Finis

By Bob Decker
April 29, 2009

“Sine die” means “without day,” but because direct Latin-English translations are frequently awkward and unrevealing, a more applicable definition for the term is “without any future date being designated.”

The latter meaning is what “sine die” holds in a legislative context, as in, “We’re adjourned, we’re leaving, and, barring a special session made necessary by either our blunder or the imposition of fate, we won’t be back for two years.”

To all but the most blindingly sunny of dispositions that may reside within any of the legion of legislators, lobbyists, support staff, reporters, and political junkies who participate in Montana’s ninety-day legislative sessions, “sine die” also conveys a sense of gratitude, as in “Thank you for not one more day of this.”

If fewer people were repressed by the idea that the use of foreign phrases reveals a weak commitment to the exceptionalism of our mother tongue, or more people discovered the dead-on suitability and conversational uplift that the world’s bon mots can provide, “Sine die” would be the preferred spoken expression of fond and final parting between the diverse players in Montana’s biennial exercise of democratic lawmaking. Hugs, handshakes, regrets, relief … “Sine die!”

The question of pronunciation is a barrier to such usage, as an internet search will give you sigh na dah´ yee, sin ay dee´ ay, and sign ee die´ ee. For people who sought or hoped for significant progressive changes to Montana’s tax structure, the preferred pronunciation might be so nee´ dee, or “so needy,” for the aftertaste of a session that did almost nothing to improve Montana’s tax system and a few things to worsen it.

Property Tax Reappraisal

This was the sole major tax issue that played a part in the legislative finale, not because its resolution would significantly alter the terms of the budgetary endgame that defined the end of the session, but because property reappraisal had been a central focus of attention for most of the session, because several proposals had been tardily introduced to address it, and because of a universal legislative law that requires a long-discussed topic to have a long-delayed denouement (seeking conversational uplift here).

HB 658 was the vehicle for property reappraisal, but because almost all principals (House, Senate, Dems, GOP, Governor) agreed from the get-go that the final property tax policy would be “revenue-neutral,” i.e., not raise property tax revenue from 2008 levels, the outcome of the bill did not have a significant impact on state revenue numbers.

Reappraisal of property values (for houses, commercial buildings, agricultural and forest lands, power plants and pipelines, etc.) has been a weighty topic in this session because reappraisal occurs only once every six years (this question of frequency has been a part of the session’s dialogue), and a reappraisal has just been completed. Montana’s growth boom of recent years has driven property values, especially for residences, dramatically upward, which created apprehension in people about parallel increases in property taxation.

To complicate matters, the current economic crisis could unfold to lower residential market values (although a statewide trend toward lower market values has not yet been identified in Montana).

During the session, The Policy Institute supported the incorporation of a “general circuit breaker” into Montana’s property tax system. A circuit breaker limits property tax liability to a percentage of annual income, an approach that lessens property tax payments for low-income homeowners and elevates payments for the wealthy (as circuit-breaker policy is structured by most states). Montana already has four constituency-specific circuit breakers in place, including one for low-income seniors and one for disabled veterans, but a “general” circuit breaker would simultaneously replace or revise those specific models and create a formula that assisted more low-income property owners.

The idea for a general circuit breaker generated substantial discussion during the session, but was ultimately rejected by Senate Republicans, who opposed the shift of tax responsibility from low-income to high-income taxpayers of the circuit breaker approach.

Income Tax

Of several introduced bills related to Montana’s income tax system, the most significant ones addressed the impacts of SB 407, a comprehensive income tax bill passed in 2003. SB 407 shifted state income tax responsibility in Montana from the wealthy to low-income taxpayers by flattening marginal tax rates and lowering rates on capital gains.

The Policy Institute supported a bill by Rep. Dave McAlpin (D-Missoula) to create a new top marginal tax rate of 7.9%, above the current maximum rate of 6.9%. McAlpin’s bill failed in the House Tax Committee on a tie vote.

The Policy Institute opposed a bill by Rep. Tom McGillvray (R-Billings) to increase income tax deductions, a change that would have resulted in disproportionate benefit to high-income taxpayers as well as a state revenue reduction of $20 million annually. McGillvray’s bill died on a tie vote in the House Tax Committee.

Capital Gains

As explained above, Montana’s tax rate on capital gains was lowered by 2% in the 2003 session. The Policy Institute supported a bill by Sen. Ron Erickson (D-Missoula) to repeal that tax break, but the bill died in the Senate Tax Committee.

The Policy Institute opposed a bill by Sen. Jeff Essmann (R-Billings) to further decrease Montana’s tax rate on capital gains for the sale of certain businesses created within Montana in the next several years. Essmann’s bill, passed by the Senate in mid-session, was passed by the House in the waning days of the session.

Earned Income Tax Credit

This tax idea (“EITC”), which provides an income tax credit to working taxpayers in low-income families, is widely recognized as the most effective anti-poverty policy in the nation. First initiated at the federal level, during the administration of President Ford, the EITC has since become an element of tax policy in 25 states. Before and during the session, The Policy Institute worked with a coalition of church, low-income, and senior organizations to establish an EITC for Montana.

Sen. Christine Kaufmann (D-Helena) introduced an EITC bill in the Senate, which was tabled by the Senate Tax Committee. Rep. Mary Caferro (D-Helena) introduced an EITC bill in the House, which was approved by the House Tax Committee and subsequently by the full House. The bill then was tabled on a tie, partisan vote in the House Appropriation Committee, where Republicans opposed adding a new reduction in state revenue to the budget (the annual cost of a state EITC in Montana would have ranged from $5 million to $20 million, depending on the percentage credit adopted). Caferro’s bill also failed on the House floor on a “blast” motion.

Business Equipment Tax

This element of Montana’s property tax system has been under siege since 1989, when the state’s tax rate on business equipment was, on average, 11%. The rate has been successively lowered and today operates at 3%.

Several bills were introduced by Republicans in this session to reduce the tax further, but the bills’ price tags, varying from $20 million to $50 million annually, depending on the size of the tax-cutting blade applied, prevented the Tax Committee on the House side from passing any of the bills, including a version adopted by the Senate.

The Policy Institute opposed further reductions in the business equipment tax, largely on the argument that Montana’s tax climate for business is currently judged to be quite favorable by various national economic, tax, and business development organizations that perform state-by-state comparisons. (For example, Montana’s business tax climate is rated the sixth most business-friendly in the nation by the Tax Foundation, which produces what may be the most comprehensive analysis of state business taxes.)

Tax Compliance

This category includes a handful of bills that attempted to close some of the loopholes that allow certain taxpayers, including individuals, partnerships, and corporations, to avoid full payment of state taxes. The loopholes related to such topics as insurance company structures, off-shore tax havens, and non-resident sales of real estate.

All but the most innocuous of the compliance bills failed, mostly on the argument from Republicans that either the targeted problem was not a serious one or the Department of Revenue already had sufficient authority and resources to address the alleged problem.

This arena of tax legislation was frustrating in the session because the proposed changes rested not on philosophical positions about the level of taxation or the distribution of tax responsibility, but on the seemingly sensible and simple argument that Montana’s existing tax requirements should apply equally to all taxpayers who are eligible for a particular tax. “Sensible” is a subjective concept, however, and little in the legislative world is simple.

Oil and Gas

The Policy Institute made a concerted effort to advance bills that corrected what we judge to be excessive tax breaks given by the Montana Legislature to the oil and gas industry over the past 20 years. Regrettably, the major bills on this subject failed.

For an overview of Montana’s system of oil and gas taxation, as well as an analysis of the state’s oil and gas tax “holiday” and recommendations for change, go to this page of The Policy Institute’s website. For a brief summary of Montana’s oil and gas tax policy, go to this opinion column.


Coal Tax

Reducing Montana’s severance tax on coal is a perennial exercise for coal companies and their elected allies in the Legislature. For the most part, the efforts have failed, with the notable exception of the passage of a 1987 bill that reduced the severance tax from 30% to the current 15%.

Sen. Jeff Essmann (R-Billings) introduced a bill to halve yet again the coal tax - to 7.5% -on coal mined for consumption in coal power plants or coal gasification plants that sequester carbon dioxide emissions. The Policy Institute opposed the bill, both because Montana’s coal tax has been one of the most successful tax policies in Montana’s history (it has provided significant, steady revenue to the state without constraining coal development) and because Essmann’s bill was worded so as to qualify even established coal production for the lower tax rate under certain – and likely - scenarios. Essmann’s bill passed the Senate, but was tabled by the House Tax Committee.

Confirmation of Dan Bucks as Revenue Director

Toward the end of the session, some Republicans soured - quite suddenly - on the notion that Dan Bucks would be confirmed by the Senate to continue serving as Director of Revenue, the state’s tax agency. Bucks is recognized as profoundly knowledgeable in tax policy and has a productive record of administering the Department of Revenue for four years under Governor Schweitzer. However, forthright and fair as Bucks is, he doesn’t veil his belief in progressive taxation and sometimes frustrates legislators (of both parties) with his tendency to overwhelm interlocutors with detail.

For several days before the hearing on a bill to re-confirm him as Director of Revenue, it appeared as though Bucks’ chances of gaining approval by the Senate Tax Committee were minimal, and, even if committee assent occurred, it was doubtful in the full Senate.

During Bucks’ confirmation hearing, however, several individuals and organizations testified on Bucks’ behalf, and his detractors failed to mount a serious attack on his performance. He was subsequently endorsed by the Tax Committee, then by the full Senate.

For appointments to the governor’s cabinet, only confirmation by the Senate is required, so Bucks will remain at his post.

Sine die!

Leveling Lowering the Playing Field

By Bob Decker
April 9, 2009

Montana’s Coal Trust Fund earned a place in the state constitution in 1977 after voters approved the idea of directing 50 percent of the coal severance tax collected each year into a permanent trust. After the Coal Trust grew to a sizable savings account for the state, the earnings of which funded public works projects, it became eminently raidable. “The rainy day is now” is the chorus lyric that accompanies every wave of effort to get at the principal.

The most successful attack on the Coal Trust was not a raid on the existing balance, however; it was a statute passed by the 1987 Legislature to halve the coal tax rate – from 30 percent to 15 percent. Advocates for the tax reduction argued that it would incentivize coal production in Montana, but state production remained relatively flat, at around 36 million tons annually, for several years after the tax break. During those years, of course, the Coal Trust grew at half its previous speed.

Today, the balance of the Coal Trust is about $800 million, and it has produced more well over $1 billion in earnings, which have been expended on numerous local and state infrastructure projects over the years. In addition, the Trust’s healthy principal has given Montana an excellent bond rating, which has lowered borrowing costs for other major projects in the state.

The coal tax is currently generating about $40 million per year, half of which goes into the Coal Trust. The other 50 percent is appropriated by the Legislature for immediate budgetary purposes, including the state’s long-range building program, conservation districts and the State Library Commission, the State Parks Trust, renewable resources debt service, the Cultural Trust, and other targeted areas, including the state’s general fund.

SB 499, sponsored by Sen. Jeff Essmann (R-Billings), would cut Montana’s coal severance tax in half – from 15 percent to 7.5 percent, for coal produced from existing or new mines that is consumed in power-generating plants or coal-gasification facilities that sequester carbon dioxide.

SB 499 passed the Senate, largely on party lines. In presenting the bill to the House Tax Committee on April 6, Sen. Essmann contended that the bill was “designed to protect the long-term health of the Coal Trust,” and that it would do that by allowing Montana’s coal tax severance rates to compete with those of North Dakota and Wyoming.

Essmann got support for his bill from lobbyists representing Great Northern Properties (alleged to hold the state’s largest portion of coal reserves), Rio Tinto (which operates the state’s largest mine, near Decker), the Montana Coal Council, the Western Environmental Trade Association (a pro-industry group), and the Montana Association of Oil, Gas, and Coal Counties (34 of Montana’s 56 counties).

Opposition to SB 499 was led by former GOP legislator Verner Bertelson, who has been the long-time spokesman for Montanans for the Coal Trust, the nonprofit that has defended the Coal Trust and Montana’s coal tax rates since the late 1970s. Bertelson argued that the budgetary and tax benefits from coal taxation and the existence of the Coal Trust have been steady and significant for Montana for decades, and that the promise of economic bounce from lower tax rates is just as hollow as it is frequent.

Another former legislator, Ray Peck, who served in the House as a Democrat from Havre, testified that he felt regret for having been part of the majority that lowered the coal tax in 1987. Peck said that the lower tax did not elevate coal production and did not boost the state’s economy.

Anne Hedges, lobbyist for the Montana Environmental Information Center, opposed the bill by observing that Montana law does not define carbon dioxide “sequestration,” nor does SB 499 provide any pathway for determining what degree and method of carbon dioxide management would be necessary for a mine to pay lower taxes.

For The Policy Institute, I opposed SB 499 and raised two points:

1) Contrary to the assertion of the bill sponsor and supporting witnesses, the language of the bill did not assure that the current 30 percent tax rate on coal would remain for existing production at Montana mines. In fact, with the growing seriousness of the climate change issue and the increasing probability of regulation to control carbon emissions, it is conceivable that carbon control requirements will be placed on both new and existing power plants in coming years. Such a scenario would make it possible for all coal produced in Montana to be taxed at the lower rate.

2) The argument that Montana must lower its tax rate on coal production to become competitive and “level the playing field” with respect to other states is an argument made for the benefit of industry, not for the financial well being of Montana’s citizens. If advocates for competitive taxes were true to the principal of establishing competitive tax rates for the benefit of the state, they would advocate for higher taxes in Montana on the production of oil and gas. Montana’s tax rates on oil and gas are lower than Wyoming’s rates, for example, yet Wyoming’s oil and gas production has grown much faster than Montana’s in the past decade.

In fact, Montana’s “competitive” tax rates on oil and gas, which are a third lower than Wyoming’s, have cost Montana more than $600 million in lost revenue in the past six years.

For most advocates of lower tax rates on resource extraction, the “competition” is usually between the industry and the state, not between the states. In the past 20 years, Montana’s legislators have consistently competed for industry and have not negotiated assertively and adroitly (i.e., “competed”) for the interests of Montana residents and taxpayers.

The House Tax Committee did not take action on SB 499 on the day of the hearing.

Update: On April 8, the House Tax Committee tabled SB 499.

70% is a Mandate - We Are Outraged, Are You?

By Kim Abbott, Montana Human Rights Network
April 7, 2009

We at the Montana Human Rights Network are angry and we are frustrated, but our fight to ensure that the Healthy Montana Kids Plan is fully funded, as mandated by Montana Voters, continues. Yesterday the Network, with allies, engaged in direct action and descended on the Senate Finance and Claims Committee to protest the cut of 15,000 children from the Healthy Montana Kids Plan. Twenty two of us wore T-Shirts that said "FULLY FUND I-155! I REPRESENT 15,000 HEALTHY MONTANA KIDS VOTERS."

This protest was in direct response to actions by the committee. On Friday night, 10 Senate Republicans voted to pass an amendment that reduced funding for the Healthy Montana Kids Plan by half. Just as outrageous, this amendment eliminated the Special Revenue Account that voters established by passing I-155. This account was meant to fully and consistently fund the program. As it is written now, the money for this account is gone. This behavior is simply undemocratic. I-155 passed in every legislative district, in every county, and it carried 70% of the total vote.

The Network is going to keep fighting for the will of the Montana voters to be enacted. The next vote will be Thursday April 9th on the Senate floor. You can help by calling your senator and telling them to reinstate funding for the Healthy Montana Kids Plan. Please consider writing a letter to the editor of your local paper as well. We are doing the best we can here in Helena and we will keep pushing until the very end!

Contact your senator now by clicking here or calling 406-444-4800.

Wyoming Tax Formula Creates Massive Fund, Not Industry Exodus

By Molly Severtson
April 2, 2009

One of The Policy Institute’s priorities in the 2009 legislative session has been the repeal of Montana’s oil and gas tax holiday, which has cost the state more than $500 million in revenue since 2003. In "Montana’s Oil and Gas Tax Holiday: Analysis and Recommendation for Change" (here), we report that, according to recent academic studies, production tax rates have little effect on industry investment and activity. In fact, location of reserves is the major factor influencing energy companies, along with price, access to markets and technology. In the past and throughout this session, oil and gas industry representatives have offered neither substantive rebuttal to these studies nor evidence to the contrary.

Three bills asking the oil and gas industry to pay a more fair share have been introduced this session, the latest of which is HB 675, sponsored by Rep. Brady Wiseman, D-Bozeman. Wiseman’s bill would repeal the 18-month holiday for new horizontal oil and natural gas wells and deposit the increased revenue into a trust fund that would help fund state school equalization aid while reducing property taxes.

Opponents of the bill offer the well-worn argument that eliminating the holiday will push the oil and gas industry away from Montana to states with a presumably more favorable tax landscape. With that argument in mind, it’s instructive to look at the reality of one of Montana’s closest neighbors: Wyoming.

Unlike legislators in Montana, Wyoming lawmakers have not been afraid to ask for the state’s fair share of mineral revenues As a result, both the mineral industry and the state treasury in Wyoming have flourished.

In 1974, under the leadership of Republican Governor Stan Hathaway, Wyoming voters approved an amendment to the state constitution establishing a 1.5% excise tax on the gross value of extracted coal, petroleum, natural gas, oil shale, and other minerals, the proceeds of which are deposited into the Permanent Wyoming Mineral Trust Fund (PWMTF). The investment returns of the PWMTF are deposited annually in the state’s general fund. The value of the fund, which also occasionally receives direct appropriations from the Wyoming Legislature, is expected to exceed $4 billion by summer 2009.

In addition to underwriting various infrastructure projects, including the construction of new schools and libraries and improvements at universities and recreation centers, the fund provides Wyoming with a degree of protection against the volatility of a natural resource-based economy and recessions like the one we’re currently facing.

Over the years, there has been much debate as to whether money from the PWMTF can or should be used for purposes beyond deposits to the general fund and whether money intended for the PWMTF could be directed to other accounts. A 2006 legislative resolution specified all monies deposited in the fund to be inviolate. Efforts in 2007 and 2008 to use funds destined for the PWMTF for state road improvements failed.

In light of the current economic crisis and projected state revenue shortfalls, tapping into the massive account again became attractive to legislators who decided during the 2009 session to divert half of an additional 1% mineral severance tax (over and above the constitutionally-mandated 1.5%) to the Spending Policy Reserve Account, a holding account for the PWMTF, over the remainder of the biennium. This amounts to $64.8 million that may eventually flow into the corpus of the PWMTF, but if necessary, can be used to offset revenue shortfalls.

While arguments over the use of the fund and its dividends are sure to persist, it’s clear that Wyoming’s willingness to ask its mineral industry to pay its fair share has greatly contributed to the economic health of the state. We’re sorry that the 61st Montana Legislature has failed to do the same.

Montana’s Nickel-A-Widget Business Plan

By Bob Decker
April 1, 2009

Suppose you own a business that sells widgets. In a given period of time, would you rather sell 100 widgets at a nickel apiece, or 95 widgets at a dime apiece?

In determining a tax policy for oil and gas production in the state, the Montana Legislature has adopted, in defiance of common business sense and in servility to industry, a nickel-a-widget approach. The mismanagement has cost the state hundreds of millions of dollars.

Over the past 20 years, the Legislature has steadily lowered taxes for the oil and gas industry. The state’s generosity peaked in 1999, when the Legislature both expanded the applicability of tax “holidays” and significantly reduced basic severance tax rates.

Oil was selling for $20 per barrel in 1999, but soon began a multi-year climb: $28 in 2003, $50 in 2005, $67 in 2007. All the while, Montana’s discounted tax rates remained in place, even as oil reached $145 per barrel in mid-2008. According to data from the Montana Department of Revenue, the Legislature’s 1999 actions produced a decrease in revenue to state government and oil- and gas-producing counties of $500 million during the period 2003-2007. Add another $100 million for 2008.

Oil and gas companies contend that differences in state tax rates figure centrally in their decisions about where to drill wells, but they don’t substantiate the argument. In fact, evidence demonstrates that drilling decisions are based predominantly on the location of reserves and secondarily on global product prices and accessibility to markets. Tax rates are down the list.

Montana could learn from Wyoming, which also lowered its oil and gas tax rates in 1999, yet took the additional step of mandating research on the question of how tax rates affect development. The resulting study published by the University of Wyoming concluded that the reduced tax rates would generate 2.3 percent more production over 40 years, but would decrease state revenue by 37 percent.

Following the study, Wyoming repealed its tax reduction and hasn’t looked back. Mineral development has boomed there in the past decade, yet the state now has the highest effective tax rate for oil and gas production in the intermountain West. It has built a $3 billion mineral trust fund, fueled mostly by oil and gas taxes.

Wyoming is an aggressively pro-growth state, but its Legislature recognized the truth about drilling decisions and the value to the state of setting higher tax rates. By choosing to sell a fraction fewer widgets at a higher price, it increased its revenue stream and built a sizable savings account that provides permanent income to the state.

When Montana’s Legislature swerved errantly in 1999, both Republicans and Democrats were culpable. In the current session, however, the lines are clearly drawn. Several bills have been introduced by Democrats to terminate or amend Montana’s oil and gas tax holiday; all of them have been opposed – and defeated – by Republicans.

Republicans portray themselves as the “party of business,” but the brand is misleading. Most Republican legislators simply serve established wealth and have little interest in pursuing good business principles or negotiating firmly on behalf of the state. Some Republicans are so hostile to the existence of government that they reflexively resist a fundamentally conservative idea – a Montana oil and gas trust fund – that would increase earnings, protect the corpus, and provide tax relief for most Montanans.

If your answer to the opening query was to sell 95 widgets at a dime apiece, your business instincts are sound. Now you should examine Montana’s oil and gas tax policy and ask your own question: Who’s running the store?

Horse-Trading and the Business Equipment Tax

By Bob Decker
March 24, 2009

Bills to lower the property tax on business equipment have been introduced in the current session by Rep. Bob Lake (R-Hamilton), Sen. Ryan Zinke (R-Whitefish), and Sen. Roy Brown (R-Billings). Lake’s bill (HB 240) hangs in limbo in the House Tax Committee, while Zinke’s bill (SB 315) was tabled and Brown’s bill (SB 490) passed, both today, by the Senate Tax Committee.

Also today, a business equipment tax reduction bill (HB 649) sponsored by Rep. Jill Cohenour (D-East Helena) was heard by the House Tax Committee. Rep. Lake’s bill, an unqualified effort to raise the tax exemption limit on business equipment, failed to pass in House Tax, where 10 Republican votes could not overcome the nay votes of the committee's 10 Democrats. Rep. Cohenour’s bill, like Rep. Lake's, seeks to elevate the exemption limit, but also includes a provision that requires the passage of a handful of bills that would allow the Department of Revenue to strengthen its capacity to collect unpaid taxes from various hard-to-corral taxpayers. The House Tax Committee did not act on Rep. Cohenour’s bill today.

Rep. Cohenour’s bill was supported by Gov. Schweitzer, who is willing to reduce the business equipment tax if the lost revenue from such action is replaced by the increased revenue to be gained from more effective collection of taxes owed to the state, largely from corporations and out-of-state residents.

The quid pro quo of Rep. Cohenour’s bill, i.e., the requirement that tax-compliance bills be enacted in parallel with the business equipment tax reduction, is an example of what is known in legislative jargon as “contingency voidness.” It’s a formalized form of horse trading that is sometimes used to advance two ideas at once when passage of either idea on its own is unlikely.

Throughout the session, The Policy Institute has testified on the respective ideas of business equipment tax reduction (we’re opposed) and increased efforts to obtain compliance with Montana tax laws (we’re supportive). We opposed Rep. Cohenour’s bill today because of its tax reduction for businesses and with the argument that tax policy should be constructed through legislative approval of stand-alone proposals, not through negotiated packages that address multiple, unrelated topics. "Contingency voidness" is often the awkward equivalent of taking one step forward and one step backward simultaneously.

Montana's tax rate on business equipment, i.e., the percentage of the appraised market value of the equipment that is paid annually as tax, has been reduced several times in the past 20 years:
- In 1989, the Legislature consolidated the various equipment tax rates at the time, which varied from 11% to 16%, into one rate of 9;
- In 1995, the Legislature reduced the rate from 9% to 6%;
- In 1999, the Legislature reduced the rate from 6% to 3%, and it also established a tax exemption for business equipment valued at $5,000 or less;
- In 2005, the Legislature increased the exemption from $5,000 to $20,000.

Tax reductions can result in reduced revenue to the state, a transfer of tax responsibility to other taxpaying constituencies, or sometimes both. In the case of the business equipment tax, it is likely that the lost revenue was made up by higher taxes paid by others because revenue to the state has climbed steadily over the entire period.

Evidence of tax transfer because of the equipment tax reductions may be seen in the changing responsibilities of taxes paid by various property classes over the years. Montana has about a dozen classes of property, each comprised of a certain type of property and taxed at a specific rate. For example, agricultural land is Class 3 property, forestland is Class 10, residential land and dwellings are Class 4, and business equipment is Class 8.

In 1994, five years after the first reduction in the business equipment tax rate, taxes from business equipment represented 15% of the total property tax revenue in Montana, while taxes from residential property represented 38%. In 2008, after additional reductions in the business equipment tax, the equipment tax portion of total property tax revenue had dropped to 7%, while the residential property portion increased to 49%.

During the same period, Montana's desirability as a place to do business - as judged by business interests - grew steadily. By this year, Montana had climbed to ninth place in an annual evaluation of state tax climate done by the Tax Foundation, which completes a comprehensive survey of states every year from its headquarters in Washington, D.C. According to that study, Montana ranks high not only in the category of sales tax (Montana doesn't have one), but also high (tenth place) in property taxation, of which business equipment tax is a part.

At this point, the question is: How much more does Montana's Legislature have to lower taxes on the business community? The state currently ranks high as a favorable place to do business, and further reductions in that sector's tax responsibility simply mean that other Montana taxpayers - homeowners and individual income tax payers - take on the burden.

Lingering Possibilities

By Bob Decker
March 17, 2009

It’s too soon in the Montana Legislature to define the stakes of the budgetary end game, but enough time and votes have passed to identify what progressive taxing or spending ideas still have life in them.

The Senate Tax Committee tabled Sen. Kaufmann’s bill to establish an earned income tax credit (EITC) for Montana, but the House Tax Committee passed the EITC bill of Rep. Mary Caferro on the strength of concurring votes from three Republicans, who joined the 10 Democrats on the evenly split committee. Though it is likely that a couple of those three Republicans may have voted for the bill simply to provide cover for perhaps one Republican who does support it, the bill stands a fair chance of passing in the House and going to the Senate.

In the realm of property taxation, progressives are striving to improve the lot of low-income property owners through a strengthened system of “circuit breakers,” i.e., limitations on property tax obligation determined by the ratio of income to property tax owed. This concept still has a pulse in the Select Committee on Reappraisal, which is weighing different options for dealing with the results of the Department of Revenue’s recently completed six-year property tax reappraisal process.

Because the EITC involves reduced taxes for low-income workers, it has a price tag - approximately $28 million for Rep. Caferro's bill to create a credit equal to 20% of the federal earned income credit. And because any expanded circuit breaker in the property tax system would increase taxes for more wealthy property owners, it, along with the EITC, will have to be squeezed into a state budget for which estimated revenues are dropping regularly and for which there is no majority support for increased taxation.

The budget situation is threatening not just to progressive tax ideas, but to regressive ones as well. For example, several bills propose to continue a 20-year pattern of reducing business equipment property taxes, and though reducing the equipment tax is a policy devoutly wished for by Republicans and supported in more modest fashion by Gov. Schweitzer, the estimated cost of implementing a reduction nears $50 million annually. That's a hole that would have to be filled either by a new source of revenue or further reductions in state spending.

As the remaining weeks of the sixty-first session unfold, keep your eyes on revenue estimates, the passage of appropriations bills, and leaks of end-game policy-trading packages.

Business Equipment Tax – Striving for Zero

By Bob Decker
March 7, 2009

The highest priority in tax policy for the Republicans this session is repeal of the business equipment tax. The idea is shared, at least in part, by Gov. Brian Schweitzer, a Democrat.

The “business equipment” currently being taxed by the State of Montana is personal property used in business, such as construction equipment, heavy vehicles, tools, tractors, commercial kitchen equipment, and cash registers and computers. Business equipment, known as “Class 8” in Montana’s tax lexicon, is appraised annually and taxed at 3% of market value. The first $20,000 in appraised value of a business’s equipment is exempt from Montana’s tax.

Republicans don’t like the business tax because, they say, it taxes the tools of production and because, they usually don’t say, it is a tax on ownership. They’ve been on a kill-the-business-equipment-tax jihad since 1989, when the Legislature and Republican Governor Stan Stephens successfully consolidated several categories of equipment that were taxed at rates from 11% to 16% and lowered the simplified tax rate to 9%.

Republicans have rarely been alone in their efforts. The 1989 tax reduction was made possible by the support of Butte Democrats in the Legislature, who wanted to the state to offer a targeted discount on equipment tax to a Canadian canola oil processing plant that was pondering the construction of a new facility somewhere in the northern Rockies of the U.S. Gov. Stephens went along with the idea, but only if the Butte Democrats would support a reduction in the tax rate for all business equipment in Montana.

So, a handful of Democrats supported the negotiated deal in 1989, the business equipment tax went down statewide, and, once more, tax shift happened, i.e., other taxpayers in Montana picked up the decreased responsibility of business owners. And the canola plant in Butte? It never happened.

In 1995, the Legislature reduced the business equipment tax further, from 9% to 6% over three years. Gov. Marc Racicot, a Republican, signed the bill.

In 1999, the Legislature reduced the business equipment tax further, from 6% to 3%, and it exempted the first $5,000 in equipment value from taxation. Gov. Marc Racicot, a Republican, signed the bill.

In 2005, the Legislature increased the exemption on business equipment tax from $5,000 to $20,000. Gov. Brian Schweitzer, a Democrat, signed the bill.

The 1999 legislation also provided a mechanism for the phase-out of the business tax based on measured growth in wages and salaries in the state, but this phase-out was modified, then repealed, in subsequent years.

Here’s the summary:
- Since 1989, Montana’s tax rate on business equipment has dropped by 70%.
- The total market value of business equipment tax increased by 66% from 1994 to 2007, but state and local revenue derived from business equipment taxes decreased by 20% during that period.
- In 1994, the business equipment tax contributed 15% of all taxes received from property taxation in Montana; by 2008, that contribution had decreased to 7%.
- In 2008, revenue to state and local governments from the business equipment tax was $81 million.

When dramatic decreases in tax rates are legislated for distinct taxpaying constituencies, two things can happen: 1) tax responsibility for other taxpayers goes up to make up for lost revenue; and/or 2) public services are reduced or eliminated if lost tax revenue is not replaced. In other words, someone else either pays the bills, or public programs are diminished.

Early in the current session, bills to further decrease business equipment taxes were introduced by Rep. Bob Lake (R-Hamilton) [bill here] and Sen. Ryan Zinke (R-Whitefish) [bill here]. And Gov. Schweitzer has indicated that he is amicable to elevating the equipment tax exemption level to lower taxes for small businesses and agricultural operators.

Last week, the Senate Tax Committee heard yet another proposal, SB 490 by Sen. Roy Brown (R-Billings). Brown’s bill proposed to increase the tax exemption on business equipment from $20,000 to $5 million, a change that would take thousands of Montana businesses off the equipment tax rolls (leaving only 100 to continue paying, albeit with the $5 million exemption in pocket), reduce the business equipment slice of the property tax pie from 7% to 4%, and cost the state $50 million annually in lost tax revenue.

At the hearing, Sen. Brown justified his bill with the familiar assertion that lower taxes on businesses result in more jobs, higher wages, better benefits, and/or economic growth. That assertion was contested with vigor, principally by Sen. Ron Erickson (D-Missoula) and me, speaking as an opponent to the bill. Still, the most immediately relevant point of the discussion may have been made by Sen. Brown himself, who said that the economic growth and associated general tax benefits to result from lower equipment taxes “will take time.”

That takes us back four paragraphs: A decrease in taxes for businesses will either increase taxes for someone else or force legislators to cut public service funding to account for the loss. In this year’s Legislature, where “No new taxes” is revered by most lawmakers as commandment and free-falling operating revenue estimates have already forced significant cuts in public program budgets, Sen. Brown’s $50 million idea has the look of a circling jumbo jet straining for a safe place to land.

Why Was the Highwood Coal-Fired Electric Generating Station Abandoned?

By Tom Power, Economics Department, The University of Montana
March 3, 2009

The Republican leadership in the Montana Legislature is up in arms over the decision by the Southern Montana Electric Cooperative to abandon plans to build a coal-fired electric generator outside of Great Falls. The complaint is a familiar one: Montana’s environmental laws protecting air and water quality and our regulations assuring public participation in government decisions are too strict and burdensome. Radical environmentalists take advantage of those laws and block the development and use of the plentiful coal supplies Montana has.

Just as familiar are the Republican’s proposed solutions: Gut still further Montana’s environmental laws and block the public from appealing government environmental decisions. A whole raft of new bills has been introduced into the legislature to do this. Once we shackle these pesky citizens and make Montana’s land, air, water, and climate more freely available to coal developers, the Republicans believe a Montana coal boom will blossom and we will be able to produce, use, and sell as much coal as Wyoming currently does.

For those who have followed the saga of the Highwood Generating Station, this version of what happened is simply incomprehensible because it completely ignores the economic forces that have been working against the Highwood Station from the start.

First, dozens of coal-fired electric plants have been abandoned by their developers across the United States over the last two years. The explanation has been straight-forward economics. Utilities know that greenhouse gas emissions are about to be regulated in the United States as we join the rest of the world in recognizing the reality of global warming. Given that coal is our most greenhouse gas intensive fuel, that impending regulation is going to boost the cost of coal-fired electricity. No one knows at this point how this will affect the viability of coal as a source of electricity, so developers are pulling back from coal, waiting for some of the uncertainty about carbon regulation to be clarified.

Second, more and more states are imposing limits on the carbon footprint associated with sources of electricity. California took the lead on this, effectively banning the importation of coal-fired electricity unless the carbon dioxide emissions were captured and sequestered. Other west coast states have followed suit, effectively eliminating the largest markets for electricity in the West. Other states around the nation are engaged in similar reviews of coal-fired generation. Michigan, for instance, has put a moratorium on new coal-fired plants and Georgia is considering doing the same. Clearly this is not a Montana phenomenon driven by weird Montana citizens and laws.

Third, given this uncertainty about the economic viability of coal-fired electric generation, financial markets, already under stress from the developing financial meltdown, pulled back from lending money to build coal-fired plants. The developers of the Highwood Plant were refused funding by the federal government and were still going hat in hand from one financial institution to another when they finally threw in the towel.

Fourth, because of worldwide shortages of basic construction materials, the cost of new coal-fired generators was rising steeply. The projected cost of the Highwood plant had doubled and no one knew what its ultimate cost would be. Some of the participating rural electric cooperatives already faced rebellion by their customer-members as electric rates had to be increased dramatically to cover the initial costs of the Highwood plant.

Republicans are supposed to be the more business-oriented of our two political parties, but business common sense seems to drain away from them once they get caught up in their hypnotic chant about extracting Montana’s resources. They seem to believe that if there is a lot of stuff in the ground, it should be pulled out of the ground and used for something no matter what the cost or, even, whether there is a market for that stuff.

So they wanted the federal government through the Air Force to build and operate a coal to liquid fuel plant at Maelstrom Air Force Base, all at tax payers’ expense. Fortunately the Air Force concluded that the technology was not economically viable.
Wyoming’s much larger-scale development of coal, ten times that of Montana, is regularly used by Republicans to prove that Montana environmental laws and radical environmental activists have effectively strangled coal development here. They conveniently ignore the basic economic fact that coal transportation costs are the primary determinant of the cost of coal to distant utilities. Those transportation costs give Montana a cost advantage only in reaching the northern tier of Rust-belt states: Minnesota, Wisconsin, and Michigan. Wyoming has the transportation cost advantage in reaching most of the faster-growing Sunbelt states. Montana coal also has other cost disadvantages including thinner seams, deeper overburden, as well as higher sulfur and sodium content.

Those in the legislature who want to reduce the public oversight of the potential impacts of burning coal on our air, water, land and climate are clearly on the wrong track. At this point in time, “clean coal” is simply a fantasy. Coal is dirty in its production whether using mountain top removal or strip mining. Coal is dirty when it is burned, not only threatening climate stability but also pumping out mercury, sulfur oxides, and fine particulates that threaten our health. Other waste products from the combustion of coal are also toxic as show by the pollution of ground water and household wells in Colstrip, Montana, and the release of a billion gallons of toxic fly ash slurry at a TVA plant in Tennessee.

Rather than trying to fix the very real problems that are leading Americans, including American businesses, to turn away from coal, Republican leaders simply want to force Montanans to suffer the environmental consequences associated with dirty coal while also forcing Montanans to carry the economic burdens of that increasingly expensive energy source.

State EITC Would Add Fairness to Montana's Tax System

By Bob Decker
February 27, 2009

In 1989, one of the best reasons for celebrating Montana’s hundredth birthday was the state’s progressive tax system. It generally expected residents to support public services based on ability to pay, neither oppressing low-income Montanans nor demanding excessively from the wealthy.

Today, after 20 years of legislative generosity to business interests and corporations, the oil and gas industry, and high-income individuals, Montana has much less tax fairness to boast about. The current Legislature may regress even further, but it also has the opportunity to support the most ignored of state taxpayers - low-income workers.

The unmaking of Montana’s once-progressive tax system includes these watershed events:

* In 1989, the Legislature reduced the business equipment tax. Additional reductions since then have cumulatively lowered the equipment tax by about 70 percent. Proposals in the current session would lower it even more.
* In 1999, the Legislature lowered the severance tax for oil and gas production and also enacted a “tax holiday” for new oil and gas wells. Those tax breaks, in effect even when oil surged to more than $100 per barrel in 2008, have decreased revenue to the state general fund and to county governments by an average of $100 million annually over the past six years.
* In 2003, the Legislature lowered individual state income tax rates. Half of the resulting tax reduction went to households with annual incomes of $500,000 or more. In 2006, low-income taxpayers received an average tax reduction from the legislation of less than $50, while the 1,586 wealthiest households in Montana received an average annual tax reduction of $30,500, which was greater than the annual pay for the average Montana job.

Seldom has a tax change in the past 20 years resulted in direct benefit to the average Montanan. One occurrence was the $400 property tax rebate in 2008, a one-time-only tax reduction for homeowners. (However, this rebate failed to benefit many low-income workers who are also renters.)

And rarely have tax changes provided meaningful benefit to low-income Montanans. Such a thing could happen, however, if the current Legislature establishes an “earned income tax credit” for Montana.

The earned income tax credit is a tax credit for low-income workers. When the credit exceeds the amount of taxes owed, it results in a tax refund.

Established by Congress in 1975, the earned income tax credit has become the single most effective federal tax policy for encouraging work and reducing poverty. Because of its success, 24 states have adopted state-based credits that offer a portion – from 3 to 40 percent - of the federal credit.

In Montana, a state earned income tax credit would benefit 75,000 families. Those who could claim the credit include nursing home workers, emergency dispatchers, school bus drivers, and some school teachers. A family of four with an annual income of $25,000 could receive a $450 credit if a Montana credit were enacted at 15 percent of the federal program.

Currently, two bills to create a state earned income tax credit in Montana are alive in the Legislature. Yes, the passage of either would cost money, $18 million annually for a 15 percent state credit. And yes, a source for that money must be found.

Rep. Dave McAlpin (D-Missoula) has proposed to partially rectify the legislative largesse of 2003 by increasing the tax rate on incomes greater than $250,000 per year by 1 percent. His bill would raise $20 million annually.

Sen. Christine Kaufmann (D-Helena) has proposed to partially rectify the legislative largesse of 1999 by increasing taxes on oil and gas producers.

Both approaches would add fairness to Montana’s tax system. Either approach would pay for a tax change to help those who need it most.

Rough Day for Public Rights and a Cleaner Energy Future

By Anne Hedges, Montana Environmental Information Center
February 25, 2009

Today was a rough day in the legislature for those who believe the public should have the right to challenge bad government decisions.

Sadly, HB 483 passed on second reading in the House (tomorrow will be the final House vote). This is one of the bills that makes it much harder to appeal air permits, water permits and other things. We were only able to garner 28 votes against the bill - but the Great Falls delegation stood strong. Voting against the bill from Great Falls were Reps. Boland, Blewett, Wilson, Dickenson, Kottel. They all deserve our thanks – please call and thank them and ask them to stay strong on 3rd reading. We lost some important Democrats on the vote today: Reps Mike Phillips, Mike Jopek, Diane Sands, Theresa Henry, Chuck Hunter, among others. If you can please call them and tell them there is no reason for them to vote to give corporations even more power than they already have over the public.

We did win one important victory today - we beat back HB 566 on a tie vote in the House (50-50). That bill eliminated any consequence for an agency not doing MEPA or not doing MEPA well.

Citizens rights to protect themselves from large energy interests suffered some real blows today. Here’s a list:
• SB 440 (Sen. Gebhardt) passed on second reading by one vote. That is the bill to exempt all air permits from MEPA. All of the Democrats voted against the bill (except Jim Keane from Butte) and two Republicans joined them (Sens. Zinke and Shockley). The third and final vote in the Senate is tomorrow morning.
• SB 417 (Sen. Keane) passed out of the Senate today. That bills prohibits litigation under MEPA. That bill will be heard in the House in March
• SB 387 (Sen. Bales) passed out of the Senate today as well. It essentially eliminates the ability of the public to challenge any air permit.
• SB 257 (Sen. Keane) passed out of the Senate too. The Enron-like accounting fraud that is allowed in this bill wholly undermines Montana’s Renewable Energy Standard, which was supposed to encourage new renewable energy like wind, and instead gives PPL these valuable credits for upgrades at dams it did years ago!

This has been one of the roughest legislative weeks in memory for the environment. It’s truly sad when the legislature forgets they are supposed to protect the little guy from the big corporate vultures that hang around the Capitol disguised as lobbyists.

Sometimes You’re the Bat, Sometimes You’re the Ball

By Bob Decker
February 23, 2009

Near the end of the hearing on SB 258, the bill of Sen. Christine Kaufmann (D-Helena) to suspend Montana’s “holiday” tax discount on oil production when the price of oil exceeds $80 per barrel, Senate Tax Committee Chairman Jeff Essman (R-Billings) summoned Eric Stern, an adviser to Gov. Brian Schweitzer, for questioning. Stern had testified earlier in the hearing in favor of Kaufmann’s proposal.

Sen. Essman recollected that Gov. Schweitzer, upon taking office, had stated in a speech, “Montana was open for business.” Essman asked Stern how that sentiment could be reconciled with the governor’s position of raising taxes on the oil industry.

“It just strikes me that a change in tax policy after four years is like hitting someone in the back of the head with a Louisville Slugger after they’ve walked in your front door,” Essman said.

Stern countered adequately by saying, “It seems to us, at some point you (the oil and gas industry) should be paying your taxes.”

A better response (admittedly l’esprit de l’escalier) would have been to ask Essman in return, “If it’s unfair to the oil and gas industry to change tax policy now and get back just a fraction of their tax windfall, why wasn’t it more unfair to other Montana taxpayers when the industry got the tax break in the first place?”

One could assume that Essman’s response, pondered if perhaps not spoken, might have been that easing tax responsibility on business under any circumstance was the operative principle behind his question. In any event, Essman and the majority of his committee subsequently voted to table Kaufmann’s bill.

But immutable principles are rarely encountered in the dynamic world of politics. A few days after tabling Kaufmann’s bill, Sen. Jerry Black (R-Shelby) presented a bill (SB 353)to the same committee that would end a state tax break given four years ago to refineries and fuel distributors that marketed gasoline blended with ethanol. That tax break, Black said, amounted to $6 million per year, which, when considered as a state match for federal highway funds, was costing the state around $40 million in lost revenue.

But wait a minute, said Dexter Busby, who opposed the bill on behalf of his employer, the Montana Refining Company, based in Great Falls. His company had just completed an investment of nearly $1 million for ethanol-blending equipment that would allow the company to take advantage of the tax break. How can you change the rules now?

One could assume that the committee’s response, pondered if perhaps not spoken, might have been that there was simply too much highway construction money at stake to allow this particular tax break to continue. The committee acted immediately to pass the bill.

Endless Holiday

By Bob Decker
February 17, 2009

The oil and gas industry has enjoyed 30 years of receiving tax breaks from the Montana Legislature (see list of significant bills here). The most generous reduction occurred in 1999, when the Legislature passed and Gov. Marc Racicot signed into law legislation that both reduced basic severance tax rates on oil and gas production and enacted “holiday,” i.e., discounted, tax rates for new wells.

As a result of the 1999 largesse, state and oil- and gas-producing counties in Montana
lost a fortune in tax revenue (translation: other Montana taxpayers ended up covering the loss or public services provided by the state were decreased, or both). According to data produced by the Montana Department of Revenue, state and county tax revenue lost from 2002-2008 totaled more than $600 million.

An oil and gas tax “holiday” is a period of time (currently 12-18 months in Montana) in which tax rates on oil and gas production are discounted from the usual tax rate. The application of the holiday idea is not unique to Montana, nor did it begin in Montana with the 1999 legislation. Research at The Policy Institute found that Montana’s use of the holiday dates to at least 1979, when discount tax rates were given to natural gas wells drilled to depths of 5,000 feet or more, at the time a far stretch of technological capacity.

The rationale for giving tax breaks to the oil and gas industry has been based on the notion of providing incentive to the industry when market prices for oil and gas are low. With that in mind, most holiday and other tax breaks given to the industry in the 1980s and early 1990s were accompanied by price trigger points that, when reached, reverted tax rates to the basic level. Thus, the incentive of lower tax rates was applicable only when market prices were low; when the prices rose to a respectable level, the incentive ended.

The 1999 legislation that enacted new holiday rates dropped the price trigger provision, with the effect the holiday/incentive stayed in place no matter the price. Well, the rest is sad history: after a couple of years of little movement, oil and gas prices started climbing in 2002 and didn’t look down until 2008, about the time the global economic meltdown began in earnest. Even in 2008, when oil averaged $95 per barrel and natural gas $8 per thousand cubic feet, Montana’s tax holiday kept incentivizing the industry.

In this year’s session, Sen. Christine Kaufman (D-Helena) introduced SB 258, which proposes to suspend Montana’s tax holiday when oil reaches $80/bbl (and gas $7.60/MCF). Now, with oil having dropped from its $147/bbl zenith last June to current levels hovering around $40/bbl, and with a decrepit economy crushing demand for fossil fuels, Kaufmann’s bill is not likely to have effect for two, three, or more years. And had her bill been working as law during the past few years, it would have affected oil and gas taxes in one year – 2008.

Modest as Sen. Kaufmann’s SB 258 is, it was roundly opposed by oil and gas industry representatives, as well as big-business lobbies, e.g., Montana Chamber of Commerce, and commissioners from oil-producing counties, on February 12, when the bill was heard before the Senate Tax Committee.

In the House, Rep. Kendall Van Dyk (D-Billings) introduced HB 388, which reflects a proposal by Gov. Brian Schweitzer to add a surtax of $1/bbl and $0.08/MCF on oil and gas, respectively. Van Dyk’s bill proposes to utilize the revenue from the surtax, estimated at $44 million per year, to support the Quality Educator program for Montana schools.

Rep. Van Dyk’s bill was heard on February 13 by the House Education Committee. The bill was supported by the governor’s office, MEA (the state’s large teachers’ union), and The Policy Institute, and opposed by industry, the Montana Chamber of Commerce, and the Montana Taxpayers Association.

Neither the Senate Tax Committee nor the House Education Committee acted on the respective bills.

Flapjack Flops, Democracy Suffers

By Jim Elliot, Former State Senator, Trout Creek
February 17, 2009

Well, the bill that would have designated the “whole wheat huckleberry pancake” as Montana’s official flapjack has flopped. The idea for the bill arose from students at Franklin Elementary in Missoula who wanted to participate in the legislative process. They are not the first and will not be the last to request legislation that really doesn’t seem to fit the lofty nature of making law. Since I live in Trout Creek, the officially designated “Huckleberry Capital of Montana” –you can look it up—I was kind of partial to the little critter. Not everyone was though, and thought the Legislature had more important, pressing issues to attend to. Well, it does, but these little silly bills serve their own purpose; there is now an elementary school class that has a better working knowledge of how laws are made than do 90% of Montana voters. (And 80% of legislators according to a wise guy in Helena whose name will not be made public for his own safety.)

I’m not setting out to recommend that the legislature seek out frothy little feel goods to make into law, but I am going to defend the practice when it happens. Montana is about as close as you will come to direct democracy in the United States, and allowing and encouraging citizen participation in the process is one of the important functions of the government. Too many times citizens see the Montana Legislature as an aloof and lofty body infected with a heavy dose of self importance. Well, try approaching a legislator in California or Pennsylvania with an idea for special legislation. Good luck getting past the receptionist. In Montana, the legislator IS the receptionist.

Over my years in the Montana Legislature I carried a few bills that were suggested to me by one or more of my constituents. I won’t name names, they will know who they are if they read this list, and I remember each one of them: declare December 15th Bill of Rights Day in Montana; create a 10 day fishing license for out of state anglers; require truth in labeling on Huckleberry products; restrict the use of baled used tires (there’s a long story about that one); restrict sounding of train horns at private crossings; allow multi-county museum districts; and allow an increase in ambulance levies with a public vote. As you can see, they vary in degrees of importance in the grand scheme of things, but they were important to the folks who wanted them, and most importantly of all, those folks saw that one person can make a difference.

That’s important because those people now know how the legislative process—and democracy— works. In the past 20 years that I’ve been paying attention there has been a depressing decline in the number of people who know even a little bit about the government that they go down and vote in or out every two years. Here’s a short list of misconceptions folks have about the Montana Legislature: it meets in Washington, DC (I kid you not)—it’s Helena; it meets year round—nope; it meets every year—nope again, 90 days every odd numbered year; legislators get huge paychecks just like Congress—if you consider $9000 bucks for two year’s work big, then they do; and legislators have big expense accounts—they wish. It’s zip, and everything comes out of their own pockets when they aren’t in Helena. The sad part of it is that folks can have some very intense negative feelings towards legislators based on those misperceptions.

There are plenty of places to lay blame for this, but why bother, it won’t change; but as a result, the American people—the folks who just about invented democracy, for heaven’s sake—have been turned into the least informed voters in a major democracy and with the lowest voting turnout, too. Lowest if you don’t count Switzerland, that is. Go figure.

So That Others May Pay

By Bob Decker
February 8, 2009

The question, “What is a conservative?”, is longstanding, allegedly dating to 1819, when Chateaubriand appropriated the word for use in a political context. An intriguing answer to the question was provided in 1953 by (conservative) author Russell Kirk, who described conservatism as “the negation of ideology.”

These days, many so-called liberals out-conserve so-called conservatives in several ways. Liberals conserve land and natural resources better, they conserve energy better, they conserve voting rights better, they conserve individual privacy better, and they conserve the constitutional rights of speech, religion, and (in Montana) a clean and healthful environment better.

But conservatives are truly conservative in issues of spending and taxes, right? Well, maybe, if you focus only on the non-negated ideology of “no new taxes.” But if you look at how conservatives are freer with spending and taxes if they don’t have to pay the bills, the answer clouds up in a hurry.

SB 129, a bill to allow tax credits for “wildfire mitigation conservation easements” on land parcels in the wildland-urban interface, was introduced by Sen. Dave Lewis (R-Helena valley and rural Powell County) and heard before the Senate Tax Committee on February 4. According to the measure’s fiscal note, “This bill creates a new type of conservation easement for wildfire mitigation and allows taxpayers who create such an easement to take a credit against individual income taxes for the value of the easement, with a maximum credit of $100,000.” A parcel must be 160 acres or larger to qualify for the credit.

As a rule, and to add etymological confusion, conservatives don’t like conservation easements. Such easements discourage development, transfer tax responsibility, and suggest that environmental consideration may trump the economic.

In this case, however, Sen. Lewis recognized that the use of a conservation easement was a way to address the issue of fire protection in the wildland-urban interface, a subject he addressed in depth as a member of the Legislature’s Fire Suppression Interim Committee. Lewis knows that the costs of firefighting are increasingly attributable to the protection of suburban residences, not natural resources such as forests, and he knows that the state’s firefighting bills are growing ever larger (the 2007 Legislature appropriated $80 million dollars in the state’s general fund to fight fires in the current biennium).

Sen. Lewis chose the conservation easement approach to minimizing fire risks and lowering the state’s financial burden because, as he emphasized during the committee hearing, he wants a “voluntary, not mandatory” solution to the problem. As a conservative, he doesn’t want the government to establish laws or otherwise regulate how suburban home- and landowners manage their property.

Alas, in matters of taxation, one person’s incentive is another person’s mandate. In this case, giving a tax break to people who build structures or own property in fire-prone areas means that the taxes of others must rise. By not mandating that residents of the wildland-urban interface take old-fashioned conservative responsibility for their own fire protection, Sen. Lewis is mandating that other people pay for it. In fact, in his own modest way, Sen. Lewis may be accused of using the tax system to transfer wealth. Be still, thy conservative heart.

Sen. Lewis contends that by publicly subsidizing fire protection in the wildland-urban interface, the firefighting bills of the state will decrease over time. There’s validity in that argument, but it ignores the question of why the state is paying so much for fire protection of suburban development in the first place.

Further, residents of incorporated towns and cities in Montana, who comprise over half the state’s population, already pay for their own fire protection through their municipalities’ local tax levies (more on this by The Policy Institute here). Now Sen. Lewis is asking them to also underwrite fire protection costs in the wildland-urban interface, albeit with the salve that they’re also buying some environmental protection via conservation easements.

Sen. Lewis isn’t alone in negating the ideology of no new (or transferred) taxes. Of the dozens of bills in the current session that seek tax credits, tax exemptions, tax abatements, or other forms of tax relief, many are sponsored by Republicans, the traditional torchbearers of conservatism. And why not? As long as both parties in the Legislature agree that revenue holes caused by new tax breaks are not filled with new methods of taxation, what’s a little tax shift between friends? It’s an idea much older than conservatism.

Box Pox

By Bob Decker
February 5, 2009

Sen. Christine Kaufmann (D-Helena) is the sponsor of Senate Bill 277, which would enact a gross receipts tax on retail sales greater than $25 million per year from a single store location. The tax would be assessed only on stores that fail to meet a basic threshold for compensating employees. Revenue from the tax would be used to help pay for health insurance benefits for Montana workers and small businesses.

The proliferation of box stores in Montana has created diverse problems in the state. In rural communities, box stores are associated with the “giant sucking sound” of customers and sales being pulled away from small, local businesses to box-populated urban centers. In the urban areas themselves, box stores are often challenged for not paying for the increased demands on public infrastructure that their high-volume, high-traffic operations create.

On a larger scale, box store business decisions can be just as cutthroat as their local discounting practices. Wal-Mart, for example, has created a corporate subsidiary which owns all Wal-Mart buildings and accepts lease payments from the mother ship. Through this arrangement, Wal-Mart is able to write off lease payments on its taxes, while the leasing fees are shipped to the subsidiary in Florence, Italy, in order to minimize taxes for the leasing company in other nations and states, such as, for example, the U.S.A. and Montana, respectively.

Sen. Kaufmann’s bill addresses yet another box store problem: the poor pay and benefits received by employees of some box store operations. Revenue from her proposed tax – from 1 percent of gross receipts above $25 million per year to 2 percent on sales greater than $45 million – would be used to fund public initiatives in Montana that address health insurance and medical challenges for low-income people and small businesses.

The box store tax would only be collected if a large retail operation did not provide a pay-and-benefits package of $23,000 per year or more to its full-time employees (or a proportional amount of that threshold to part-time employees).

How do box store operations treat their employees? Some do well, such as Costco, which offers decent pay and benefits to its workers and wouldn’t be affected by Sen. Kaufmann’s proposed tax. Others do badly. Wal-Mart, the center of the box store solar system and a standard-setter for many other box operations, has been researched more than most companies. Here are some findings related to Wal-Mart’s practices on health care:

- Wal-Mart insurance coverage lags behind national average. Nationally, 64 percent of workers in very large firms (5,000 or more) receive their health benefits from their employer. Wal-Mart covers around 50 percent of its employees. [Employer Health Benefits 2007 Annual Survey, The Kaiser Family Foundation and Health Research and Educational Trust]

- Wal-Mart employees wait twice as long for health care coverage than workers at other retailers. The Wal-Mart average for full-time workers to qualify for benefits is six months, compared to the retail average of three months. Part-time employees must wait a full year before receiving benefits. [Wal-Mart 2008 Associate Benefits Book, pages 10 and 13; Employer Health Benefits 2007 Annual Survey, The Kaiser Family Foundation and Health Research and Educational Trust]

- High out-of-pocket premiums. According to the Center for a Changing Workforce, in 2003, Wal-Mart employees paid 41 percent of insurance premium costs. At the time of the report, Costco employees paid 10 percent of premium costs. Nationally, in 2006, workers paid an average of 16 percent of premiums for single coverage and 27 percent of premiums for family coverage. [Employer Health Benefits 2006 Annual Survey, The Kaiser Family Foundation and Health Research and Educational Trust; “Wal-Mart and Healthcare: Condition Critical,” Center for a Changing Workforce, October 26, 2005]

- Letting workers and families rely on public programs. A memo written by Susan Chambers, Wal-Mart Executive Vice President for Benefits, for the Wal-Mart Board of Directors, said:
“We also have a significant number of Associates and their children who receive health insurance through public-assistance programs. Five percent of our Associates are on Medicaid compared to an average for national employers of 4 percent. Twenty-seven percent of Associates' children are on such programs, compared to a national average of 22 percent (Exhibit 5). In total, 46 percent of Associates' children are either on Medicaid or are uninsured."
Chambers wrote, "Wal-Mart's critics can easily exploit some aspects of our benefits offering to make their case; in other words, our critics are correct in some of their observations. Specifically, our coverage is expensive for low-income families, and Wal-Mart has a significant percentage of associates and their children on public assistance.'' [Susan Chambers Memo to the Wal-Mart Board of Directors; New York Times, 10/26/05]

- Costs to taxpayers. A report by Rep. George Miller (D-CA) in 2004 estimated the costs borne by taxpayers for things like medical insurance and housing assistance for Wal-Mart employees that can’t afford them because of their low wages and benefits. The report shows that taxpayers would have to pick up $420,750 per year for a hypothetical Wal-Mart store employing 200 people. These costs (which will vary based on the number of people employed in any one store) include:
• $36,000 a year for free and reduced lunches for 50 qualifying Wal-Mart families;
• $42,000 a year for Section 8 housing assistance, assuming three percent of the store’s employees qualify for such assistance;
• $125,000 a year for federal tax credits and deductions for low-income families, assuming 50 employees are heads of household with a child and 50 are married with two children;
• $100,000 a year for additional Title I education funds, assuming 50 Wal-Mart families, each with an average of two children, qualify;
• $108,000 a year for children’s health insurance costs, assuming 30 employees, each with an average of two children, qualify for the Children’s Health Insurance Program (CHIP); and
• $9,750 a year for subsidies for energy assistance for low-income families.
[From study done by Rep. George Miller (D-CA), 2004]

Sen. Kaufmann’s bill was heard before the Senate Tax Committee on January 29. It was supported by The Policy Institute and opposed by a handful of business associations and box store representatives. Most of the box store operations, of course, operate on slim margins and cannot afford to either provide better treatment to employees or pay a 1 percent tax. They didn’t discuss the annual salaries of some of their leaders …

Box store CEO compensation (2007)
- CVS (pharmacies) $19 million
- Costco $ 9 million
- Wal-Mart $8.7 million
- J.C. Penney $6.2 million
- Best Buy $49 million
- Staples $20 million
- Target $13 million
[Forbes.com, April 30, 08]

… or the wealth of some of their proprietors …

- Jim Walton (Wal-Mart heir) $23.4 billion
- S. Robson Walton $23.3 billion
- Alice Walton $23.2 billion
- Christy Walton $23.2 billion

The Senate Tax Committee has not yet acted on SB 277.

Accountability and Responsibility - Conservative Values?

By Al Smith, Montana Trial Lawyers
February 5, 2009

The year 2009 is here. And, since it is an odd year, so is the 61st Montana legislature. There are times that I think that the framers of our Montana constitution were at least a bit tongue in cheek when they set up our system of the legislature meeting in odd years, for an odd assortment of characters, issues and dramas it surely is.

Part of my job is to pay close attention to what’s happening in the legislature, alerting members to legislative developments, and lobbying specific bills that harm or help Montanan’s right of access to the civil justice system. The trial lawyers’ basic lobbying position flows from our support of the basic principle that individuals, business entities and governmental entities should be accountable and responsible for their actions or omissions that cause harm to another. This principle is set forth in Article II, Section 16 of our Montana Constitution which provides that “Courts of justice shall be open to every person, and speedy remedy afforded for every injury of person, property or character.”

I always thought that accountability and responsibility were values without a political leaning, being neither liberal nor conservative. Over the past few decades, however, it seems that those labeled as political conservatives have co-opted accountability and responsibility, touting them as solely politically conservative values.

I reject this political characterization, but would agree that accountability and responsibility are conservative values, conservative values that should be supported by both political liberals and political conservatives. Over the years, however, political conservatives have only selectively supported the conservative values of accountability and responsibility when it comes to the civil justice system, as they have unquestioningly adopted the position of corporate interests seeking to lessen their own accountability.

Political conservatives are philosophically dedicated to individual freedom, limited government, and the protection of individual rights. The civil justice system is the embodiment of the ideals of individual rights and personal freedom.

Of all the institutions of government, only one - the judicial system - is dedicated to the individual. In court, every person is not only the equal of their neighbor, but also the equal of the largest corporation, and even the government itself. The role of the courts - and the lawyers who are absolutely necessary for their proper function - is simply to protect our legal rights - including the rights of liberals, conservatives, Republicans, Democrats, consumers and businesses.

There is a cost to protecting our individual rights. That cost is making sure that the legal rights of each of our fellow citizens is also protected, without compromise, without exception. When we start compromising the legal rights of our "less worthy" neighbors, there may be no end until finally our own rights are swept away as well.

Sometimes political conservatives point to a large verdict against a business, as if this demonstrates some problem with the system. But don't conservatives believe that with freedom necessarily comes individual responsibility and accountability? If someone violates your rights shouldn't they be held accountable, whether they are an individual, the government or a business?

And what about those awards of compensatory damages? When the government takes a person’s house to build a freeway through it, conservatives expect to be compensated - and compensated in full, not just in part. So what's the difference when someone costs you an arm or a leg by running a red light? Isn't an award of compensation in that instance just as much to compensate for your loss of property as when you lose your house or wreck your car?

Conservatives agree with James Madison and John Locke that our first right of property is in ourselves, and includes "the safety and liberty of [our] person." When someone takes it from us in violation of our legal rights, compensation for what we have lost is the least that can be expected. And if we are robbed of that which most of us take for granted, a healthy pain-free life, the same principle applies, and probably more so. It is simply unjust to shield the wrongdoer from the consequences of his misconduct at our expense.

Unfortunately, self styled political conservatives in the Montana legislature have already introduced or requested a number of bills that impact your access to the civil justice system. When you hear of bills that limit the liability of, or provide immunity to, individuals, government and businesses for their actions, I hope you will call your legislators and ask that they stand up for conservative values. Ask them to assure that all Montanans are able to seek accountability and responsibility through our civil justice system. Tell them that it is just plain wrong to provide special protections so that some do not have to be accountable and responsible for the harm they cause.

The protection of individual rights, by assuring that accountability and responsibility can be obtained in the civil justice system, is a moral value that we can all support: the public, businesses, trial lawyers, the judiciary, and politicians. But protection of our legal rights comes with a price. That price is making sure everyone else's rights are protected as well. In the end, advocacy for accountability and responsibility is neither politically liberal nor politically conservative, it’s just the right thing to do.

To Dream the Impossible Dream

By Jim Elliot, Former State Senator, Trout Creek
February 3, 2009

Is there a change in taxation in store for Montana’s oil and gas industry? There are a couple of legislators who have introduced bills to either rescind a tax break oil companies got in 1993 or impose a sort of surcharge on production. Governor Schweitzer seems to be enthusiastic about the latter. Best of luck, but my money’s on the big money. In my 16 years in the legislature I can’t remember a time when taxes were increased on oil production, and believe me, I tried. I can, however, remember several times when they have been reduced.

Montana’s oil industry has protected itself well from paying taxes by playing the Montana and North Dakota legislatures for suckers, which seems to be what they are. The oil industries of the respective states raise the specter of the loss of jobs and tax revenues of state A if they don’t bring their oil taxes in line with state B. The threat being that they will move their oil rigs to the other state. I first discovered this in 1991 while I was researching a tax break the Montana oil industry wanted so that we would be on a “par” with North Dakota taxes. I did something apparently few legislators had done and called the North Dakota Department of Mineral Resources which handles this sort of stuff. “Oh, they’re doing that again,” said the fellow I reached, “They’ll be over here next year to get us to lower our taxes to be in line with yours.” This is called a “shell game” in a carnival, but if it works in politics...what the heck.

I have often imagined a mythical “Oilvane”, sort of like a weathervane –an oil rig mounted on a turntable--somewhere in Richland County that points the rig towards whichever state they will be moving to if the tax situation isn’t addressed to their liking. But it only points East or West, and Wyoming, which is by far the largest oil and natural gas producing state in the area, never gets targeted. Why is that? Is it because (what do you call them, Wyomers, Wyomites, Wyomingers?) the folks in Wyoming have the revealed knowledge that if the petroleum industry doesn’t like the taxes in Wyoming they can’t pick up their oil and go home. Wyoming has the distinction of getting a lot of oil tax revenue because they actually collect it, and they do it based on sound economic principles.

In 1999, and again in 2001, the Wyoming Legislature paid for studies on the effects of taxation, environmental control, and freight rates on oil, gas, and coal production in Wyoming. The 2002 study is 218 pages long and was sent to me courtesy of the Equality State Policy Center in Casper, Wyoming. It said, in part, that Wyoming could DOUBLE taxes on oil and gas without having a negative effect on state revenue, in fact, it would increase revenue. Well, Wyoming didn’t do that, but they didn’t lower taxes, either. This is an occurrence of that exceedingly rare phenomenon in a legislative body of favoring fact over fiction. My hat is off to them.

In Montana we have an Oil and Gas Production Holiday which was enacted in Montana in 1993 by Democrats and Republicans alike as an incentive to help the oil industry out in hard times. Oil was chugging along at between 12 to 14 bucks a barrel, and it was allowed that a tax holiday might keep the oilvane pointing towards North Dakota or maybe even spur new investment. It’s interesting to read testimony from the hearing. These guys are good at what they do.

They said that Montana’s oil production tax revenues were declining at a rate of 7% a year, and that the best way to slow that decline was to give a tax incentive, “since the discovery of a new major oil field in Montana was unlikely.” Interestingly, the area they were talking about is the same area that was to become that “major new oil field” just a couple of years later called the Bakken formation. In light of this, one might suspect that our legislature would want to revisit the tax breaks given the oil folks, but the legislature hasn’t gone near it with a ten foot pole, despite the fact that oil prices went up to around $100 a barrel and the Bakken formation is considered one of the largest oil reserves in the world.

In March 2008 I requested information from the Montana Department of Revenue on tax revenues lost due to oil and gas production tax incentives. Combining the amounts lost to the state and oil production counties the loss amounted to $94 million in 2005 and $107 million in 2006. For Montana alone the loss was $51 and $56 million respectively. From 2003 through the third quarter of 2007 the total state and county amount was $332 million. Good luck getting any of it back, but you can always dream.