units for the State of Montana as of June 30, 2020
(in thousands):
Condensed Statement of Net Position
Component Units
Montana Facility Montana Montana University Total
Board of Finance State State of Component
Housing Authority Fund (1) University Montana Units
Assets:
Cash, investments and other assets $ 706,291 $ 8,564 $ 1,690,107 $ 661,740 $ 610,922 $ 3,677,624
Due from primary government _— _— _— 277 1,048 1,325
Due from component units — — — — 176 176
Capital assets (net) (Note 18C) 17 1 38,190 561,777 390,663 990,648
Total assets 706,308 8,565 1,728,297 1,223,794 1,002,809 4,669,773
Deferred Outflows of Resources 555 58 3,317 43,611 30,020 77,561
Liabilities:
Accounts payable and other liabilities 11,873 22 108,644 77,448 72,638 270,625
Due to primary government _— _— _— 2,025 60 2,085
Due to component units — — — 176 — 176
Advances from primary government (2) (3) _— _— _— 16,993 2,991 19,984
Long-term liabilities (Note 181) 534,714 271 1,041,217 349,542 293,856 2,219,600
Total liabilities 546,587 293 1,149,861 446,184 369,545 2,912,470
Deferred Inflows of Resources 362 45 3,661 22,512 29,642 56,222
Net Position:
Net investment in capital assets 3 1 38,190 365,329 279,070 682,593
Restricted 159,911 — — 343,094 335,639 838,644
Unrestricted — 8,284 539,902 90,286 18,933 657,405
Total net position $ 159,914 $ 8,285 $ 578,092 $ 798,709 $ 633,642 $ 2,178,642
‘Montana State Fund reports their financial statements on a calendar-year basis. The information provided is for the year ended December 31, 2019.
® Loans from the Coal Severance Tax Permanent Fund make up $4.5 million and $3.0 million of these balances for Montana State University and
University of Montana, respectively.
® Loans from the Board of Investment's INTERCAP and the Department of Environmental Quality's energy conversation loan programs make up $9.9
million and $2.6 million, respectively, of the balance for Montana State University.
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Condensed Statement of Activities
Component Units
Montana Facility Montana Montana University Total
Board of Finance State State of Component
Housing Authority Fund" University Montana Units
Expenses $ 24,455 § 705 $ 201,034 $ 630,487 $ 452,417 $ 1,309,098
Program Revenues:
Charges for services 1,742 741 156,871 287,201 169,686 616,241
Operating grants and contributions 25,151 155 _— 213,150 126,758 365,214
Capital grants and contributions _— _— _— 5,972 1,875 7,847
Total program revenues 26,893 896 156,871 506,323 298,319 989,302
Net (expense) program revenues 2,438 191 (44,163) (124,164) (154,098) (319,796)
General Revenues:
Unrestricted investment earnings _— _— 136,145 3,397 3,559 143,101
Transfer from primary government (2) _— _— _— 140,660 104,003 244,663
Gain (loss) on sale of capital assets _— _— (88) 244 _— 156
Miscellaneous _— _— 1,036 _— _— 1,036
Contributions to term and permanent
endowments _— _— _— 14 37,043 37,057
Total general revenues and contributions _— _— 137,093 144,315 144,605 426,013
Change in net position 2,438 191 92,930 20,151 (9,493) 106,217
Total net position — July 1 — as previously
reported 157,476 8,043 483,186 779,022 643,135 2,070,862
Adjustments to beginning net position _— 51 1,976 (464) _— 1,563
Total net position - July 1 — as restated 157,476 8,094 485,162 778,558 643,135 2,072,425
Total net position - June 30 $ 159,914 $ 8,285 $ 578,092 $ 798,709 $ 633,642 $ 2,178,642
‘) Montana State Fund reports their financial statements on a calendar-year basis. The information provided is for the year ended December 31, 2019.
Transfers to both Montana State University and the University of Montana are appropriated by the State legislature to assist with higher education
related costs.
B. Cash/Cash Equivalents and Investments
Due to the integration of funds and combined financial information, component unit cash and cash equivalents,
equity in pooled investments, and investments are included with the primary government in Note 3. For more detail
on investments held outside of the Montana Board of Investments, refer to the entity's respective separately issued
financial statements.
C. Capital Assets
The following table summarizes net capital assets reported by the discretely presented component units (in
thousands). All component units, other than higher education units, are included under the “Other” caption for this
schedule:
Montana
State University of
University Montana Other Total
Capital assets not being depreciated:
Land $ 8,202 $ 8,306 $ 1,140 $ 17,648
Construction work in progress 72,292 10,420 12,130 94,842
Capitalized collections 9,910 28,098 — 38,008
Livestock for educational purposes 4,198 — — 4,198
Total capital assets not being depreciated 94,602 46,824 13,270 154,696
Capital assets being depreciated:
Infrastructure 44,994 9,904 _— 54,898
Land improvements 31,700 16,408 — 48,108
Buildings/Improvements 749,697 660,181 27,941 1,437,819
Equipment 167,970 104,266 7,907 279,743
Livestock _ 255 _ 255
Library books 67,680 62,583 _ 130,263
Leasehold improvements 8,784 — — 8,784
Total capital assets being depreciated 1,070,825 853,597 35,448 1,959,870
Total accumulated depreciation (621,188) (513,996) (10,645) (1,145,829)
Total capital assets being depreciated, net 449,637 339,601 24,803 814,041
Intangible assets 1,205 1,783 135 3,123
MSU Component Unit capital assets, net 16,333 _ _ 16,333
UM Component Unit capital assets, net — 2,455 — 2,455
Discretely Presented Component Units
capital assets, net $ 561,777 $ 390,663 $ 38,208 $ 990,648
D. Other Postemployment Benefits (OPEB)
Non-university component units are included in the State of Montana benefit plan, whereas the Office of the
Commissioner of Higher Education (included in the primary government otherwise) is included in the Montana
University System benefit plan. For these reasons, component unit OPEB information is included in Note 7.
E. Risk Management
Montana State Fund (MSF or New Fund) is the only component unit risk pool. Unpaid claims and claim adjustment
expenses are estimated based on the ultimate cost of settling the claims, including the effects of inflation and other
societal/economic factors. There are no significant reductions in insurance coverage from the prior year, nor any
insurance settlements exceeding insurance coverage for the last three years for MSF. This fund uses the accrual basis
of accounting. Montana State Fund investments are recorded at fair value, and the premiums and discounts are
amortized using the scientific interest method over the life of the securities.
(1) Montana State Fund (MSF) — This fund provides liability coverage to employers for injured employees who
are insured under the Workers Compensation and Occupational Disease Acts of Montana and workers compensation
claims occurring on or after July 1, 1990. MSF is a self-supporting, competitive State fund, and functions as the
guaranteed market. At December 31, 2019, approximately 23,300 employers were insured with MSF. Anticipated
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investment income is considered for computing a premium deficiency, and employers must pay premiums to MSF
within specified time frames.
An actuarial study prepared by Willis Towers Watson, as of December 31, 2019, estimated the cost of settling
claims that have been reported but not settled and claims that have been incurred but not reported. Due to the fact
that actual claim costs depend on complex factors such as inflation and changes in the law, claim liabilities are
recomputed periodically using a variety of actuarial and statistical techniques. These techniques are used to produce
current estimates that reflect recent settlements, claim frequency, and other economic and societal factors.
A provision for inflation is implicit in the calculation of estimated future claim costs because reliance is placed both
on actual historical data that reflect past inflation and on other factors that are considered to be appropriate modifiers
of past experience. As of December 31, 2019, $956.6 million of unpaid claims and claim adjustment expenses were
presented at face value.
Section 39-71-2311, MCA, requires MSF to set premiums, at least annually, at a level sufficient to ensure adequate
funding of the insurance program during the period the rates will be in effect. It also requires MSF to establish a
minimum surplus above risk-based capital requirements to support MSF against risks inherent in the business of
insurance.
For the year ended December 31, 2019, MSF ceded premiums to other reinsurance companies to limit the exposure
arising from large losses. These arrangements consist of excess of loss contracts that protect against individual
occurrences over stipulated amounts, and an aggregate stop-loss contract which protects MSF against the potential
that aggregate losses will exceed expected levels expressed as a percentage of premium. The excess of loss contract
provides coverage for occurrences up to $100.0 million; however, MSF retains the first $5.0 million of coverage.
The excess of loss protection applies to an individual occurrence with a maximum of $5.0 million on any one life.
The term of the current aggregate stop-loss contract is January 1, 2017 through January 1, 2020. The contract
provides coverage based on MSF’s premium levels not to exceed 15.0% of the subject net earned premium. In the
event reinsurers are unable to meet their obligations, under either the excess of loss contracts or the aggregate stop-
loss contract, MSF would remain liable for all losses, as the reinsurance agreements do not discharge MSF from its
primary liability to the policyholders.
Premium revenue was reduced by premiums paid for reinsurance coverage of $9.6 million during the year ended
December 31, 2019.
Estimated claim reserves were reduced by $387.0 thousand as of December 31, 2019, for the amount of reinsurance
estimated to be ultimately recoverable on incurred losses due to the excess of loss reinsurance contract. There were
no estimated recoverables due to the aggregate stop-loss contract.
(2) Changes in Claims Liabilities for the Past Two Years — As indicated above, this fund establishes liabilities
for both reported and unreported insured events, including estimates of future payments of losses and related claim
adjustment expenses. The following table presents changes (in thousands) in the aggregate liabilities for Montana
State Fund net of estimated reinsurance recoverable. The information presented is at face value and has not been
discounted.
Unpaid claims and claim adjustments expenses
at beginning of year
Incurred claims and claim adjustment expenses:
Provision for insured event of the current year
Increase (decrease) in provision for insured
events of prior years
Total incurred claims and claim adjustment
expenses
Payments:
Claims and claim adjustment expenses
attributable to insured events of the
current year
Claims and claim adjustment expenses
attributable to insured events of prior years
Total payments
Total unpaid claims and claim adjustment
expenses at end of year
F. Capital Leases/Installment Purchases
Fiscal Year Ending June 30:
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Year Ended Year Ended
December 31,2019 | December 31, 2018
941,638 $ 919,690
129,455 137,066
(9,466) (15,141)
119,989 121,925
(24,965) (22,903)
(80,068) (77,074)
(105,033) (99,977)
956,594 $ 941,638
Obligations under capital leases/installment purchases at June 30, 2020, were as follows (in thousands):
Discretely
Presented
Component Units
2021
2022
2023
2024
2025
Thereafter
Total minimum payments
Less: interest
Present value of minimum
payments
$ 185
127
84
43
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G. Operating Leases
Future rental payments under operating leases at June 30, 2020, are as follows (in thousands):
Discretely Presented
Fiscal Year Ending June 30: © Component Units
2021 $ 5,238
2022 4,297
2023 3,978
2024 3,165
2025 3,922
Thereafter 15,806
Total future rental payments $ 36,406
H. Debt Service Requirements
Debt service requirements of discretely presented component units at June 30, 2020, were as follows (in thousands):
Montana State University
Montana Board of Housing Montana State University Direct Placement University of Montana
Ended
June 30: Principal Interest Principal Interest Principal Interest Principal Interest
2021 18,735 17,380 10,530 7,330 421 454 2,415 5,562
2022 19,385 16,923 10,598 6,955 433 442 3,010 5,467
2023 19,850 16,440 6,275 6,621 446 429 3,130 5,348
2024 20,315 15,904 6,580 6,340 459 416 3,255 5,224
2025 20,495 15,334 31,360 6,039 2,505 402 3,380 5,096
2026 - 2030 113,935 66,277 30,635 25,025 2,896 1,794 19,285 23,101
2031 - 2035 112,590 46,826 25,700 17,684 3,347 1,392 24,090 18,287
2036 - 2040 91,223 28,245 26,975 10,603 3,869 927 28,440 13,958
2041 - 2045 71,495 12,814 10,940 4,487 1,274 390 33,310 9,066
2046 - 2050 33,215 2,891 — 454 — 6 39,140 3,237
2051 - 2055 220 4 — — — — — —
Total $521,458 $ 239,038 $ 159593 $ 91,538 $ 15,650 $ 6,652 $ 159,455 $ 94,346
I. Summary of Changes in Long-term Liabilities Payable
Long-term liability activity of discretely presented component units for the year ended June 30, 2020, was as follows
(in thousands):
Amounts
Amounts Due In More
Beginning Ending Due Within Than One
Balance”) Additions Reductions Balance One Year Year
Discretely presented component units
Bonds/notes payable
Montana Board of Housing 493,225 112,309 74,252 531,282 18,735 512,547
Montana State University (MSU) 178,345 576 11,566 167,355 10,530 156,825
MSU Direct Placement 16,058 — 409 15,649 421 15,228
University of Montana (UM) 87,636 169,463 88,864 168,235 2,415 165,820
Total bonds/notes payable " 775,264 282,348 175,091 882,521 32,101 850,420
Other liabilities
Lease/installment purchase payable 496 35 105 426 162 264
Compensated absences payable 65,191 31,431 26,982 69,640 33,102 36,538
Arbitrage rebate tax payable 1,124 390 393 1,121 559 562
Estimated insurance claims 941,638 139,078 124,122 956,594 106,402 850,192
Due to federal government 32,536 112 5,391 27,257 — 27,257
Derivative instrument liability 4,227 1,272 _— 5,499 — 5,499
Reinsurance funds withheld 48,386 8,368 — 56,754 — 56,754
Unearned compensation 391 _— _— 391 _— 391
Net pension liability 193,190 17,977 24,772 186 395 — 186,395
Total OPEB liability 39,694 9,604 21,838 27,460 — 27,460
Total other liabilities 1,326,873 208,267 | 203,603 1,331,537 140,225 1,191,312
2,102,137 490,615 378,694 2,214,058 172,326 2,041,732
Long-term liabilities of Montana University System component units ”) 1,270 4,272
Total discretely presented component units’ long-term liabilities $ 173,596 $ 2,046,004
() When applicable, this amount includes unamortized discounts and unamortized premiums.
@ Beginning balances are taken from component unit financial statements, which may have been adjusted from the prior year's ending balances.
Inter-entity transaction eliminations between Montana University System component units for debt shown in the component unit information can cause
negative balances in component unit information.
J. Refunded and Early Retired Debt
Refunded Debt
On June 16, 2020, Montana Board of Housing (MBOH) issued Single Family Mortgage Bond Series A-1 in the
amount of $39.1 million to refund 2009 Series E bond and Series A-2 in the amount of $3.3 million to refund 2011
Series A bond.
Defeased Debt Outstanding
The University of Montana has defeased certain bond issues by placing the proceeds of new bonds in an irrevocable
trust. The proceeds, together with interest earned thereon, will be sufficient for future debt service payments on the
refunded issues. Accordingly, the trust account assets and the liability for the defeased bonds are not included in the
University's consolidated financial statements.The debt service cash flows for the refunding portion are less than that
for the advance refunded debt by $8.8 million. The economic gain from the advanced refunding was $7.4 million.
As of June 30, 2020, $139.5 million of bonds outstanding were considered defeased.
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Kk. No-Commitment Debt
Information is presented below for financing authorities participating in debt issues. The State has no obligation for
this debt. Accordingly, these bonds and notes are not reflected in the accompanying financial statements.
Facility Finance Authority (FFA)
FFA is authorized to issue bonds and notes to finance projects for qualifying health care and other community-based
service providers. The revenue bonds are payable solely from loan repayments to be made by eligible facilities
pursuant to loan agreements, and further, from the funds created by the indentures and investment earnings thereon.
The notes are payable solely from loan repayments pursuant to loan agreements. The revenue bonds and notes
payable issued by FFA do not constitute a debt, liability, obligation, or pledge of faith and credit of the State of
Montana, with the exception of the Montana State Hospital Project included in Note 11. At June 30, 2020, revenue
bonds and notes outstanding aggregated $1.1 billion.
The Board of Investments and FFA have entered into a capital reserve account agreement for certain bond issues.
See Note 16 for more information.
Montana Board of Housing (MBOH)
MBOH is authorized to issue bonds and make mortgage loans in order to finance affordable housing for Montana
residents. The bonds are special limited obligations, payable solely from pledged revenues and assets of the
borrower, not general obligations of MBOH. These bonds issued by MBOH do not constitute a debt, liability,
obligation, or pledge of faith and credit of the State of Montana. At June 30, 2020, bonds outstanding aggregated
$81.3 million.
L. Non-Exchange Financial Guarantee
BOI provides loan guarantees from the Coal Severance Tax Fund to the Facility Finance Authority (FFA). BOI
exposure to bond issues, surety bonds, and designated loans of the FFA totaled $88.3 million as of June 30, 2020.
FFA is a discretely presented component unit of the State of Montana. FFA guarantee requests are submitted to BOI
for review and approval. BOI’s participation, either duration or any other consideration, to either purchase bonds or
loans or to lend money for deposit into FFA’s statutorily allowed capital reserve account is explicitly limited by
statute, which requires BOI to act prudently. The guarantee requests from FFA pertain to bonds issued by FFA with
a term of up to 40 years. BOI and FFA have entered into an agreement detailing repayment to BOI. BOI has not had
to perform on any loan guarantee in the past.
The following schedule summarizes the activity related to the non-exchange financial guarantee during the year
ended June 30, 2020 (in thousands):
Beginning Ending
Balance Additions Reductions Balance
$ 88,941 §$ 4,000 $ 4,595 $ 88,346
M. Derivative Transactions Related to Long-term Debt
Montana State University (MSU) has two interest rate swaps as of June 30, 2020. Interest rate swaps are classified
as hedging derivative instruments if the instruments meet the criteria of paragraphs 27 (a) and (b) of GASB
Statement No. 53 — Accounting and Financial Reporting for Derivative Instruments (GASB 53), or as investment
derivative instruments if they do not.
Trade Effective Termination
Derivative Description Date Date Date Terms Counterparty
$25.75 million fixed payerswap 3/10/2005 = 7/21/2005 11/15/2035 Pay 3.953%, Receive SIFMA Deutsche Bank AG
$25.25 million basis swap 12/19/2006 11/15/2007 11/15/2035 Pay SIFMA, Receive 86.8% Morgan Stanley
of 10-year SIFMA _ Capital
As of June 30, 2020, the fixed payer swap is classified as a hedging derivative instrument under GASB 53, whereas
the basis swap is an investment derivative instrument because there is no identified financial risk being hedged by
the basis swap that can be expressed in terms of exposure to adverse changes in cash flows or fair values. GASB 53
includes four methods for evaluating hedge effectiveness; a governmental entity may use any of the evaluation
methods outlined in GASB 53 and is not limited to using the same method from period to period. The four methods
described in GASB 53 are: consistent critical terms, synthetic instrument, dollar-offset, and regression analysis. In
addition, GASB 53 permits a governmental entity to use other quantitative methods that are based on “established
principles of financial economic theory.” The fixed payer swap passes the established criteria using the regression
analysis methodology.
The fair values of the interest rate swaps were estimated using the zero-coupon method. This method calculates the
future net settlement payments required by the swap, assuming that the current forward rates implied by the yield
curve correctly anticipate future spot interest rates. These payments are then discounted using the spot rates implied
by the current yield curve for hypothetical zero-coupon bonds due on the date of each future net settlement on the
swaps. To measure non-performance risk for a derivative liability, credit spreads implied by the credit rating for debt
issues by entities with similar credit characteristics were used. This is the best method available under current
market conditions since MSU has no credit default swaps that actively trade in the marketplace. For a derivative
asset, the adjustment for non-performance risk of counterparties was determined by analyzing counterparty-specific
credit default swaps, if available. If not available, credit default swaps in the market for entities of similar type and
rating were used, along with information found in various public and private information services. This analysis is
used to construct a credit curve that is applied to the discount curve on the net settlement payments of the derivative.
The counterparty to the fixed payer swap had the right to terminate the swap at $0 on December 14, 2016 (a
European option); this option was not exercised. As of the trade date, the option’s value included intrinsic value and
time value. The option’s intrinsic value (calculated as the difference between the at-market rate of 4.11% and the
off-market rate of 3.953%) is accounted for as a loan receivable and is repaid by the off-market portion of each swap
payment. On September 10, 2010, the Series J bonds were converted to index bonds. On September 4, 2018, the
original Series J bonds were refunded in full with proceeds from the Series F 2018 bonds, which were issued in a
"SIFMA Index Rate" mode. While in the SIFMA Index Rate, and through the Index Interest Rate Period, which
spans from September 4, 2018 through and including September 1, 2023, the interest rate is reset weekly at a rate of
the SIFMA rate plus a fixed spread. The spread is based on the long-term, unenhanced rating assigned to MSU with
the current spread as of June 30, 2020, was 0.45%. The dependent variable in the regression is the interest rates of
the hedged cash flows; the independent variable is the floating rates due under the hedging derivative.
The fair value of the fixed payer swap liability as of June 30, 2020 is at fair value level 2 and was based on forward
SIFMA rates using the three-month Libor Zero Curve, and the BMA Swaption Volatility on the AA Rated Muni
Revenue Curve. The fair value of the nonhedging derivative investment is also at level 2 and was based on forward
SIFMA rates using the 10-year forward BMA constant maturity swap, the three-month Libor Zero Curve, and the
BMA Swaption Volatility on the counterparty’s credit default swap.
The following table summarizes the reported balances as of, and the derivative instrument activity during, the year
ended June 30, 2020 (in thousands):
Activity During 2020 Fair Values at June 30, 2020
Cash flow hedges: Notional Classification Amount Classification Amount
Cash flow hedge —
Pay fixed interest rate swap 18,225 Interest expense 18 Loan receivable 194
Investment income — Derivative liability 5,499
Deferred outflow 1,272
Investment derivative -
Basis swap 18,225 Investment loss 273 Nntereet acorued) © (18)
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The objective and terms of MSU’s hedging derivative outstanding as of June 30, 2020, is as follows (in thousands):
Notional Termination Cash (Paid)/
Type Objective amount Effective Date Date Received Terms
Pay fixed, cancelable Hedge interest rate risk Pay 3.953%
interest rate swap on Series F 2018 Bonds $ 18,255 7/21/2005 11/15/2035 = $ — Receive SIFMA
Credit Risk
It is MSU’s policy to enter into derivative agreements with highly rated counterparties. As of June 30, 2020,
counterparty ratings were A3 by Moody’s and BBB+ by Standard and Poor’s (S&P). MSU manages credit risk by
requiring its counterparties to post collateral in certain events. MSU is entitled to collateral from its fixed payer swap
counterparty if the interest rate swap’s fair value is greater than $5.0 million, and the counterparty is rated A+ or A
by S&P, or Al or A2 by Moody’s. If the counterparty to the fixed payer swap is rated A- or below, by S&P, or A3
or below by Moody’s, MSU is entitled to collateral up to 100% of the swap’s fair value. MSU is not required to post
collateral. MSU will continue to monitor counterparty credit risk.
MSU enters into derivative agreements with multiple counterparties to limit the concentration of credit risk.
Currently, MSU has interest rate swaps with two different counterparties, and each counterparty accounts for
approximately 50% of outstanding notional. MSU monitors counterparty credit risk on an ongoing basis.
Interest Rate Risk
Interest payments on variable rate debt will typically increase as interest rates increase. MSU believes it has
significantly reduced interest rate risk by entering into a pay-fixed, receive floating interest rate swap. As interest
rates increase, net swap payments decrease so that changes in hedged variable-rate debt interest payments,
attributable to SIFMA, are largely offset by the net swap payments.
Basis Risk
The variable-rate cash flows being hedged by the pay-fixed swap will increase or decrease as SIFMA rates increase
or decrease. Because the hedged cash flows are SIFMA based and the floating receipts of the pay-fixed swap are
SIFMA based, there is no basis risk.
Termination Risk
MSU or its counterparties may terminate a derivative instrument if the other party fails to perform under the terms of
the contract. In addition, MSU’s fixed payer swap counterparty has the right to terminate the derivative if the credit
rating of MSU’s unenhanced long-term revenue bond rating is withdrawn, suspended, or reduced below BBB-, in
the case of S&P, or below Baa3 in the case of Moody’s. If such an event occurs, MSU could be forced to terminate
the fixed payer swap in a liability position. As of June 30, 2020, MSU’s unenhanced long-term revenue bond rating
was Aa3 by Moody’s and A+ by S&P.
Foreign Currency Risk
All hedging derivatives are denominated in US Dollars, and therefore MSU is not exposed to foreign currency risk.
Market Access Risk
Market access risk is the risk that MSU will not be able to enter credit markets or that credit will become more
costly. For example, to complete a derivative instrument’s objective, an issuance of refunding bonds may be planned
in the future. If at that time MSU is unable to enter credit market, expected cost savings may not be realized.
N. Related Party Transactions
Private nonprofit organizations with relations to the University of Montana (UM) include the Alumni Association,
the Montana Technology Enterprise Center (MonTEC), the Montana Tech Booster Club, and the Montana Tech
Alumni Association. The associations and booster club operate exclusively to encourage, promote, and support
educational programs, research, scholarly pursuits, and athletics at, or in connection with UM. For the year ended
June 30, 2020, $300.8 thousand was transferred from or expended by the Montana Tech Booster Club for
scholarships and construction projects. In exchange, UM provides the associations and booster club with office
space, staff, and some related office expenses. MonTEC was established as a nonprofit 501(c)3 corporation in fiscal
year 2001 as a result of an agreement between UM and the Missoula Area Economic Development Foundation
(MAEDF). MonTEC provides low-cost lease space and business consulting to local “start-up” companies. The
corporation’s board of directors is comprised of four members. Two members of the board of directors are UM
employees, and two are non-UM employees. UM does not provide office space or other services to MonTEC.
Private nonprofit organizations affiliated with Montana State University (MSU) include the MSU-Bozeman
Bookstore, Friends of KUSM, and Friends of KEMC. Friends of Montana Public Television provided $1.9 million
during 2020, and Friends of KEMC Public Radio provided $1.2 million during 2020 in support of MSU’s television
and radio stations.
O. Litigation Contingencies
Susan Hensley v. Montana State Fund involves a constitutional challenge to one of the revisions to the Workers’
Compensation Act passed in 2011. At issue is the constitutionality of the changes to section 39-71-703 (2), MCA,
which state that a Class I impairment is not payable unless that occurred on or after that date. The Workers'
Compensation Court issued its decision on August 22, 2019, upholding the statute and granting the State Fund's
motion for summary judgment. The petitioner's attorney filed a notice of appeal on September 12, 2019, and the
matter is currently before the Montana Supreme Court. Should the statute be held unconstitutional and apply to other
claims retroactively, the potential liability is estimated to be at least $2.2 million per year, based on the National
Council on Compensation Insurance initial pricing, and current estimated business volumes. However, based on
experience, costs may be substantially higher than the estimate of $2.2 million per year.
Steven Hanson v. Montana State Fund is a companion case to Susan Hensley v. Montana State Fund and has been
held in abeyance pending a decision in Hensley.
P. Subsequent Events
On July 1, 2020, two Montana Board of Housing (MBOH) Multifamily Housing Revenue private placement conduit
bonds were issued. The Butte Affordable Owner 1 Project, Series 2020 was issued in the amount of $13.2 million.
The Butte Affordable Owner 11 Project, Series 2020 was issued in the amount of $29.3 million.
On August 3, 2020, a Master Loan Program Bond of $13.5 million was made from the Facilities Finance Authority
(FFA) to Powell County Medical Center for the purpose of refunding its existing Series 2010A Bond.
On August 20, 2020, MBOH approved a Habit for Humanity set-aside for fiscal year 2021 of $3.0 million with an
expiration date of June 30, 2021.
On September 11, 2020, Montana State Fund's board declared a dividend of $20.0 million to be distributed to
approximately 22,500 employers.
In September 2020, Montana State University received authorization from the Board of Regents to expend up to
$60.0 million to design and construct a comprehensive Student Wellness Center. The project will be financed with
insurance proceeds of $36.0 million, revenue bonds proceeds of $22.0 million, and existing student fee balances of
$2.0 million.
On October 15, 2020, the 2020 Series C Single Family Mortgage Bonds, were closed by MBOH in the amount of
$30.0 million.
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On October 29, 2020, a Master Loan Program Bond of $20.0 million and a Stand Alone Program Bond of $32.7
million was made from the FFA to Shodair Children's Hospital for the purpose of constructing a new children's
hospital.
Q. Commitments
Montana State Fund (MSF or New Fund) is in a multi-year project to replace its legacy policy management system.
The first phase to select vendors, coordinate change management processes, and develop and implement core policy
management and billing transaction systems is expected to be completed by December 2020 and require total
expenditures estimated at $33.4 million. The total project cost through December 31, 2019, was $23.0 million. The
last phase to develop remaining enhancement features will be planned and arranged with consulting services towards
the end of 2020. Costs during the application development phase will be capitalized and recorded as construction
work in process until the system is deployed.
As of June 30, 2020, Montana State University (MSU) had issued purchase orders committing the expenditure of
approximately $17.2 million for equipment, supplies, and services which had not yet been received.
In September 2018, the US Department of Education (Department) informed the University of Montana (UM) that it
was imposing a fine of $966.6 thousand for its failure to comply with the requirements of the Jeanne Clery
Disclosure of Campus Security Policy and Campus Crime Statistics Act (the Clery Act) in Section 485 (f) of the
Higher Education Act of 1965, 20 USC Section 1092 (f). In October 2018, UM submitted a letter to appeal the
proposed fine action and requested a hearing with the Department’s Office of Hearings and Appeals. In January
2019, UM and the Department agreed to resolve the matter, and the fine amount was reduced to $395.0 thousand to
be paid in installments over five years. UM subsequently paid off the remaining balance due to the Department in
July 2019.
NOTE 19. MATERIAL VIOLATIONS OF FINANCE-RELATED LEGAL PROVISIONS
Constitutionality of Retirement Plan Funding
The Montana Constitution, Article VII, Section 15, states that public retirement systems shall be funded on an
actuarially sound basis. Public pension plans are considered actuarially sound if the unfunded accrued actuarial
liability amortization period is within 30 years. As of June 30, 2020, the Game Warden & Peace Officers’
Retirement System (GWPORS), the Highway Patrol Officers’ Retirement System (HPORS), and the Public
Employees’ Retirement System - Defined Benefit Retirement Plan (PERS-DBRP) were not in compliance and did
not amortize within 30 years. The unfunded liabilities in the other state retirement systems amortize in 30 years or
less as of the fiscal year ended June 30, 2020.
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BUDGETARY COMPARISON SCHEDULE
GENERAL AND MAJOR SPECIAL REVENUE FUNDS
FOR THE FISCAL YEAR ENDED JUNE 30, 2020
(amounts expressed in thousands)
GENERAL FUND
ORIGINAL FINAL
BUDGET BUDGET ACTUAL VARIANCE
REVENUES
Licenses/permits $ 132,987 $ 132,987 $ 132,654 (333)
Taxes:
Natural resource 77,397 77,397 69,726 (7,671)
Individual income 1,410,943 1,410,943 1,421,934 10,991
Corporate income 165,893 165,893 186,680 20,787
Property 304,113 304,113 308,093 3,980
Other 235,043 235,043 237,274 2,231
Charges for services/fines/forfeits/settlements 35,224 35,224 33,453 (1,771)
Investment earnings _— _ 20,243 20,243
Sale of documents/merchandise/property 273 273 273 _
Rentals/leases/royalties 7 7 8 1
Grants/contracts/donations 21 21 11,315 11,294
Federal 21,475 21,475 18,889 (2,586)
Federal indirect cost recoveries 58 58 178 120
Other revenues 4,304 4,304 2,414 (1,890)
Total revenues 2,387,738 2,387,738 2,443,134 55,396
EXPENDITURES
Current:
General government 357,750 357,750 372,209 (14,459)
Public safety 329,888 329,888 321,661 8,227
Transportation 180 180 _ 180
Health and human services 548,817 548,817 480,752 68,065
Education 879,431 879,431 1,082,324 (202,893)
Natural resources 40,683 40,683 36,263 4,420
Debt service (Note RSI-1):
Principal retirement _ _ 208 (208)
Interest/fiscal charges _ _ 256 (256)
Capital outlay (Note RSI-1) _ _ 11,681 (11,681)
Total expenditures 2,156,749 2,156,749 2,305,354 (148,605)
Excess of revenue over (under) expenditures 230,989 230,989 137,780 (93,209)
OTHER FINANCING SOURCES (USES)
Insurance proceeds _ _ 48 48
General capital asset sale proceeds 94 94 75 (19)
Energy conservation loans _ _ _ _
Transfers in (Note 12) 81,924 81,924 86,773 4,849
Transfers out (Note 12) (263,727) (263,727) (76,948) 186,779
Total other financing sources (uses) (181,709) (181,709) 9,948 191,657
Net change in fund balances
(Budgetary basis) 49,280 49,280 147,728 98,448
RECONCILIATION OF BUDGETARY/GAAP REPORTING
1. Securities lending income _ _ _ _
2. Securities lending costs _ _ _ _
3. Inception of lease/installment contract _ _ 433 433
4. Adjustments for nonbudgeted activity _ _ _ _
(GAAP basis) 49,280 49,280 148,161 98,881
Fund balance - July 1 _ _ 443,409 443,409
Prior period adjustments _— _ 1,445 1,445
Increase (decrease) in inventories _ _ (203) (203)
Fund balances - June 30 $ 49,280 $ 49,280 $ 592,812 $ 543,532
The notes to the required supplementary information are an integral part of this schedule.
Budgetary data is not broken down to the same account level as actual financial statement data, which accounts for some of the larger variances.
The original and final budget figures reflect adjustments to the original budget for various reasons, including legislative and executive changes.
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NOTES TO THE REQUIRED SUPPLEMENTARY INFORMATION
NOTE RSI -1. BUDGETARY REPORTING
A. State Budget Process
The Montana Legislature meets in the odd-numbered years to prepare annual budgets for the next biennium. The
Constitution requires that legislative appropriations not exceed available revenues. The Legislature uses revenue
estimates in the budgetary process to establish appropriation levels. Expenditures may not legally exceed budget
appropriations at the fund level. In addition, the State Constitution prohibits borrowing to cover deficits incurred
because appropriations exceeded anticipated revenues. State law requires an appropriation for disbursements from
the general, special revenue and capital projects funds, except for those special revenue funds from non-state and
non-federal sources restricted by law or by the terms of an agreement. The level of budgetary control is established
by fund type, except capital project funds, which are at project level. Budgets may be established in other funds for
administrative purposes.
Agency budget requests are submitted to the Governor, and the Legislative Fiscal Division receives a copy. The
Office of Budget and Program Planning (OBPP) and the Governor analyze the requests, establish priorities, and
develop the requests into the executive budget request submitted to the Legislature. Joint appropriations
subcommittee hearings are held, and an omnibus appropriation bill is reported in the House and subsequently sent to
the Senate. The Legislature generally enacts one bill to establish the majority of appropriations for the next two
fiscal years. OBPP establishes appropriations for each program by accounting entity (fund) within an agency. The
Legislature enacts other appropriations, but only within the available revenue. Agencies must prepare and submit to
the budget director operational plans showing the allocation of operating budgets by expenditure category (i.e.,
personal services, operating expenses, equipment, etc.). The budget director or other statutorily designated
approving authority may authorize changes among expenditure categories and transfers between program
appropriations.
Appropriations may not be increased by amendment in the General Fund. However, a department, institution, or
agency of the executive branch desiring authorization to make expenditures from the General Fund during the first
fiscal year of the biennium from appropriations for the second fiscal year of the biennium may apply for
authorization from the Governor through the budget director. In the second year of the biennium, during the
legislative session, the Legislature may authorize supplemental appropriations. The Governor, or designee, may
approve budget amendments for non-general fund monies not available for consideration by the Legislature and for
emergencies. In the accompanying financial schedule, original and final budget amounts are reported. There were no
expenditures in excess of total authorized appropriations in the State's budgeted funds for the fiscal year.
Appropriations for debt service activities are continuing through statutory authority until the obligation is
extinguished. Because these non-operating budgets primarily serve a management control purpose, and related
appropriations are continuing in nature, no comparison between budgeted and actual amounts for funds budgeted on
this basis is provided. Appropriations for capital projects funds are not made on an annual basis, but are adopted on a
project-length basis. Because these non-operating budgets primarily serve a management control purpose, and
related appropriations are continuing in nature, no comparison between budgeted and actual amounts for funds
budgeted on this basis is provided.
Appropriations may be continued into the next fiscal year when authorized by the Legislature or the Governor's
Office. After fiscal year-end, appropriations that are not continued are reverted. The reverted appropriations remain
available for one fiscal year for expenditures that exceed the amount accrued or encumbered. Fund balances are not
reserved for reverted appropriations. For fiscal year 2020, reverted governmental fund appropriations were as
follows: $64.9 million in the General Fund, $136.5 million in the State Special Revenue Fund, and $239.9 million in
the Federal Special Revenue Fund. Agencies are allowed to carry forward 30.0% of their reverted operating
appropriations into the next two fiscal years. This amount can be used for new expenditures at the request of the
agency and upon approval of OBPP.
B. Budget Basis
The Legislature's legal authorization ("appropriations") to incur obligations is enacted on a basis inconsistent with
Generally Accepted Accounting Principles (GAAP). The budget basis differs from GAAP for encumbrances
outstanding at fiscal year-end, compensated absences, capital assets and inventories purchased in proprietary funds,
certain loans from governmental funds, and other miscellaneous n on-budgeted activity.
REQUIRED SUPPLEMENTARY INFORMATION
NOTE RSI - 2. PENSION PLAN INFORMATION
Required Supplementary Information
State of Montana as an Employer Entity
Judges’ Retirement System
Schedule of Changes in Net Pension Liability/(Asset) and Related Ratios '
For the Fiscal Year Ended June 30
(dollars in thousands)
2020 2019 2018 2017 2016 2015
Total Pension Liability (TPL)
Service costs $ 1,772 $ 1664 $ 1,628 $ 1,578 $ 1,653 $ 1,594
Interest 4,458 4,503 4,044 3,986 3,934 3,824
Differences between expected and actual experience 2,743 (2,901) 862 (1,341) (1,032) —
Changes of assumptions — — 3,865 — — —
Refunds of contributions — (149) — — — —
Benefit payments (3,846) (3,723) (3,554) (3,416) (3,041) (3,023)
Net change in total pension liability 5,127 (606) 6,845 807 1,514 2,395
Total pension liability - beginning 60,192 60,798 53,953 53,146 51,632 49,237
Total pension liability - ending $ 65,319 $ 60,192 $ 60,798 $ 53,953 $ 53146 $ 51,632
Plan Fiduciary Net Position
Contributions — employer $ — $ 108 $ 1,800 $ 1806 $ 1684 $ 1,651
Contributions - member 517 575 488 129 534 481
Net investment income 5,687 8,467 10,368 1,779 3,843 12,421
Refunds of contributions — (149) — — — —
Benefit payments (3,846) (3,723) (3,554) (3,416) (3,041) (3,023)
Administrative expense (123) (264) (254) (197) (136) (100)
Other — 7 — (3) — —
Net change in plan fiduciary net position 2,235 5,998 8,848 698 2,884 11,430
Plan fiduciary net position - beginning 102,651 96,653 87,805 87,107 84,223 72,793
Plan fiduciary net position - ending $ 104,886 $ 102,651 $ 96653 $ 87,805 $ 87,107 $ 84,223
Net Pension (Asset) - Beginning $ (42,459) $ (35,855) $ (33,852) $ (33,961) (32,591) (23,556)
Net Pension (Asset) - Ending $ (39,567) $ (42,459) $ (35,855) $ (33,852) (33,961) (32,591)
Plan fiduciary net position as a percentage of TPL 160.58% 170.54% 158.97% 162.74% 163.90% 163.12%
Covered payroll $ 7,382 $ 7,291 $ 6974 $ 6920 $ 6525 $ 6,355
Net pension (asset) as a percentage of covered payroll (535.99)% (582.35)% = (514.12)% — (489.19)% — (521.00)% (513.00)%
' Schedules are intended to present information for 10 years. Additional years will be displayed as they become available.
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Schedule of Employer Contributions '
For the Fiscal Year Ended June 30
(in thousands)
2020 2019 2018 2017 2016 2015
Contractually required contributions $ 1,988 $ — $ 1085 $ 1800 $ 1,786 $ 1,684
Contributions made in relation to the
contractually required contributions 1,988 _— 1,085 1,800 1,786 1,684
Contribution deficiency/(excess) $ — $ — $ — $ — $ — $ _
Covered payroll $ 8001 $ 7,382 $ 7,291 $ 6974 $ 6920 $ 6,525
Contributions as a percentage of
covered payroll 24.85% 0.00% 14.88% 25.81% 26.00% 26.00%
' Schedules are intended to present information for 10 years. Additional years will be displayed as they become available.
Judges’ Retirement System
Notes to Required Supplementary Information
For the Year Ended June 30, 2020
Method and assumptions used in calculations of contractually determined contributions: The contractually
required contribution rates are determined on an annual basis for the fiscal year beginning July 1, 2019, determined
as of June 30, 2019.
The following key methods and assumptions were used to determine the contractual contribution rates reported in
that schedule:
Actuarial cost method Entry age Normal
Amortization method Level percentage of pay, open
Asset valuation method 4-year smoothed market
Wage inflation 3.50%, including inflation
Salary increases 0%
Inflation 2.75%
Investment rate of return 7.65%, net of pension plan investment expense, including inflation
Mortality (healthy) RP-2000 Combined employee and annuitant mortality table projected
to 2020 using scale BB, males set back 1 year
Mortality (disabled) RP-2000 Combined employee and annuitant mortality table
Admin expense as a % of payroll 0.17%
Changes of assumptions: No changes in assumptions or other inputs that affected the measurement date have been
made since the prior measurement date.
Required Supplementary Information
State of Montana as an Employer Entity
Highway Patrol Officers’ Retirement System
Schedule of Changes in Net Pension Liability and Related Ratios '
Total Pension Liability (TPL)
Service costs
Interest
Changes in benefits
Difference between expected and actual experience
Changes of assumptions
Benefit payments
Refunds of contributions
Net change in total pension liability
Total pension liability — beginning
Total pension liability - ending
Plan Fiduciary Net Position
Contributions - employer
Contributions - non-employer
Contributions - member
Net investment income
Benefit payments
Administrative expense
Refunds of contributions
Other
Net change in plan fiduciary net position
Plan fiduciary net position — beginning
Plan fiduciary net position - ending
Net Pension Liability - Beginning
Net Pension Liability - Ending
Plan fiduciary net position as a percentage of TPL
Covered payroll
Net pension liability as a percentage of covered payroll
For the Fiscal Year Ended June 30
(dollars in thousands)
2020 2019 2018 2017 2016 2015
$ 3453 $ 3643 $ 3665 $ 3,799 $ 3,598 $ 3,464
16,926 16,294 15,121 14,545 14,113 13,518
2,413 590 2,774 18 267 —
(582) (322) (245) (94) — —
10,147 8,659 18,170 7,786 9,833 7,539
227,581 218,922 200,752 += 192,966 + ~—«- 183,133 «175,594
$ 237,728 $ 227,581 $ 218922 $ 200,752 $ 192,966 $ 183,133
$ 5845 $ 5858 $ 5782 $ 5916 $ 5840 $ 5,736
233 250 263 243 — —
2,002 2,387 1,950 1,917 1,624 1,458
8,269 12,283 15,099 2,605 5,738 18,677
(127) (256) (248) (197) (144) (109)
(582) (322) (245) (94) — —
2 8 — (2) — —
3,579 8,662 11,564 (94) 3,057 16,319
$ 152,778 $ 149,199 $ 140,537 $ 128,973 $ 129,067 $ 126,010
$ 78,382 $ 78,385 $ 71,779 $ 63,899 $ 57,123 $ 65,903
$ 84,950 $ 78,382 $ 78,385 $ 71,779 $ 63,899 $ 57,123
64.27% 65.56% 64.20% 64.24% 67.00% 69.00%
$ 15,178 $ 15,251 $ 14,779 $ 15,276 $ 14,549 $ 14,149
' Schedules are intended to present information for 10 years. Additional years will be displayed as they become available.
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Schedule of Employer Contributions '
For the Fiscal Year Ended June 30
(dollars in thousands)
2020 2019 2018 2017 2016 2015
Contractually required contributions $ 6,209 $ 6051 $ 5843 $ 5706 $ 6,161 $ 5,782
Contributions in relation to the
contractually required contributions 6,209 6,051 5,843 5,706 6,161 5,782
Contribution deficiency/(excess) $ — $ — $ — $ — $ — $ _
Covered payroll $ 15,608 $ 15,178 $ 15,251 $ 14,779 $ 15,276 $ 14,549
Contributions as a percentage of
covered payroll 39.78% 39.87% 38.31% 38.61% 40.00% 40.00%
' Schedules are intended to present information for 10 years. Additional years will be displayed as they become available.
Notes to Required Supplementary Information
Highway Patrol Officers’ Retirement System
For the Year Ended June 30, 2020
Method and assumptions used in calculations of contractually determined contributions: The contractually
required contribution rates are determined on an annual basis for the fiscal year beginning July 1, 2019, determined
as of June 30, 2019.
The following key methods and assumptions were used to determine the contractual contribution rates reported in
that schedule:
Actuarial cost method Entry age Normal
Amortization method Level percentage of pay, open
Asset valuation method 4-year smoothed market
Wage inflation 3.50%, including inflation
Salary increases 0% to 6.30%
Inflation 2.75%
Investment rate of return 7.65%, net of pension plan investment expense, including inflation
Mortality (healthy) RP-2000 Combined employee and annuitant mortality table projected
to 2020 using scale BB, males set back 1 year
Mortality (disabled) RP-2000 Combined employee and annuitant mortality table
Admin expense as a % of payroll 0.27%
Changes of assumptions: No changes in assumptions or other inputs that affected the measurement date have been
made since the prior measurement date.
Required Supplementary Information
State of Montana as an Employer Entity
Game Wardens’ and Peace Officers’ Retirement System
Schedule of Changes in Net Pension Liability and Related Ratios '
2020 2019 2018 2017 2016 2015
Total Pension Liability (TPL)
Service costs $ 8004 $ 8098 $ 8623 $ 8403 $ 8008 $ 7,850
Interest 17,618 16,018 14,269 12,911 12,398 11,258
Difference between expected and actual experience (4,728) 4,781 3,743 2,705 731 —
Changes of assumptions — — 5,878 — — —
Benefit payments (7,350) (6,523) (5,810) (5,068) (5,352) (5,229)
Refunds of contributions (1,001) (1,105) (1,036) (1,066) — —
Net change in total pension liability 12,543 21,269 25,667 17,885 15,785 13,879
Total pension liability - beginning 234,470 213,201 187,534 169,649 153,864 139,985
Total pension liability - ending $ 247,013 $ 234,470 $ 213,201 $ 187,534 $ 169,649 $ 153,864
Plan Fiduciary Net Position
Contributions - employer $ 468 $ 4613 $ 4464 $ 4278 $ 4088 $ 3,762
Contributions - member 5,566 5,512 5,278 5,036 4,924 4,462
Net investment income 11,125 15,573 18,590 3,167 6,435 20,069
Benefit payments (7,350) (6,523) (5,810) (5,068) (5,352) (5,229)
Administrative expense (202) (369) (329) (269) (200) (162)
Refunds of contributions (1,001) (1,105) (1,036) (1,066) — —
Other 1 (19) (1) (31) _ _
Net change in plan fiduciary net position 12,825 17,682 21,156 6,047 9,895 22,902
Plan fiduciary net position - beginning 193,523 175,841 154,685 148,638 138,743 115,841
Plan fiduciary net position - ending $ 206,348 $ 193,523 $ 175,841 $ 154,685 $ 148638 $ 138,743
Net Pension Liability - Beginning $ 40,947 $ 37360 $ 32849 $ 21,011 $ 15121 $ 24,144
Net Pension Liability - Ending $ 40,665 $ 40947 $ 37,360 $ 32,849 $ 21,011 $ 15,121
Plan fiduciary net position as a percentage of TPL 83.54% 82.54% 82.48% 82.48% 87.00% 90.00%
Covered payroll $ 51,677 $ 50823 $ 49381 $ 47,108 $ 44885 $ 41,637
Net pension liability as a percentage of covered payroll 78.69% 80.57% 75.66% 69.73% 47.00% 36.00%
Schedule of Employer Contributions '
For the Fiscal Year Ended June 30
(dollars in thousands)
2020 2019 2018 2017 2016 2015
Contractually required contributions $ 4,837 $ 4644 $ 4574 $ 4447 $ 4,240 $ 4,040
Contributions in relation to the
contractually required contributions 4,837 4,644 4,574 4,447 4,240 4,040
Contribution deficiency/(excess) $ — $ — $ — $ — $ — $ _
Covered payroll $ 53825 $ 51,677 $ 50,823 $ 49381 $ 47,108 $ 44,885
Contributions as a percentage of
covered payroll 8.99% 8.99% 9.00% 9.01% 9.00% 9.00%
For the Fiscal Year Ended June 30
(dollars in thousands)
' Schedules are intended to present information for 10 years. Additional years will be displayed as they become available.
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A-180
Notes to Required Supplementary Information
Game Wardens’ and Peace Officers’ Retirement System
For the Year Ended June 30, 2020
Method and assumptions used in calculations of contractually determined contributions: The contractually
required contribution rates are determined on an annual basis for the fiscal year beginning July 1, 2019, determined
as of June 30, 2019.
The following key methods and assumptions were used to determine the contractual contribution rates reported in
that schedule:
Actuarial cost method Entry age Normal
Amortization method Level percentage of pay, open
Asset valuation method 4-year smoothed market
Wage inflation 3.50%, including inflation
Salary increases 0% to 6.30%
Inflation 2.75%
Investment rate of return 7.65%, net of pension plan investment expense, including inflation
Mortality (healthy) RP-2000 Combined employee and annuitant mortality table projected
to 2020 using scale BB, males set back 1 year
Mortality (disabled) RP-2000 Combined employee and annuitant mortality table
Admin expense as a % of payroll 0.23%
Changes of assumptions: No changes in assumptions or other inputs that affected the measurement date have been
made since the prior measurement date.
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Required Supplementary Information
State of Montana as an Employer Entity
Public Employees’ Retirement System-Defined Benefit Retirement System
Schedule of Proportionate Share of the Net Pension Liability '
For the Year Ended June 30
(dollars in thousands)
2020 2019 2018 2017 2016 2015
Employer's proportion of the net pension liability 39.140686% 39.546272% 53.049189% 53.241100% 53.611080% 53.223780%
Employer's proportionate share of the net pension
liability $ 818,162 $ 825,387 $ 1,033,200 $ 906,880 $ 749414 $ 663,174
Employer's covered payroll $ 638,674 $ 640,177 $ 648671 $ 621,755 $ 620,286 $ 597,083
Employer ’s proportionate share of the net pension
liability as a percentage of its covered payroll 128.10% 128.93% 159.28% 145.86% 120.82% 111.07%
Plan fiduciary net position as a percentage of the total
pension liability 73.85% 73.47% 74.00% 75.00% 78.00% 80.00%
Schedule of Employer Contributions '
For the Fiscal Year Ended June 30
(dollars in thousands)
2020 2019 2018 2017 2016 2015
Contractually required contributions $ 58504 $ 56183 $ 54844 $ 56256 $ 59073 $ 58575
Contributions in relation to the contractually required
contributions 58,504 56,183 54,844 56,256 59,073 58,575
Contribution deficiency/(excess) $ — $ — $ — $ — $ — $ _
Covered payroll $ 654,193 $ 638,674 $ 640,177 $ 648671 $ 621,755 $ 620,286
Contributions as a percentage of covered payroll 8.94% 8.80% 8.57% 8.67% 9.50% 9.44%
' Schedules are intended to present information for 10 years. Additional years will be displayed as they become available.
Notes to Required Supplementary Information
For the Year Ended June 30, 2020
Method and assumptions used in calculations of contractually determined contributions: The contractually
required contribution rates are determined on an annual basis for the fiscal year beginning July 1, 2019, determined
as of June 30, 2019.
The following actuarial methods and assumptions were used to determine contractual contribution rates reported in
that schedule:
Actuarial cost method Entry age Normal
Amortization method Level percentage of payroll, open
Asset valuation method 4-year smoothed market
Wage inflation 3.50%, includes inflation
Salary increases 0% to 4.80%
Inflation 2.75%
Investment rate of return 7.65%, includes inflation
Mortality (healthy) RP-2000 Combined employee and annuitant mortality table projected
to 2020 using scale BB, males set back 1 year
Mortality (disabled) RP-2000 Combined employee and annuitant mortality table
Admin expense as a % of payroll 0.26%
Changes of assumptions: No changes in assumptions or other inputs that affected the measurement date have been
made since the prior measurement date.
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Required Supplementary Information
State of Montana as a Nonemployer Entity
Public Employees’ Retirement System-Defined Benefit Retirement System
Schedule of Proportionate Share of the Net Pension Liability '
For the Year Ended June 30
(dollars in thousands)
2020 2019 2018 2017 2016 2015
Nonemployer’s proportion of the net pension liability 24.411533% 24.917247% 1.007464% 0.956169% 0.956090% 0.961287%
Nonemployer’s proportionate share of the net pension
liability $ 510,277 $ 520,058 $ 19,622 $ 16,287 $ 13,365 $ 11,978
Plan fiduciary net position as a percentage of the total
pension liability 73.85% 73.47% 74.00% 75.00% 78.00% 80.00%
Schedule of Nonemployer Contributions '
For the Fiscal Year Ended June 30
(dollars in thousands)
2020 2019 2018 2017 2016 2015
Contractually required contributions $ 35008 $ 34642 $ 34,706 $ 28763 $ 30,800 $ 32,397
Contributions in relation to the contractually required
contributions 35,008 34,642 34,706 28,763 30,800 32,397
Contribution deficiency/(excess) $ — $ — $ — $ — $ — $ _
' Schedules are intended to present information for 10 years. Additional years will be displayed as they become available.
Notes to Required Supplementary Information
For the Year Ended June 30, 2020
Method and assumptions used in calculations of contractually determined contributions: The contractually
determined contribution rates are set forth by the Legislature and are contained within the Montana Code Annotated
(MCA). The amounts used for the valuation as of the year ended June 30, 2019, are as follows:
Special Funding
The State contributes 0.1% of member compensation on behalf of local government entities per Section
19-3-319, MCA.
The State contributes 0.37% of member compensation on behalf of school district entities per Section
19-3-319, MCA.
The State contributes a Statutory Appropriation from General Fund per Section 19-3-320, MCA.
Changes of assumptions: No changes in assumptions or other inputs that affected the measurement date have been
made since the prior measurement date.
Required Supplementary Information
State of Montana as an Employer Entity
Sheriffs’ Retirement System
Schedule of Proportionate Share of the Net Pension Liability '
For the Year Ended June 30
(dollars in thousands)
2020 2019 2018 2017 2016 2015
Employer's proportion of the net pension liability 4.876949% 4.872800% 4.856692% 5.454386% 5.637055% 5.535000%
Employer's proportionate share of the net pension
liability $ 4,067 $ 3663 $ 3696 $ 9,582 $ 5434 $ 2,304
Employer's covered payroll $ 3915 $ 3781 $ 3634 $ 3850 $ 3836 $ 3,580
Employer ’s proportionate share of the net pension
liability as a percentage of its covered payroll 103.88% 96.88% 101.71% 248.88% 141.66% 64.36%
Plan fiduciary net position as a percentage of the total
pension liability 81.89% 82.68% 81.00% 63.00% 75.00% 87.00%
Schedule of Employer Contributions |
For the Fiscal Year Ended June 30
(dollars in thousands)
2020 2019 2018 2017 2016 2015
Contractually required contributions $ 530 $ 513 $ 496 $ 368 $ 389 $ 388
Contributions in relation to the contractually required
contributions 530 513 496 368 389 388
Contribution deficiency/(excess) $ — $ — $ — $ — $ — $ _
Covered payroll $ 4041 $ 3915 $ 3781 $ 3634 $ 3850 $ 3,836
Contributions as a percentage of covered payroll 13.12% 13.10% 13.12% 10.13% 10.10% 10.11%
' Schedules are intended to present information for 10 years. Additional years will be displayed as they become available.
Notes to Required Supplementary Information
For the Year ended June 30, 2020
Method and assumptions used in calculations of contractually determined contributions: The contractually
required contribution rates are determined on an annual basis for the fiscal year beginning July 1, 2019, determined
as of June 30, 2019. The following actuarial methods and assumptions were used to determine contractual
contribution rates reported in that schedule:
Actuarial cost method Entry age Normal
Amortization method Level percentage of payroll, open
Asset valuation method 4-year smoothed market
Wage Inflation 3.50%, includes inflation
Salary increases 0% to 6.30%
Inflation 2.75%
Investment rate of return 7.65%, includes inflation
Mortality (healthy) RP-2000 Combined employee and annuitant mortality table projected
to 2020 using scale BB, set back | year for males
Mortality (disabled) RP-2000 Combined employee and annuitant mortality table
Admin expense as a % of payroll 0.23%
Changes of assumptions: No changes in assumptions or other inputs that affected the measurement date have been
made since the prior measurement date.
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Required Supplementary Information
State of Montana as a Nonemployer Contributing Entity
Municipal Peace Officers’ Retirement System
Schedule of Proportionate Share of the Net Pension Liability '
For the Year Ended June 30
(dollars in thousands)
2020 2019 2018 2017 2016 2015
Nonemployer’s proportion of the net pension liability 67.063878% 67.124706% 67.085433% 66.499650% 66.954111% 66.888728%
Nonemployer’s proportionate share of the net pension
liability $ 133,487 $ 114,956 $ 119,354 $ 119,708 $ 110,756 $ 105,106
Plan fiduciary net position as a percentage of the total
pension liability 68.84% 70.95% 68.00% 66.00% 67.00% 67.00%
Schedule of Nonemployer Contributions '
For the Fiscal Year Ended June 30
(dollars in thousands)
2020 2019 2018 2017 2016 2015
Contractually required contributions $ 16677 $ 15941 $ 15283 $ 13215 $ 13,752 $ 13,433
Contributions in relation to the contractually required
contributions 16,677 15,941 15,283 13,215 13,752 13,433
Contribution deficiency/(excess) $ — $ — $ — $ — $ — $ =
' Schedules are intended to present information for 10 years. Additional years will be displayed as they become available.
Notes to Required Supplementary Information
For the Year Ended June 30, 2020
Method and assumptions used in calculations of contractually determined contributions: The contractually
determined contribution rates are set forth by the Legislature and are contained within the Montana Code Annotated
(MCA). The amounts used for the valuation as of the year ended June 30, 2019, are as follows:
The State contributes 29.37% of member compensation on behalf of all employer entities per Section
19-9-702, MCA.
Changes of assumptions: No changes in assumptions or other inputs that affected the measurement date have been
made since the prior measurement date.
Required Supplementary Information
State of Montana as an Employer Entity
Firefighters’ Unified Retirement System
Schedule of Proportionate Share of the Net Pension Liability '
For the Year Ended June 30
(dollars in thousands)
2020 2019 2018 2017 2016 2015
Employer's proportion of the net pension liability 2.013129% 2.300917% 2.233929% 2.261523% 2.399255% 1.850026%
Employer's proportionate share of the net pension
liability $ 2309 $ 2650 $ 2525 $ 2583 $ 2,454 $ 1,806
Employer's covered payroll $ 1,051 $ 1,103 $ 1,022 $ 974 $ 986 $ 735
Employer ’s proportionate share of the net pension
liability as a percentage of its covered payroll 219.70% 240.25% 247.06% 265.20% 249.00% 245.00%
Plan fiduciary net position as a percentage of the total
pension liability 80.08% 79.03% 78.00% 75.00% 77.00% 77.00%
Schedule of Employer Contributions '
For the Fiscal Year Ended June 30
(dollars in thousands)
2020 2019 2018 2017 2016 2015
Contractually required contributions $ 599 $ 494 $ 518 $ 472 $ 475 §$ 142
Contributions in relation to the contractually required
contributions 599 494 518 472 475 142
Contribution deficiency/(excess) $ — $ — $ — $ — $ — $ _
Covered payroll $ 1,276 $ 1,051 $ 1,103 $ 1,022 $ 974 §$ 986
Contributions as a percentage of covered payroll 46.94% 47.00% 46.96% 46.18% 49.00% 14.40%
' Schedules are intended to present information for 10 years. Additional years will be displayed as they become available.
Notes to Required Supplementary Information
For the Year Ended June 30, 2020
Method and assumptions used in calculations of contractually determined contributions: The contractually
required contribution rates are determined on an annual basis for the fiscal year beginning July 1, 2019, determined
as of June 30, 2019. The following actuarial methods and assumptions were used to determine contractual
contribution rates reported in that schedule:
Actuarial cost method Entry age Normal
Amortization method Level percentage of payroll, open
Asset valuation method 4-year smoothed market
Wage inflation 3.50%, including inflation
Inflation 2.75%
Salary increases 0% to 6.30%
Investment rate of return 7.65%, including inflation
Mortality (healthy) RP-2000 Combined employee and annuitant mortality table projected
to 2020 using scale BB, males set back 1 year
Mortality (disabled) RP-2000 Combined employee and annuitant mortality table
Admin as a % of payroll 0.25%
Changes of assumptions: No changes in assumptions or other inputs that affected the measurement date have been
made since the prior measurement date.
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A-186
Required Supplementary Information
State of Montana as a Nonemployer Contributing Entity
Firefighters’ Unified Retirement System
Schedule of Proportionate Share of the Net Pension Liability '
For the Year Ended June 30
(dollars in thousands)
2020 2019 2018 2017 2016 2015
Nonemployer’s proportion of the net pension liability 69.323577% 67.972164% 67.876338% 67.809541% 67.358196% 68.005182%
Nonemployer’s proportionate share of the net pension
liability $ 79,524 $ 78,285 $ 76,724 $ 77,448 $ 68892 $ 66,384
Plan fiduciary net position as a percentage of the total
pension liability 80.08% 79.03% 78.00% 75.00% 77.00% 77.00%
Schedule of Nonemployer Contributions '
For the Fiscal Year Ended June 30
(dollars in thousands)
2020 2019 2018 2017 2016 2015
Contractually required contributions $ 17,147 $ 16209 $ 15,272 $ 14042 $ 13635 $ 13,573
Contributions in relation to the contractually required
contributions 17,147 16,209 15,272 14,042 13,635 13,573
Contribution deficiency/(excess) $ — $ — $ — $ — $ — $ _
' Schedules are intended to present information for 10 years. Additional years will be displayed as they become available.
Notes to Required Supplementary Information
For the Year Ended June 30, 2020
Method and assumptions used in calculations of statutorily determined contributions: The statutorily determined
contribution rates are set forth by the Legislature and are contained within the Montana Code Annotated (MCA).
The amounts used for the valuation as of the year ended June 30, 2019, are as follows:
The State contributes 32.61% of member compensation on behalf of all employer entities per Section
19-13-604, MCA.
Changes of assumptions: No changes in assumptions or other inputs that affected the measurement date have been
made since the prior measurement date.
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Required Supplementary Information
State of Montana as a Nonemployer Contributing Entity
Volunteer Firefighters’ Compensation Act
Schedule of Proportionate Share of the Net Pension Liability '
For the Year Ended June 30
(dollars in thousands)
2020 2019 2018 2017 2016 2015
Nonemployer’s proportion of the net pension liability 100% 100% 100% 100% 100% 100%
Nonemployer's proportionate share of the net pension
liability $ 6907 $ 7,667 $ 10,087 $ 10,599 $ 10,504 $ 5,089
Plan fiduciary net position as a percentage of the total
pension liability 85.23% 83.48% 78.00% 76.00% 76.00% 87.00%
Schedule of Nonemployer Contributions '
For the Fiscal Year Ended June 30
(dollars in thousands)
2020 2019 2018 2017 2016 2015
Contractually required contributions $ 2,475 $ 2,361 $ 2,207 $ 2,054 $ 2,024 $ 1,913
Contributions in relation to the contractually required
contributions 2,475 2,361 2,207 2,054 2,024 1,913
Contribution deficiency/(excess) $ — $ — $ — $ — $ — $ _
' Schedules are intended to present information for 10 years. Additional years will be displayed as they become available.
Notes to Required Supplementary Information
For the Year Ended June 30, 2020
Method and assumptions used in calculations of actuarially determined contributions: The statutorily determined
contribution rates are set forth by the Legislature and are contained within the Montana Code Annotated (MCA).
The amounts used for the valuation as of the year ended June 30, 2019, are as follows:
The State contributes 5% of certain fire tax insurance premiums paid per Section 19-17-301, MCA.
Changes of assumptions: No changes in assumptions or other inputs that affected the measurement date have been
made since the prior measurement date.
Required Supplementary Information
State of Montana as an Employer Entity
Teachers’ Retirement System
Schedule of Proportionate Share of the Net Pension Liability '
For the Year Ended June 30
(dollars in thousands)
2015
4.689747%
2020
2.411113%
2019
2.554088%
2018
2.860298%
2017
3.121008%
2016
3.422388%
Employer's proportion of the net pension liability
Employer's proportionate share of the net pension
liability $ 46,493 $ 47,407 $ 48227 $
$ 23,250 $ 24,275 $ 26,944 $
57,016 $ 56,230 $ 72,168
Employer's covered payroll 28,915 $ 31,252 $ 32,937
Employer ’s proportionate share of the net pension
liability as a percentage of its covered payroll 199.97% 195.29% 178.99% 197.18% 179.00% 219.00%
Plan fiduciary net position as a percentage of the total
pension liability 68.64% 69.09% 70.00% 67.00% 69.00% 70.00%
Schedule of Employer Contributions '
For the Fiscal Year Ended June 30
(dollars in thousands)
2020 2019 2018 2017 2016 2015
Contractually required contributions $ 16686 $ 16538 $ 17,298 $ 17,396 $ 16946 $ 16,234
Contributions in relation to the contractually required
contributions 16,686 16,538 17,298 17,396 16,946 16,234
Contribution deficiency/(excess) $ — $ — $ — $ — $ — $ _
Covered payroll $ 22,384 $ 23,250 $ 24275 $ 26944 $ 28915 $ 31,252
Contributions as a percentage of covered payroll 74.54% 71.13% 71.26% 64.56% 58.00% 52.00%
' Schedules are intended to present information for 10 years. Additional years will be displayed as they become available.
Notes to Required Supplementary Information
For the Year Ended June 30, 2020
Changes of assumptions: The Guaranteed Annual Benefit Adjustment (GABA) for Tier Two members is a variable
rate between 0.50% and 1.50% as determined by TRS. Since an increase in the amount of the GABA is not
automatic and must be approved by TRS, the assumed increase was lowered from 1.50% to the current rate of 0.50%
per annum.
Method and assumptions used in calculations of actuarially determined contributions: The actuarially determined
contribution rates are determined on an annual basis for the fiscal year beginning July 1, 2019, determined as of June
30, 2019. The following actuarial methods and assumptions were used to determine actuarial contribution rates
reported in that schedule:
Actuarial cost method
Amortization method
Remaining amortization period
Asset valuation method
Wage inflation
Inflation
Salary increase
Investment rate of return
Entry age
Level percentage of pay, open
31 years
4-year smoothed market
3.25%, including inflation
2.50%
3.25% to 7.76%, including inflation for non-University Members and
4.25% for University Members
7.50%, net of pension plan investment expense, and including inflation
A-189
Required Supplementary Information
State of Montana as a Nonemployer Contributing Entity
Teachers’ Retirement System
Schedule of Proportionate Share of the Net Pension Liability '
For the Year Ended June 30
(dollars in thousands)
2020 2019 2018 2017 2016 2015
Nonemployer's proportion of the net pension liability 37 449880% 37.735743% 38.133267% 38.729473% 39.384625% 38.777294%
Nonemployer’s proportionate share of the net pension
liability $ 715,637 $ 700,417 $ 642,958 $ 707,527 $ 647,092 $ 596,724
Plan fiduciary net position as a percentage of the total
pension liability 68.64% 69.09% 70.00% 67.00% 69.00% 70.00%
Schedule of Nonemployer Contributions '
For the Fiscal Year Ended June 30
(dollars in thousands)
2020 2019 2018 2017 2016 2015
Contractually required contributions $ 44841 $ 44333 $ 43,718 $ 43028 $ 42400 $ 42,806
Contributions in relation to the contractually required
contributions 44,841 44 333 43,718 43,028 42,400 42,806
Contribution deficiency/(excess) $ — $ — $ — $ — $ — $ —
' Schedules are intended to present information for 10 years. Additional years will be displayed as they become available.
Notes to Required Supplementary Information
For the Year Ended June 30, 2020
Method and assumptions used in calculations of contractually determined contributions: The contractually
required contribution rates are set forth by the Legislature and are contained within the Montana Code Annotated
(MCA). The amounts used for the valuation as of the year ended June 30, 2019, are as follows:
The State contributes 0.11% of the compensation of members participating per Section 19-20-604, MCA.
The State contributes 2.38% of member compensation on behalf of school district and community college
entities per Section 19-20-607, MCA.
The State contributes a $25 million payment from the General Fund per Section 19-20-607, MCA.
Changes of assumptions: The Guaranteed Annual Benefit Adjustment (GABA) for Tier Two members is a variable
rate between 0.50% and 1.50% as determined by TRS. Since an increase in the amount of the GABA is not
automatic and must be approved by TRS, the assumed increase was lowered from 1.50% to the current rate of 0.50%
per annum.
A-190
REQUIRED SUPPLEMENTARY INFORMATION
NOTE RSI - 3. OTHER POSTEMPLOYMENT BENEFITS PLAN INFORMATION (OPEB)
The State of Montana and MUS OPEB plans allow retirees to participate, as a group, at a rate that does not cover all
of the related costs. This results in the reporting of the Total OPEB Liability in the related financial statements and
note disclosures.
In accordance with GASB 75, the following information is presented to reflect the funding progress of the Other
Postemployment Benefits Plans for the State of Montana OPEB plan.
Total OPEB Liability and Related Ratios
Last 10 Fiscal Years "
(in thousands)
Total
OPEB
Liability 2020 2019 2018
Service cost $ 1946 $ 2,062 $ 1,889
Interest 1,586 1,990 2,014
Changes of benefit terms — — —
Difference between expected (9,409) — (4,723)
and actual experience
Changes of assumptions or other (1,877) 2,895 (295)
inputs
Benefit payments (601) (1,709) 1,705
Net change in Total OPEB (8,355) 5,238 590
Liability
Total OPEB Liability -
Beginning 55,697 50,459 49,869
Total OPEB Liability -
Ending $ 47,342 $ 55,697 $ 50,459
State and discretely presented
component units' proportion of
the collective Total OPEB
Liability 100 % 100 % 100 %
Covered employee payroll $ 690,563 $ 702,688 §$ 675,661
Total OPEB Liability as a
percentage of covered employee 6.86 % 7.93 % 747%
payroll
") Schedules are intended to present information for 10 years. Additional years will be displayed as they become available.
Note to Schedule: No assets are accumulated in a trust that meets the criteria of GASB 75.
Factors that significantly affect trends in the amounts reported:
Changes of benefit terms, No changes in assumptions or other inputs that affected the measurement date have been
made since the prior measurement date.
A-191
In accordance with GASB 75, the following information is presented to reflect the funding progress of the Other
Postemployment Benefits Plans for MUS plan.
Total OPEB Liability and Related Ratios
Last 10 Fiscal Years
(in thousands)
Total
OPEB
Liability 2020 2019 2018
Service cost 1,736 $ 1,952 ¢ 1,954
Interest 1,130 1,495 1,410
Changes of benefit terms — — —
Difference between expected and (15,015) — (1,323)
actual experience
Changes of assumptions or other (1,791) 1,351 (182)
inputs
Benefit payments 1,441 (888) (679)
Net change in Total OPEB (12,499) 3,910 1,180
Liability
39,348 35,438 34,258
Total OPEB Liability - Beginning
Total OPEB Liability - Ending
State and discretely presented
component units’ proportion of the
collective Total OPEB Liability
94.92 % 95.59 % 95.62 %
Covered employee payroll ”) 418,193 $ 451,613 $ 434,243
Total OPEB Liability as a
percentage of covered employee 6.42 % 9.11 % 8.53%
payroll
Schedules are intended to present information for 10 years. Additional years will be displayed as they become available.
) Amount reported is for the whole MUS plan for 2018 and 2019. Community Colleges were included due to lack of ability to separate covered
employee payroll for those years.
Note to Schedule: No assets are accumulated in a trust that meets the criteria of GASB 75.
Factors that significantly affect trends in the amounts reported:
Changes of benefit terms, Changes in benefit terms include increased annual deductible and out-of-pocket
maximums.
A-192
REQUIRED SUPPLEMENTARY INFORMATION
NOTE RSI - 4. RISK MANAGEMENT TREND INFORMATION
The following tables present risk management trend information for the Hail Insurance Fund and the MUS Group
Benefits Fund. The Hail Insurance Fund pays claims within a calendar year cycle that parallels the growing season
from spring planting to fall harvesting; therefore, it has no development cycle. The MUS Group Benefits Fund has a
three to five-year development cycle.
The tables illustrate how the earned revenues (net of reinsurance) of the funds and their investment income compare
to related costs of loss (net of loss assumed by reinsurers) and other expenses assumed by the funds as of the end of
the fiscal year (in thousands). Section 3 shows the funds’ incurred claims and allocated claim adjustment expense
(both paid and accrued) as originally reported at the end of the first year in which the event that triggered coverage
under the contract occurred. Section 4 shows the cumulative amounts paid as of the end of successive years for each
policy year. Section 6 shows how each policy year's incurred claims increased or decreased as of the end of
successive years. This annual re-estimation results from new information received on known claims, reevaluation of
existing information on known claims, as well as emergence of new claims not previously known. Section 7
compares the latest re-estimated incurred claims amount to the amount originally established (Section 3) and shows
whether this latest estimate of claims cost is greater or less than originally thought. As data for individual policy
years mature, the correlation between original estimates and re-estimated amounts is commonly used to evaluate the
accuracy of incurred claims currently recognized in less mature policy years. This table will be revised as data for
successive policy years develops.
A-238
STATE OF MONTANA
NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
FOR THE FISCAL YEAR ENDED JUNE 30, 2020
Note 1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying Schedule of Expenditures of Federal Awards includes the federal
award activity of the state of Montana under programs of the federal government for the
fiscal year ended June 30, 2020. The information in this schedule is presented in
accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200,
Uniform Administrative Requirements, Cost Principles, and Audit Requirements for
Federal Awards (referred to as the “Uniform Guidance”), and where applicable, Office of
Management and Budget Circular A-133 requirements.
Because this schedule presents only a selected portion of the operations of the state of
Montana, it is not intended to, and does not present, the financial positions, change in net
assets, or, where applicable, its cash flows for the fiscal year ended June 30, 2020.
Significant Accounting Policies
Expenditures shown on the Schedule of Expenditures of Federal Awards are reported on
the modified accrual basis of accounting, except as noted below. Under the modified
accrual basis of accounting, expenditures are generally recorded in the accounting period
in which the liability is incurred. However, there are some payments, such as
compensated absences, that are only recorded when the payment is due.
Such expenditures are recognized following the cost principles contained in the Uniform
Guidance, OMB Circular A-87, or other costs circulars wherein certain types of
expenditures are not allowed or are limited as to reimbursement. Negative amounts
shown on the schedule represent adjustments or credits made in the normal course of
business to amounts reported as expenditures in prior years.
The Montana University System uses full accrual accounting to report campus federal
expenditure activity. The Unemployment Insurance, Section 8 Voucher, and Section 8
Project-Based programs are accounted for as enterprise fund activity. Enterprise funds
also use the full accrual basis of accounting. Under the full accrual basis of accounting,
expenditures are recorded when a liability is incurred, regardless of the timing of the
related cash flows.
Loan and Loan Guarantee Programs (Note 2), Federal Excess Personal Property (Note
7), and the Department of Defense Firefighting Property (Note 8) are presented using the
basis of accounting described in each note. The Books for the Blind and Physically
Handicapped Program (Note 9) is not presented on the Schedule of Expenditures of
Federal Awards but is provided as additional information regarding the types of donations
received by the state as part of this federal program.
The state of Montana did not elect to use the 10% de minimis indirect cost rate allowed
under the Uniform Guidance.
Coronavirus Relief Fund
The state of Montana expended $685,219,735 in Coronavirus Aid, Relief, and Economic
Security Act (CARES Act) funds during fiscal year 2020. Amounts funded under the
various CARES Act programs are indicated by a “COVID-19” reference in front of the
federal program name on the fiscal year 2020 Schedule of Expenditures of Federal
Awards.
A summary of the federal programs that received funding under the CARES Act is shown
on the following page:
A-239
A-240
CFDA# CARES Act Funding FY 2020
Expenditures
10.551 Supplemental Nutrition Assistance Program $22,609,431
10.553 School Breakfast Program $805,929
10.555 National School Lunch Program $1,959,640
10.556 Special Milk Program for Children $206
10.558 Child and Adult Care Food Program $3,205,405
10.559 Summer Food Service Program for Children $10,563,625
10.569 Emergency Food Assistance Program (Food Commodities) $314,196
14.231 Emergency Solutions Grant Program $100,715
14.241 Housing Opportunities for Persons with AIDS $31,894
16.034 Coronavirus Emergency Supplemental Funding Program $52,143
17.225 Unemployment Insurance $499,740,638
20.106 Airport Improvement Program $212,432
20.509 Formula Grants for Rural Areas $5,784,009
21.019 Coronavirus Relief Fund $93,151,036
59.037 Small Business Development Centers $23,552
84.007 Federal Supplemental Educational Opportunity Grants $75,560
84.425 Education Stabilization Fund $12,191,090
Special Programs for the Aging, Title Vil, Chapter 2, Long Term Care
93.042 Ombudsman Services for Older Individuals $10,820
Special Programs for the Aging, Title Ill, Part B, Grants for Supportive
93.044 Services and Senior Centers $300,463
93.045 Special Programs for the Aging, Title Ill, Part C, Nutrition Services $1,786,293
93.048 Special Programs for the Aging, Title IV, and Title Il, Discretionary $304,000
Projects
93.052 National Family Caregiver Support, Title Ill, Part E $141,846
93.268 Immunization Cooperative Agreements $523
93.301 Small Rural Hospital Improvement Grant Program $2,849,939
93.323 Epidemiology and Laboratory Capacity for Infectious Diseases (ELC) $4,909,222
Public Health Emergency Response: Cooperative Agreement for
93.354 Emergency Response: Public Health Crisis Response $2,604,568
93.498 Provider Relief Fund $934,894
93.568 Low-Income Home Energy Assistance $3,571,621
93.569 Community Services Block Grant $35,386
93.575 Child Care and Development Block Grant $6,682,283
93.636 ACA - Reinvestment of Civil Money Penalties to Benefit Nursing Home $49,256
Residents
93.889 National Bioterrorism Hospital Preparedness Program $619
97.036 Disaster Grants - Public Assistance (Presidentially Declared Disasters) $10,216,501
Total CARES Act Funding $685,219,735
The state received $3,121,023 in supplies and equipment under CFDA #97.036, Disaster
Grants - Public Assistance (Presidentially Declared Disasters) which is shown on the
Schedule of Expenditures of Federal Awards. Of this amount, $576,228 was received
from the Strategic National Stockpile and $691,191 was donated hand sanitizer, swabs,
and cloth face masks from the Federal Emergency Management Agency.
Families First Coronavirus Response Act
Section 6008 of the Families First Coronavirus Response Act provided a temporary 6.2
percentage point increase to each qualifying state and territory's Federal Medical
Assistance Percentage (FMAP) under section 1905(b) of the Social Security Act. In fiscal
year 2020, the state paid an additional $36,762,371 for the Medical Assistance Program
(CFDA #93.778), and an additional $2,137,212 for the Children’s Health Insurance
program (CFDA #93.767), as a result of this FMAP increase.
Food Distribution Program
The amount reported for Food Distribution programs (CFDA #10.555, #10.565, #10.567,
#10.569, and #93.053) represents the dollar value of food commodities distributed to
eligible recipients during the year. The U.S. Department of Agriculture provides the
current value of the commodities used by the state to compute the amount reported. The
amount of funds received to administer the program is also included in the reported
amount. Montana also distributes food commodities to other states in the western region
of the United States. During fiscal year 2020, Montana distributed $1,202,826 of food
commodities under CFDA #10.567 to other states.
The state of Montana distributed $12,212,219 in commodities in fiscal year 2020. The
June 30, 2020 value of commodities stored at the state’s warehouse is $4,749,696, for
which the state is liable in the event of loss. The state has insurance to cover this liability.
Minority Health and Health Disparities Research
The amount reported for the Minority Health and Health Disparities Research Program
(CFDA #93.307) includes endowment funds of $9,375,000, along with interest earned on
the endowment. The entire endowment amount is reported as expended each year, as
the funds are restricted for the life of the endowment.
Immunization Cooperative Agreements
The amount reported for the Immunization Cooperative Agreements (CFDA #93.268)
includes the dollar value of vaccine doses received during fiscal year 2020. The state
used the Centers for Disease Control’s price list to calculate the value of doses received.
During fiscal year 2020, Montana received 185,060 vaccine doses valued at $10,501,107.
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A-242
Note 2. Loan and Loan Guarantee Programs
The following loan and loan guarantee programs are reported on the Schedule of
Expenditures of Federal Awards at their July 1, 2019 beginning loan balance plus the
amount of any interest subsidy, cash, or administrative cost allowance received during
fiscal year 2020:
Federal Loan/Loan Guarantee Program FY 2020 Ending
CFDA# State Revolving Loans Balance
66.458 Capitalization Grants for Clean Water State Revolving Funds $ 303,244,326
66.468 Capitalization Grants for Drinking Water State Revolving Funds $ 172,607,800
Total State Revolving Loan Programs $ 475,852,126
CFDA# Federal Loan/Loan Guarantee Program FY 2020 Ending
Student Financial Assistance Balance
University Loans
84.038 Federal Perkins Loan Program_Federal Capital Contributions $23,537,043
93.264 Nurse Faculty Loan Program (NFLP) $6,063
93.364 Nursing Student Loans $2,435,380
Total Student Financial Assistance Programs $26,229,488
Perkins Loan Programs
Under the Perkins Loan Extension Act of 2015, universities participating in this program
are no longer permitted to make Perkins Loan disbursements after June 30, 2018.
Institutions may choose to continue servicing their existing Perkins Loans until such time
the institution's outstanding loans have been paid in full or otherwise retired. Both
Montana State University and the University of Montana have chosen to continue to
service their current loans.
Economic Adjustment Assistance Program
The Economic Adjustment Assistance Program (CFDA #11.307) consists of two separate
awards, which are reported on the Schedule of Expenditures of Federal Awards at the
June 30, 2020 ending loan balances.
A-243
The amount of loans outstanding as of June 30, 2020 is $312,521 for award number 05-
19-02445 and $3,006,744 for award number 05-79-73005. The calculation for each of
these loan balances is as follows:
Award Number: 05-19-02445
State Name = EDA Revolving Loan
Federal Grantor = US Department of Commerce
Federal Program Name = Title IX SSED Revolving Loan Fund
Federal Catalog Number = 11.307
RLF Loan Balance FYE 2020 $ 293,074
Cash & Investments FYE 2020 $ 147,097
FY 2020 Admin paid out of RLF Income $ -
Unpaid Principal of loans written of during FY $ -
$ 440,171
Federal Percentage 71%
Federal Share of Revolving Loan Fund $ 312,521
Award Number: 05-79-73005
State Name = EDA Revolving Loan
Federal Grantor = US Department of Commerce
Federal Program Name = Economic Adjustment Assistance
Federal Catalog Number = 11.307
RLF Loan Balance FYE 2020 $ 5,885,488
Cash & Investments FYE 2020 $ 98,076
FY 2020 Admin paid out of RLF Income $ 29,923
Unpaid Principal of loans written of during FY $
$
6,013,487
Federal Percentage 50%
Federal Share of Revolving Loan Fund $ 3,006,744
Other Federal Loans
The following loans, originally funded through federal programs, do not have any
continuing federal compliance requirements imposed on the state, other than the loan
repayments. These loans are not reported on the Schedule of Expenditures of Federal
Awards:
A-244
Tongue River —Northern Cheyenne Tribal Loan
The Northern Cheyenne Tribe and the Department of Natural Resources and
Conservation entered into an agreement on July 1, 1994 in which the tribe agreed to loan
the state of Montana $11,300,000 of federal funds appropriated as part of the Northern
Cheyenne Indian Reserved Water Rights Settlement. The loan is to assist the state in
financing costs of the Tongue River Dam project. No expenditures of tribal loan funds
were incurred on project costs during fiscal year 2020. The amount of the loan
outstanding as of June 30, 2020 is $5,215,385.
Middle Creek Dam Rehabilitation Project Loan
The Department of Natural Resources and Conservation and the U.S Department of the
Interior, Bureau of Reclamation (BOR), entered into an agreement on September 21,
1990. The BOR agreed to loan the state of Montana “...a sum of money not to exceed
the lesser of (1) $3,023,925 plus reimbursable interest during construction, or (2) the
actual cost of the project, including reimbursable interest during construction...” The total
loan repayable is $2,990,129, and reimbursable interest during construction is $281,857.
As of June 30, 2020, the loan outstanding is $1,691,794, and reimbursable interest during
construction is $162,581.
Note 3. Type A Federal Programs
The state of Montana issues a biennial single audit report. The Montana Single Audit
report for the two fiscal years ended June 30, 2021 will be issued by March 31, 2022.
The Type A program threshold will be determined based on actual expenditures incurred
during the two fiscal years ended June 30, 2021.
Note 4. CFDA Number
The CFDA number assigned for each federal program listed in the Schedule of
Expenditures of Federal Awards is based upon agency agreements with the federal
government and the Catalog of Federal Domestic Assistance in effect during the audit
period.
The complete CFDA number is a five-digit number, where the first two digits represent the
federal agency and the second three digits represent the program. Programs not
assigned a CFDA number in the Catalog of Federal Domestic Assistance were assigned
a CFDA number in the format **.UXX or **. RD. Also refer to Note 13.
A-245
Note 5. Program Clusters
As defined by 2 CFR section 200.17, a cluster of programs is a grouping of closely
related programs that share common compliance requirements. Except for the Student
Financial Assistance Cluster, clusters of programs are presented on the Schedule of
Expenditures of Federal Awards either within their respective federal agency (for non-
research and development programs) or by federal agency and major subdivision (for
research and development programs.
Student Financial Assistance Cluster
Amounts reported for the Student Financial Assistance Cluster include programs
administered by both the Department of Education and the Department of Health and
Human Services. These clusters are shown separately, within their respective federal
agencies, on the Schedule of Expenditures of Federal Awards.
The combined Student Financial Assistance Cluster includes the following programs:
CFDA# Student Financial Assistance Cluster FY 20
Expenditures
84.007 Federal Supplemental Educational Opportunity Grants $1,638,881
84.033 Federal Work-Study Program $1,914,835
84.038 Federal Perkins Loan Program_Federal Capital Contributions $28,249,249
84.063 Federal Pell Grant Program $40,941,532
84.268 Federal Direct Student Loans $155,770,460
Teacher Education Assistance for College and Higher Education Grants
84.379 (TEACH Grants) $5,838
93.264 Nurse Faculty Loan Program (NFLP) $8,630
93.342 Health Professions Student Loans, Including Primary Care Loans/Loans for $320,347
Disadvantaged Students
93.364 Nursing Student Loans $2,925,738
Total Student Financial Assistance Cluster $231,775,510
Note 6. Research and Development Grants
Research and Development includes all research activities, both basic and applied, and
all development activities that are performed by a non-federal entity. Research is defined
as a systematic study directed toward fuller scientific knowledge or understanding of the
subject studied. The term research also includes activities involving the training of
individuals in research techniques, where such activities utilize the same facilities as other
research and development activities, and where such activities are not included in the
instruction function.
Development is the systematic use of knowledge and understanding gained from
research directed toward the production of useful materials, devices, systems, or
A-246
methods, including design and development of prototypes and processes. Federal
awards that meet the research and development criteria are listed in the Research and
Development Cluster.
Note 7. Federal Excess Personal Property
The state of Montana receives Federal Excess Personal Property (FEPP). The title to
this property remains with the federal agency. In accordance with General Services
Administration guidelines, the amounts are presented at fair market value at the time of
receipt by the state, which is determined to be 23.34% of the original acquisition cost of
the property.
Property received under CFDA #81.UXX, Miscellaneous Non-major Grants, is shown at
its fair market value at the time of receipt.
The following is a list of the FEPP received by the state of Montana during fiscal year
2020. The negative amount reflects property sold (title transferred at public sale) or other
disposition.
CFDA # Program FY 20 FY 20 Ending
Amount Inventory
10.203 Payments to Agricultural Experiment Stations $0 $124,578
Under the Hatch Act
10.500 Cooperative Extension Service $0 $3,157
10.664 Cooperative Forestry Assistance ($165,984)| $4,487,536
10.UXX Miscellaneous — Non-major Grants $0 $136,426
15.UXX Miscellaneous — Non-major Grants $0 $3,553
39.003 Donation of Federal Surplus Personal Property $84,100 $193,804
81.UXX Miscellaneous — Non-major Grants ($2,235) $2,370
43.UXX__ Miscellaneous — Non-major Grants $0 $665,190
47.UXX Miscellaneous — Non-major Grants ($1,254) $122,614
Note 8. Department of Defense Firefighting Property
The Department of Natural Resources and Conservation (DNRC) receives Department of
Defense Firefighting Property (FFP). The title to this property is transferred to the DNRC.
In accordance with General Services Administration guidelines, the amounts are
presented at fair market value at the time of receipt by DNRC, which is determined to be
23.34% of the original acquisition cost of the property. The following is the value of FFP
received by the state of Montana during fiscal year 2020:
CFDA# Program FY 20 FY 20 Ending
Amount Inventory
12.UXX Miscellaneous — Non-major Grants $66,811 $3,220,138
A-247
Note 9. Books for the Blind and Physically Handicapped
The Montana State Library receives “talking book” machines, cassette books,
accessories, and magazines from the federal government under the Books for the Blind
and Physically Handicapped Program (CFDA #42.001). These items are then distributed
to provide library services to blind and physically handicapped individuals. The federal
government retains title to these items. The approximate value of the items in inventory
(not distributed to individuals) at June 30, 2020 was $917,764.
Since this program is considered a federal “use of equipment” agreement, the
accompanying Schedule of Expenditures of Federal Awards does not include this
amount.
Note 10. Unemployment Benefits
The unemployment compensation system is a federal-state partnership. State
unemployment insurance laws must conform to certain provisions of the federal law.
Federal funds are expended for administrative costs. State unemployment taxes must be
deposited into a state account in the Federal Unemployment Trust Fund and are used
only to pay benefits. State Unemployment Insurance (UI) funds, as well as federal funds,
are included on the Schedule of Expenditures of Federal Awards.
The following schedule provides a breakdown of the state and federal portions of the total
expenditures recorded for the Unemployment Insurance Program (CFDA #17.225).
State Ul Expenditures $ 265,690,764
Federal Ul Expenditures 494 103,546
Total $ 759,794,310
Note 11. Subgrants to State Agencies
Federal assistance transferred from one Montana state agency to another Montana state
agency is shown only once on the Schedule of Expenditures of Federal Awards.
Federal assistance received from non-state sources, which are considered subgrants by
the awarding agency, are treated as pass-through grants to the state. These pass-
through awards are listed below the direct federal awards reported on the Schedule of
Expenditures of Federal Awards. Pass-through grant numbers are included for those
awards that were assigned an identifying number.
Note 12. Subgrants to Non-State Agencies
Federal assistance transferred from a Montana state agency or university to a non-state
agency, such as a city, county, tribal government, or nonprofit organization, is identified in
the Amount to Subrecipients column shown in the Schedule of Expenditures of Federal
Awards. These amounts are included in the expenditure totals shown on the report.
A-248
The Amounts to Subrecipients includes federal assistance transferred from a Montana
state agency or university that was originally received as a subgrant from another
Montana state agency or university. These amounts are not included in the expenditure
totals shown on the report, since the original award is only shown once on the Schedule
of Expenditures of Federal Awards, as described in Note 11 above.
A summary of amounts that were subgranted to a non-state agency, such as a city,
county, tribal government, or nonprofit organization, which were made from awards
originally received from another Montana state agency or university, is shown below:
Amount to
CFDA# Federal Program Subrecipients
Non Research and Development
16.833 National Sexual Assault Kit Initiative $100,202
21.019 Coronavirus Relief Fund $79,527,728
84.048 Career and Technical Education -- Basic Grants to States $2,798,047
84.419 Preschool Development Grants $86,953
93.243 Substance Abuse and Mental Health Services Projects of Regional and $38,449
National Significance
93.262 Occupational Safety and Health Program $14,581
Total - Non Research and Development $82,565,960
Research and Development Cluster
20.205 — Highway Planning and Construction $12,000
93.778 Medical Assistance Program $155,430
Total Research and Development Cluster $167,430
Note 13. Federal Awards Not Having a CFDA Number
The following schedules contain contract or grant numbers associated with awards that
did not have a CFDA number and were assigned either a **.UXX or **.RD number in the
Schedule of Expenditures of Federal Awards. Not all **.UXX or **.RD awards reported on
the SEFA had a grant or contract number. Also refer to Note 4.
Federal Agency
DEPARTMENT OF AGRICULTURE
10.U01
10.U02
10.U03
10.U04
10.U05
10.U06
10.U07
10.U08
10.U09
10.U10
10.U11
10.U12
DEPARTMENT OF DEFENSE
12.U01
12.U02
12.U03
12.U04
12.U05
12.U06
12.U07
12.U08
12.U09
12.U10
12.U11
DEPARTMENT OF EDUCATION
84.U01
DEPARTMENT OF ENERGY
81.U01
81.U02
81.U03
81.U04
Schedule of Unknown Federal CFDA Numbers (**.UXX)
State Agency Contract or Grant Number
Montana State University - Bozeman Unknown
Department of Natural Resources and Conservation 15-Fl-11010200-001
16-Fl-11010200-019
16-Fl-11011100-057
16-Fl-11011100-060
16-Fl-11011500-026
17-Fl-11011600-013
17-Fl-11015200-003
18-Fl-11011600-026
18-Fl-11015200-008
18-FP-11011500-017
DNRC-BLM-18-001
University of Montana - Missoula 1900163
W9128F-17-2-0028
Department of Fish, Wildlife and Parks 19-102P
19-85P
20-105P
20-144P
W9128F-15-D-0015
W9128F-20-D-0025
W912DW-15-2-0001-0005
W912DW-20-2-0001
Department of Natural Resources and Conservation Unknown
Office of Public Instruction Contract # ED-IES-14-C-0086
Department of Fish, Wildlife and Parks 19-36G
20-18G
00-UGPR-34
Department of Natural Resources and Conservation Unknown
DEPARTMENT OF HEALTH AND HUMAN SERVICES
93.U01
DEPARTMENT OF THE INTERIOR
15.U01
DEPARTMENT OF TREASURY
21.U01
LIBRARY OF CONGRESS
42.U01
Department of Public Health and Human Services Unknown
Department of Fish, Wildlife and Parks 140G0219P0131
Department of Administration Unknown
Montana Historical Society Unknown
A-249
Amount
$986
$322
$1,392
$1,789
$29,708
$744
$2,820
$24,110
$3,580
$9,896
$15,465
$1,445
$78,510
$172,108
$170,654
$1,187,025
$458,487
$61,193
$202,951
$145,270
$337,449
$44,014
$66,811
$113,496
$60,551
$58,624
$222,717
$42,830
$163,827
$54,684
$5,992
$5,300
A-250
Schedule of Unknown Federal CFDA Numbers for Research and Development Awards (XX.RD)
Federal Agency State Agency
DEPARTMENT OF AGRICULTURE
10.RD Montana State University - Bozeman
University of Montana - Montana Tech
DEPARTMENT OF DEFENSE
12.RD University of Montana - Missoula
Montana State University - Bozeman
DEPARTMENT OF ENERGY
81.RD University of Montana - Montana Tech
DEPARTMENT OF HEALTH AND HUMAN SERVICES
93.RD University of Montana - Missoula
Montana State University - Bozeman
Department of Public Health and Human Services
DEPARTMENT OF HOMELAND SECURITY
97.RD Montana State University - Bozeman
DEPARTMENT OF THE INTERIOR
15.RD University of Montana - Missoula
Contract or Grant Number
A17-0837-S001
078863-16983
14-CS-11011100-026
15-CS-11021400-031
16-JV-11221639-136
17-CS-11010200-019
17-CS-11011100-012
17-CS-11015600-056
17-JV-11221636-068
18-CS-11011800-017
58-2056-5-002
59-0206-5-002
59-0206-5-003
59-0206-5-004
AG-3151-C-17-0012
MSU-ARF ORBC MOU
09-CS-11010800-018
N62473-19-2-0005
W911KB-19-2-1500
W911KB-19-2-1501
W9126G-19-2-0035
W9126G-20-2-0016
W9128F20P0030
W912G-19-2-0007
313-0873
SUBCONTRACT NUMBER 313-0742
SUBK-MSU-VDHWFS2-01-012720
SUBK-MSU-NLAO-01-100518
$2-1025-19-01
$B1911-001-1
ARM212-MSU/ PO# EP0166321
FA701418C5000
FA701418C5004
M67854-18-3-1330
W912HZ-18-2-0010
230444
223911
2151826
1663302
1922244
GENFD0001583403
7273 POPS V
75N93019C0045
HHSN272201400050C
HHSN272201800048C
18BBSK0053 (HHSN26100014)
75N91019P00691
Unknown
LO212A-A
LO205A-A
50002.001
100130
100145
Amount
$24,004
$50,523
$7
$12,831
$6,085
$5,929
$7,300
$576
$16,388
$13,837
$13,354
$9,624
$12,138
$7,993
$100,698
$12,608
-$1
$132,680
$72,586
$492,429
$1,944
$9,916
$681
$2,510
$510,676
$59,386
$134,729
$39,288
$948
$196,821
$30,191
$9,649
$4,989
$332,581
$326,511
$2,061,223
$19,348
$5,291
$6,000
$26,456
$26,224
$45,340
$758,671
$7,624
$1,036,127
$1,802,944
$2,369,073
$20,092
$63,295
$142,861
$1,527,489
$201,721
$209,286
$196,575
$46,745
$38,228
Schedule of Unknown Federal CFDA Numbers for Research and Development Awards (XX.RD)
Federal Agency State Agency
Montana State University - Bozeman
University of Montana - Montana Tech
ENVIRONMENTAL PROTECTION AGENCY
66.RD University of Montana - Montana Tech
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
43.RD University of Montana - Missoula
Contract or Grant Number
100006
33172.002
140B0619F0343
140F0619C0021
140F0619P0068
140F0619P0069
140L0618F0380
140L0619F0248
140L0619F0249
140L0619F0291
140L0619F0292
140L0619F0301
140L0619F0302
140L0619F0359
140L1018P0018
140L619F0285
140L619F0342
G15PC00055
G19AC00047
68-0325-15-005
H1580070001
MONTT-19-001
1422120
Amount
$224,518
$3,797
$11,311
$10,067
$22,321
$14,743
$291,593
$4,869
$64
$643
$1,965
$41,635
$8,026
$58,164
$1
$33,994
$1,803
$16,117
$40,760
$95,724
-$23,395
$4,047
$176,029
A-251
STATE OF MONTANA
STATE RESPONSES
MONTANA
DEPARTMENT OF B-1
ADMINISTRATION
State Financial Services Division
Greg Gianforte, Governor
Misty Ann Giles, Director
R on | i ED
February 3, 2021
+
T
Angus Maciver, Legislative Auditor
Legislative Audit Division
State Capitol, Room 160
PO Box 201075
Helena, MT 59620-1705
LEGISLATIVE AUDIT DIV.
RE: Financial Audit 20-01A, State of Montana, for the year ended June 30, 2020
Dear Mr. Maciver:
The Department of Administration would like to thank the Legislative Audit Division for auditing the State financial
statements for the year ended June 30, 2020. We appreciate your staff and the professionalism demonstrated during
the audit process.
The Department of Administration’s respanse to the items reported under the Compliance of Other Matters, is as
follows:
The Public Employee’s Retirement Board (PERB) and the Montana Public Employee Retirement Administration (MPERA)
have taken actions to address the material violations of finance-related legal provisions, resulting from the retirement
systems that are not actuarially funded, as required by the State Constitution. PERB has a policy to recommend funding
increases when plans do not amortize within 30 years. Specifically, PERB is to recommend funding changes to address
financial stability if PERB cannot reasonably anticipate the amortization period would decline without changes being
made by Montana Legislature.
Again, we thank you for your assistance this financial reporting period. We look forward to working with your division
during future audit processes.
Sincerely,
Statewide Accounting
Bureau
Mitchell Bldg, Rm 255
P.O. Box 200102
Helena, MT 59620
406-444-3092
Financial Services
Technology Bureau
Mitchell Bldg, Rm 295
P.O. Box 200102
Helena, MT 59620
406-444-3092
Local Government
Services
Mitchell Bldg, Rm 255
P.O. Box 200547
Heiena, MT 59620
406-444-9101
State Procurement
Bureau
Mitchell Bldg, Rm 165
P.O. Box 200135
Helena, MT 59620
406-444-2575
B-2
OFFICE OF THE GOVERNOR
BUDGET AND PROGRAM PLANNING
GREG GIANFORTE
GOVERNOR
PO Box 200802
HELENA, MONTANA 59620-0802
February 4, 2021
RECEIVED
FEB 05 2021
Mr. Angus Maciver n —
Legislative Auditor LEGISLATIVE AUDIT DIV.
Legislative Audit Division
Room 160, State Capitol
Helena, MT 59620-1705
RE: State of Montana Financial Audit (#20-01A)
Dear Mr. Maciver:
The Office of Budget and Program Planning has reviewed the State of Montana Financial Audit
for the fiscal year ended June 30, 2020. Our office is pleased with your issuance of an
unmodified opinion on our Schedule of Expenditures of Federal Awards, in relation to the
financial statements as a whole, presented in this report.
Kurt Alme
Budget Director
cc: Sonia Powell, Single Audit Coordinator
B-3
Department of Public Health and Human Services
Director’s Office ¢ PO Box 4210 ¢ Helena, MT 59620 4 (406) 444-5622 ¢ Fax: (406) 444-1970
hitps://dphhs.mt.gov
4. Healthy Conmnuntttes.
Greg Gianforte, Governor
Adam Meier, Director
February 15, 2021
Angus Maciver, Legislative Auditor : CIVED
Legislative Audit Division FEB 1 55,
Room 160, State Capitol LE wis
° GIS! arn,
PO Box 201075 “GISLATIVE Aupit pry
Helena, MT 59620-1705
RE: Financial Audit 20-01A
Dear Mr. Maciver:
The Department of Public Health and Human Services has reviewed the State of Montana Financial
Audit for the fiscal year ended June 30, 2020.
The Department of Public Health and Human Services’ response to the items reported on Internal
Control and Compliance is as follows:
The department continues to strengthen internal controls related to the Medicaid program. While the
audit did not specifically find an issue that resulted in incorrect FMAP, the department recognizes the
potential risk and the importance of working tasks in a timely manner. To address this risk the
department is implementing two additional internal controls:
e The department will provide additional training and communication for staff to help them
effectively redetermined eligibility for individuals receiving Medicaid and prioritize critical
tasks.
e The department will consistently run a new report specific to the recalculation of premiums to
help ensure timely and accurate redetermination of benefits for the Medicaid program.
In addition, to the specific internal controls mentioned above, we will also look at additional
enhancements to technology and operations that minimize the likelihood of future similar occurrences.
We thank you for you work on this audit, and appreciate the opportunity to add further comment on the
audit findings.
Sincerely,
Adam Meier,
Director, DPHHS
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