Montana Pig Tales

Once upon a time there was a wonderful land with untold riches. This land had fertile soil to grow more food than the locals could eat, gems and minerals that were sought after worldwide, trees for their houses and abundant fuel for their stoves. This wonderful land was filled with opportunity, and happy families prospered with each generation better off than the previous.
There were also helpful folks in the land’s Capitol City who worked for the happy families and did the kinds of things that everyone could benefit from. They built roads and schools and made sure everybody played by the same rules. And they kept the king in far-away DC Land from trying to run their lives. But then something happened, something awful and selfish.

The people in DC Land and Capitol City stopped working for the happy families and started ruling over them. They grew larger and larger and decided to regulate and tax and dictate more and more parts of the happy families’ lives. The land of opportunity became a land of limitations. Laws were passed to protect people from themselves instead of just from each other. Rules were made keeping the happy families from using all the riches that the land offered and pitting them against each other. The land with untold riches became one of the poorest in the kingdom. The happy families could no longer pass on opportunities they had enjoyed. And so the once-happy land got older and poorer, until finally the only people who could enjoy its beauty came from other places. The land of opportunity became a land of futility. And the once happy families were scattered to the winds.

Montana is still that happy land of opportunity, but we won’t pass that heritage along to our kids if we continue the current path of bigger government, more regulation, and control by Washington bureaucrats. We still have the riches that made Montana the Treasure State, but we’re losing the legacy of opportunity that those riches could provide. We increasingly have a government that has become its own special interest instead of our employee. And we’re being tied down with one size fits all solutions that may be great for New York or Mississippi, but not for Montana.

Welcome to “Pig Tales: Wasted Treasure in the Treasure State” — a one-stop shopping guide to Montana government. This is the second in a biennial look at Montana state government, our people, and our opportunities.

Our simple goal is help provide as much useful information as possible so that as the people who represent us make decisions that affect our lives and our families, we will have a confident and informed voice. Enjoy the tale!

Click here for full PDF (8MB!)

Interested in a hard copy or two? We’ll have them for purchase right here coming soon. Can’t wait? Call us at 406-219-0508 to place your order or email us at info@montanapolicy.org. In order to break even, we will be charging $3.50 for quantities up to 10 and $3.00/copy for quantities over 10. These prices include shipping and handling.

The Montana Supreme Court Versus the Rule of Law

By Robert G. Natelson, Senior Fellow in Constitutional Jurisprudence, Montana Policy Institute

Click here for full study. (PDF – 3.77MB)

Executive Summary

There is a consensus among researchers that adherence to the rule of law is crucial to vigorous economic growth. Montana’s economy has lagged the economy of most of the United States since the 1980s, and this MPI Study explains one reason why: The Montana Supreme Court, the final authority in the state on most legal questions, has not honored the rule of law. Its failure to do so has harmed wealth and job creation in Montana.

In this Study, Professor Rob Natelson, the Institute’s Senior Fellow in Constitutional Jurisprudence, first examines what it means to honor the rule of law. He identifies five components: clarity, stability, notice, fairness, and restraint. He then shows how the rule of law is important to a state’s economy. The American Founders understood this, and Professor Natelson cites provisions they inserted into the U.S. Constitution to protect the rule of law.

He then explains why the Montana Supreme Court is more influential within state boundaries than most tribunals of its kind, giving it a significant impact on the Montana economy.

The heart of the Study is its comparison of rule-of-law standards with the court’s actual practices. The comparison is based partly on previous scholarly research and partly on a new case-by-case analysis of some of the court’s most important opinions. Professor Natelson concludes that the court frequently diverges from rule of law standards, and that this conduct presents a serious barrier to prosperity in Montana.

 

Montana’s Education Funding: A Fiscal Roadmap for Montana (2012)

By Curt Nichols, MPI Fellow

Click here for full study. (PDF – 3.4MB)

Executive Summary

Montana’s school funding and administration system is complex, and disappointing student outcomes indicate room for improvement. Those who wish to improve the system will need a basic understanding of these systems or their arguments and ideas will fall on deaf ears. Yet few people do understand these systems, the incentives they create or the forces that have led to their complexity.

Schools are financed by a mixture of state, federal, and local funds. District budgets are regulated by state statute with restrictions on local control to meet state constitutional mandates as interpreted by the courts. Governance is shared by the elected local board of trustees, the governor-appointed state board of public education, the legislature, and the elected superintendent of public instruction.

Montana’s constitution guarantees equity and adequacy in our education system. School district have successfully challenged the state’s funding system based on both these guarantees in separate actions over the past two decades. In response to the Montana Supreme Court’s equity ruling, variations between districts’ budgets have been limited, state funding has been increased, state subsidies have been targeted at districts with smaller relative property tax bases, and district budgeting practices have been revised. The adequacy ruling has resulted in new entitlements and increases in state funding. The overall effect has been an increase in school spending and a reduction in district-to-district spending variation.

Districts have varying expenses and resources that are based on differences in demographics and economic bases. Districts enroll varying proportions of low income and handicapped students. These students require additional resources. Districts also vary widely in their tax and non-tax revenue bases. These widely varying revenue bases lead to large differences in property tax rates between districts spending at only modestly different levels and keep spending near statutory minimum levels in some districts.

Montana students perform well when compared to other states. However, this good performance is partly due to demographic attributes characteristic to Montana, including fewer low income, minority, and English language learners that place fewer burdens on our schools than in more populous states. The large numbers of small, rural districts, which perform well with these groups, aid the state’s overall performance record. In spite of Montana’s solid performance record, it is important to consider the relative weakness of the United States education system in international comparisons as well as the failure of our schools to meet our own expectations. Many Montana students are inadequately prepared for post-secondary education. In particular, high percentages of low income and Indian students graduate without proficiency in mathematics and science.

The impact of equity and adequacy lawsuits has been primarily to increase funding for districts. The district judge in the adequacy case specifically excluded considering student performance as an indicator of funding adequacy despite the fact that national studies demonstrate that the link between funding levels and student performance is weak. Performance incentive programs in other states and advocated by the some federal education programs are based on a belief that incentives matter and can be used to improve schools and student outcomes. Montana does not have voucher or charter school programs and only minimal performance incentive funding. Despite support in numerous other states, the rejection of these programs is partially attributable to comfort with Montana’s relatively good current student performance on standardized tests. Interestingly, other states that have adopted performance-focused programs have learned that incentives matter and actually boost student outcomes.

This paper endeavors to help parents and policymakers better understand a complex education funding system in order to more effectively evaluate education policy in the future. Our hope is that Montana’s primary and secondary education system is not only the best in the nation in terms of academic performance but also the most efficiently managed and administered in terms of dollars and cents. Our children and taxpayers deserve no less.

Budgeting For Results: A Fiscal Roadmap for Montana (2012)

By Barry W. Poulson, PhD, MPI Senior Fellow, and John Merrifield, PhD

Click here for full study. (PDF- 4MB)

MPI Policy Note: Budgeting For ResultsA Fiscal Roadmap For Montana

Based on an MPI Study by Barry Poulson, Ph. D. and John Merrifield, Ph.D.

 BOTTOM LINE UP FRONT:

Montana has experienced unconstrained state government spending growth, resulting in a structural deficit in which future revenues will not match future spending obligations. Making matters worse is a flawed budgeting process where spending increases are “baselined” into each biennial budget regardless of affordability or necessity. When you combine the “baseline” budgeting approach to the structural deficit, recent surpluses simply are not big enough to keep Montana in the black long term. If Montana is to keep its fiscal house in order for our generation and those to come, lawmakers must look closely at these challenges in the 2013 Legislature. MPI proposes that Montana convert to a priority-based budgeting system that will empower legislators with much greater spending oversight and accountability to taxpayers.

There is a structural deficit in the state budget.

  • A state is said to have a structural deficit if under current law state revenues are projected to fall below state expenditures in the long run. Structural deficits, unlike current account deficits, are not linked to the business cycle but rather to the fiscal rules that determine expenditure growth in the long run. These rules often encourage deferring difficult choices to future lawmakers.
  • Short term surpluses, like the one forecasted for the upcoming 2015 Biennium, tend to mask the significance of long term structural deficits because lawmakers and the public perceive that the state’s fiscal outlook is rosy. Although Montana is sitting on one of the largest surpluses in the last decade, it is a drop in the bucket compared to revenues needed for future spending obligations.
  • Medicaid, unfunded liabilities in public employee and teacher pension programs, annualization of one-time federal money, and off-budget expenditures represent the bulk of Montana’s structural deficit.
  • Temporary federal injections have allowed state Medicaid spending to grow at a reasonable rate or even decline. However, Medicaid spending could increase $70 million by the end of the decade depending how the Affordable Care Act is implemented in Montana.
  • Unfunded or underfunded pension liabilities for state workers are over $3 billion and very likely worse given unrealistically high assumptions for returns on pension fund investment portfolios.
  • Various off-budget expenditures account for nearly a quarter of the state’s overall spending but are not prioritized with other state budgetary goals and obligations. This “earmarked” spending is automatic and generally immune from the rigors of the normal budgeting process.
  • The structural deficit is unsustainable and requires a change in the fiscal rules of the game and no windfall of surplus revenue will rectify the long term balance sheet.

Montana’s budget process is seriously flawed, resulting in a bias towards spending growth.

  • Montana’s “present law” system begins with existing agency budgets, adjusts them for inflation and other factors, and uses the outcome as a baseline for future budgets. Spending increases are automatically carried into future years regardless of revenues and priorities. The only way Montana has been able to keep up with present obligations is with minor cuts and the “luck” of unanticipated surpluses.
  • The system implicitly assumes that all current spending is both efficient and effective, and that the justifications behind all existing state programs and expenditures remain valid. Actual performance and need are not systematically measured.
  • The result is a baseline budget that will almost always be larger than its predecessor. Any reduction to this budget is treated as a cut, even though it may still increase spending levels from previous years.
  • The burden is on our citizen legislators to find, propose, and defend cuts to the proposed budget, something they are ill-equipped to do during a biennial 90-day session as special interests and government officials lobby for their programs. Moreover, there is an automatic political liability for any lawmaker that tries to restrain spending.

MPI recommends the state convert to a priority-based budget system.

  • Priority-based budgeting has been implemented successfully in a number of states. It is not experimental and the benefits are real and measurable.
  • The process begins by asking four basic questions: 1) What are the essential services the state must perform? 2) How can the state deliver essential services efficiently and effectively? 3) How should the state budget be allocated for the delivery of essential services? 4) How can the state assure that essential services are delivered efficiently and effectively in the long run?
  • Programs, rather than agencies, are evaluated based on their effectiveness and efficiency in addressing these four questions. Since each program is evaluated against objective criteria and against other programs with similar goals, results will be measurable and redundancy will be minimized.
  • This process forces lawmakers to acknowledge the fact that resources are limited, and then prioritize spending to achieve the greatest impact for the least amount of spending during each budget cycle. It also requires lawmakers to be accountable to those paying the bill – i.e. taxpayers – and not special interest groups and agency bureaucrats.

Other reforms are also necessary to resolve Montana’s structural deficit.

  • Off-budget or statutory spending makes up nearly 25 percent of state expenditures. This spending is automatic and outside the purview of normal budget processes. These “earmarks,” which stood at about $2.2 billion for the 2013 Biennium, should be forced to compete with other programs for taxpayer dollars.
  • Unfunded federal health care mandates greatly increase Montana’s Medicaid and pension liabilities. Federal subsidies will end at about the time costs will begin to significantly increase, resulting in unsustainable state obligations. Implementation of the Affordable Care Act could increase the cost of the program by nearly $100 million by the end of the decade.
  • Underfunded state pension programs will increasingly draw on budget resources and siphon funding from essential programs. Montana’s defined benefit system should be stabilized and then converted to a defined contribution system for new hires.

Dynamic tax scoring demonstrates that Montana can change its tax policy to boost growth.

  • This study uses dynamic scoring to analyze the impact of new fiscal rules and fiscal policies on budget stabilization and economic growth in Montana, which include tax and expenditure limits, a budget stabilization fund, an emergency fund, and capital investment fund.
  • The tax and expenditure limit caps the growth in general fund spending at the rate of population growth plus inflation. Surplus revenue above that cap is allocated to the budget stabilization fund, emergency fund, and capital investment fund. When the cap is reached on those funds additional surplus revenue is offset by tax cuts or tax rebates.
  • The study then simulates the impact of the new fiscal rules and fiscal policies on economic growth. The simulation revises personal income and future tax revenues when dollars shift between the public and private sectors, or when tax rates drop, and when idle fund balances accrue interest payments.
  • In the baseline simulation, the new fiscal rules allow for a 3.5 percentage point reduction in personal income tax rates. That reduction in personal income tax rates significantly increases the rate of economic growth. Higher growth in personal income generates additional tax revenue, offsetting some of the static revenue effects of the rate cuts.
  • Lastly, the study simulates a revenue neutral replacement of the income tax with a sales tax. This revenue neutral sales tax rate for Montana is estimated at 5.3 percent, close to the national average. This tax reform boosts economic growth even more than the income tax rate cuts simulated in this study.

____________________

The Montana Policy Institute is a 501(c)(3) policy research organization that equips Montana citizens and decision makers to better evaluate state public policy options from the perspective that policies based upon limited government, individual rights and individual responsibility, and free markets will result in the greatest common good. To find out more or for copies of the complete study, visit us at www.montanapolicy.org. NOTHING WRITTEN here is to be construed as an attempt to influence any election or legislative action. PERMISSION TO REPRINT this paper in whole or in part is hereby granted provided full credit is given to the author(s) and the Montana Policy Institute.

 

Copyright © 2012

 

The Montana Policy Institute, 67 West Kagy Blvd., STE. B, Bozeman, MT 59715; 406-219-0508; www.montanapolicy.org

 

Public vs. Private Sector Compensation in Montana (2012)

By Glenn Oppel, MPI Policy Director

Click here for full study. (PDF – 4MB)

The State Human Resources Division (Division) of the Montana Department of Administration plays a key role in the adoption of a pay plan for state employees in Montana. It is for all intents and purposes the sole source of data on compensation used by policymakers and agency managers. Unfortunately, the data the Division produces is based on a flawed methodology and limited data.

The Division conducts a salary survey of Montana and surrounding states on a biennial basis to arrive at a private sector comparison for occupations and offices in state government. With the most recent survey, the Division determined that on average a majority of the public sector occupations studied have earnings that are 13.3 percent below what they call the “market midpoint.” The Division’s methodology is open to criticism on a number of points:

• Many positions in the public sector have no private-sector equivalent. Correctional officers and fire fighters, for instance, have no direct private sector equivalent. Comparing occupations like these to a “market midpoint” yields very little useful information.

• Comparing earnings among occupations does not account for the differences in age, education, and experience for the employees who work in these occupations.

• The Division’s analysis doesn’t include the value of employee benefits — health insurance, paid leave, pension, etc. — which make up a considerable portion of public employee compensation.

This new analysis from the Montana Policy Institute compares employees of similar personal and professional characteristics in both the public and private sectors of Montana. Instead of comparing pay in broad occupational categories, this report uses regression analysis to compare public and private employees of similar work experience, education, gender, race, and disability status. It also analyzes total compensation (which the state fails to do), including take-home pay as well as fringe benefits.

This report details the methodology and finds that public employees in Montana actually earn over 15 percent more than comparable employees in the state’s private sector.

Coming Soon! New MPI Studies

Research Abstracts

The Montana Policy Institute has undertaken an ambitious research agenda over the past two years heading into the 2013 Legislature. Our research is designed to lead the charge in reforming budgeting, spending, education, legal, labor, health care, and energy policy from the perspective of limited government, free enterprise, and individual liberty and responsibility. MPI will feature these studies at its biennial legislative in Helena on November 16-17, 2012.

Budgeting for Results: A Fiscal Roadmap for Montana

By Dr. Barry Poulson and Dr. John Merrifield, MPI Fellows

Release: October 2012

Abstract: The 2012 study serves an update and expansion of our 2010 “Budgeting for Results: A Fiscal Roadmap for Montana.” The updated and expanded study consists of the following. Part I updates the 2010 analysis of the structural deficit that has emerged in the state budget. Part 2 outlines a priority based budgeting approach for the state. Part 3 identifies off-budget spending that is contributing to the structural deficit. Part 4 analyses the extent of the unfunded liability in state and local public pension plans while proposing options for reform. Part 5 provides a deeper look at the continuing accumulation of unfunded liabilities in the Other Post Employment Benefits plan in Montana. Part 6 explains how perpetually increasing costs in Medicaid are crowding out other budget priorities. Part 7 details the distribution of the tax burden in Montana and sets the stage for Part 8, which simulates revenue projections and economic growth with changes in certain tax policies.

 

State Spending Growth and Future Deficits: How Montana Went from Surplus to Shortfall

By Curt Nichols, MPI Fellow

Release: December 2012

Abstract: The upcoming release is an update of the original study released in 2010. Despite occasional surpluses, the looming structural deficits in Montana’s budget are a cumulative and predictable result of years of spending decisions and state budgeting practices. The primary cause is a large increase in ongoing spending enabled by rapid revenue expansion over several biennia followed by a cyclical drop in revenues. Contributing to this problem is a budget process that pays too little attention to efficiency or effectiveness, fences off significant dedicated revenues to earmarked appropriations, and that allows delays in addressing unfunded pension liabilities.

 

The Montana Supreme Court v. the Rule of Law: A Barrier to Prosperity

By Rob Natelson, MPI Fellow

Release: October 2012

Abstract: There is a consensus among researchers that adherence to the rule of law is crucial to vigorous economic growth. Montana’s economy has lagged the economy of most of the United States since the 1980s, and this MPI study explains one reason why: The Montana Supreme Court, the final authority in the state on most legal questions, has not honored the rule of law. Its failure to do so has harmed wealth and job creation in Montana. In this study, Professor Rob Natelson, the Institute’s Senior Fellow in Constitutional Jurisprudence, first examines what it means to honor the rule of law. He identifies five components: clarity, stability, notice, fairness, and restraint. He then shows how the rule of law is important to a state’s economy. The American Founders understood this, and Professor Natelson cites provisions they inserted into the U.S. Constitution to protect the rule of law. He then explains why the Montana Supreme Court is more influential within state boundaries than most tribunals of its kind, giving it a significant impact on the Montana economy. The heart of the study is its comparison of rule-of-law standards with the Court’s actual practices.

Education Funding Reform

By Curt Nichols, MPI Fellow

Release: October 2012

Abstract: Montana’s system of school funding represents a long legacy of elements that have been added over the years with some features dating back to the first half of the previous century. Court action in the late 1980s lead to the most extensive recent reform in school funding with further changes added in 2005 following another court action. The 2005 changes are more of a pasting-on of several additional elements. The present day result is a complex set of entitlements, calculations and regulations. This paper will attempt to describe the process of determining state aid, placing limits on the general fund budget and the district’s process of setting the budget within these limits and finally setting the property tax levy on taxpayers of the district. Some simplification will be required.

 

Montana Pig Tales: Wasted Treasure in the Treasure State

Release: November 2012

Abstract: This book is a follow up to the 2010 Montana Pork Report. It employs the same guidelines used in the 2010 installment to determine if spending is wasteful are whether a program or budget item: 1) Costs Montanans a significant amount more than the national average; 2) Was the result of poor planning; 3) Clearly is meant to benefit specific classes or individuals at the expense of all others; and 4) Does not directly help Montana or does something that is not government’s job to do. Taxpayers, legislators and the governor will draw their own conclusion on whether these programs and projects are essential or wasteful, but even if there is disagreement, at some point a consensus must be reached.

The Limits of Wind Power

By William Korchinski, Reason Foundation; Project Director: Julian Morris, Reason Foundation

Release: October 2012

Abstract: Environmentalists advocate wind power as one of the main alternatives to fossil fuels, claiming that it is both cost effective and low in carbon emissions. This study seeks to evaluate these claims. Existing estimates of the life-cycle emissions from wind turbines range from 5 to 100 metric tons of CO2 equivalent per kilowatt hour of electricity produced. This very wide range is explained by differences in what was included in each analysis, and the proportion of electricity generated by wind. The low CO2 emissions estimates are only possible at low levels of installed wind capacity, and even then they typically ignore the large proportion of associated emissions that come from the need for backup power sources (“spinning reserves”). Wind blows at speeds that vary considerably, leading to wide variations in power output at different times and in different locations. To address this variability, power supply companies must install backup capacity, which kicks in when demand exceeds supply from the wind turbines; failure to do so will adversely affect grid reliability. The need for this backup capacity significantly increases the cost of producing power from wind. Since backup power in most cases comes from fossil fuel generators, this effectively limits the carbon-reducing potential of new wind capacity.

 

How Business Friendly Are Montana’s 25 Largest Cities?

By John Hill, President, American Indicators

Release: September 2012

Abstract: In order to excel in an increasingly competitive global marketplace, Montana must be as attractive as possible to businesses wishing to relocate to or expand in the state. There are numerous state level comparisons of Montana’s business friendliness to inform policymakers in Helena. The same sort of report dedicated to comparing major cities and towns in Montana simply doesn’t exist. Cities and towns are the real engines that drive the statewide economy and Montanans should consider how they compare against each other with respect to economic, social, and educational factors attractive to businesses. MPI and American Indicators have collected data on Montana’s 25 most populous incorporated areas and ranked them based on criteria that both ensure business success and protect the entrepreneurial spirit. The three categories ranked are Economic Vitality, Business Tax Burden, and Community Allure.

 

Montana Public Employees Fare Better Than Private Sector Counterparts

By Glenn Oppel, MPI Policy Director

Release: October 2012

Abstract: A recent analysis for the Montana Policy Institute and other statewide policy organizations, conducted by economists William Even of Miami University and David Macpherson of Trinity University, measured state and local government employees’ pay around the country. It found that the “premium” – the advantage in total compensation for being a public employee rather than a private-sector worker – is eight percent in Montana. The study used regression analysis and controlled for key factors such as educational attainment, sex, age, race, disability, and work experience. Total compensation included wages, paid time off, health insurance, retiree health coverage, other benefits, and pension costs.

 

MPI Issue Brief: Teen Unemployment and the Minimum Wage

By Glenn Oppel, MPI Policy Director

Release: August 2012

Abstract: The Montana Policy Institute released updated research data on the unemployment effects of minimum wage increases on working-age teens in Montana. The unemployment rate for working-age teens has nearly doubled since 2006 and fewer are actually entering the workforce. Controlling for the job-killing effects of the recession, the research estimates that nearly 1,200 jobs were lost for Montana teens because of state minimum wage increases from 2005 to 2011. Unemployment rates for teens are likely to rise in coming years as the recession persists and the state minimum wage increases annually.

 

MPI Issue Brief: Pitfalls of the Patient Protection and Affordable Care Act for Montanans

By Glenn Oppel, MPI Policy Director

Release: June 2012

Abstract: The Patient Protection and Affordable Care Act (ACA) was signed by President Barack Obama on March 23, 2010. If and when it is completely implemented, the ACA stands to radically change the landscape of the health care market by violating basic liberties protected by the U.S. Constitution, undermining any vestiges of consumer-based care, putting more pressure on beleaguered national and state budgets, stymying economic recovery, and exacerbating many of the structural weaknesses that inflate costs and diminish access and affordability in the existing health care market.

 

Economic Impact of Montana’s Renewable Portfolio Standard

By David Tuerck, Paul Bachman, and Michael Head

Release: January 2011

Abstract: In 2005, Montana’s Legislature established a statewide Renewable Portfolio Standard (RPS) mandating that selected renewable energy sources account for 15 percent of retail electric sales by 2015, with a phase-in period beginning in 2010. The negative economic and social impacts of this mandate on Montana will be significant in terms of lost jobs and lower disposable incomes. In addition, the desired environmental impacts will not be achieved as firms with high power usage will simply avoid or leave Montana in favor of areas with lower electricity prices and potentially lower environmental standards, taking their jobs and prosperity with them.

 

How Business Friendly Are Montana’s 25 Largest Cities? – 2012 Report

Note: Updated with official full study on November 8, 2012.

By John Hill, PhD, President, American Indicators

In order to excel in an increasingly competitive global marketplace, Montana must be as attractive as possible to businesses wishing to relocate to or expand in the state. There are numerous state level comparisons of Montana’s business friendliness to inform policymakers in Helena. The same sort of report dedicated to comparing major cities and towns in Montana simply doesn’t exist. Cities and towns are the real engines that drive the statewide economy and Montanans should consider how they compare against each other with respect to economic, social, and educational factors attractive to businesses.

The Montana Policy Institute (MPI) and American Indicators have collected data on Montana’s 25 most populous incorporated areas and ranked them based on criteria that both ensure business success and protect the entrepreneurial spirit.

The three categories ranked are:
  • Economic Vitality
  • Business Tax Burden
  • Community Allure

In summary, this report looks at a number of factors:
  • What cities have the best tax policy?
  • Which have more community allure, such as low costs of living and low crime rates?
  • What cities have experienced the most yearover-year population and job growth?
  • What type of economic vitality do cities have, including the average incomes for local residents?

These and other questions are answered in this report.

Click here for the full study (PDF – 3MB)

Limits of Wind Power Study (10/2012)

MPI and the Reason Foundation analyze claims about the cost-effectiveness and environmental benefits of wind power.
As Montana’s Renewable Portfolio Standard requires electric utilities to obtain more and more generation from “renewable” sources like wind, policymakers must reevaluate the economic and environmental benefits. Wind blows at speeds that vary considerably, leading to wide variations in power output at different times and in different locations. To address this variability, power supply companies must install backup capacity, which kicks in when demand exceeds supply from the wind turbines; failure to do so will adversely affect grid reliability. The need for this backup capacity significantly increases the cost of producing power from wind. Since backup power in most cases comes from fossil fuel generators, this effectively limits the carbon-reducing potential of new wind capacity. For full study, see below.

For PDF: Limits of Wind Power Study

Teen Unemployment and The Minimum Wage Study (2012)

Click here for full study (PDF – 4MB)

By Glenn Oppel, MPI Policy Director

As the Great Recession persists, unemployment remains a key concern in Montana and the nation as a whole. Although the jobs situation in Montana is somewhat better than the national average, the unemployment rate for working-age teens (16-19) is historically very high. Moreover, fewer and fewer teens are actually entering the workforce.

Figures provided by the U.S. Census Bureau demonstrate that teen employment prospects are dismal:

• Between 2006 and 2011, the teenage unemployment rate in Montana almost doubled from 10.2% to 19.4%. The highest rate for that period was 24% in 2010.

• Montana teens with less than a high school education have seen their unemployment rate double from 10.4% in 2006 to 20.8% in 2011.

• The average hours worked per week for Montana teens fell from 12.1 to 8 hours – a decrease
of 34%.

• The percentage of Montana teenagers who have a job declined from 48.2% in 2006 to 36.6%
in 2011.

• From 2006 to 2011, teen employment share in all industries dropped from 6.3% to 4.2%; in leisure and hospitality from 18.9% to 13.9%; in retail trade from 10.2% to 5.2%; and for all other services from 4% to 1.6%.

A recent analysis of state-specific employment effects of the minimum wage finds that increases in the federal and state minimum wage rates have accelerated this trend. According to simulations run as part of this analysis, increases in the minimum wage from the base of $5.15 in 2006 to $7.35 in 2011 cost Montana teenagers 1,178 jobs . Teen jobless rates could get even worse as Montana’s minimum wage is adjusted annually to the Consumer Price Index (CPI) despite job market realities or unemployment trends. Montana’s 2012 minimum wage rate is currently $7.65 and will increase to $7.80 in 2013 if the CPI continues to hover at close to two percent.

Minimum wage proponents may see annual increases as “raises” to poorer workers. What they fail to realize is that minimum wage increases serve as a tax on employers that would otherwise employ more low or unskilled workers if not for higher labor costs. This is especially true for working-age teens as our issue brief will show. Policymakers in Washington, DC and Helena should consider the disproportionate impact that minimum wage increases have on our youth as they struggle to find their first job.

Pitfalls of the Patient Protection and Affordable Care Act for Montanans

“If you think health care is expensive now, wait until you see what it costs when it’s free.”    

  – P.J. O’Rourke

By Glenn Oppel, MPI Policy Director

The Patient Protection and Affordable Care Act (PPACA) was signed by President Barack Obama on March 23, 2010. If and when it is completely implemented, the ACA stands to radically change the landscape of the health care market and drive federal and state governments deeper into debt in the middle of the Great Recession.

Fundamental Threat to Liberty

The ACA will rewrite the relationship between the people and their government. It amounts to a violation of individual liberty by compelling individuals to consume a product while financially penalizing them if they fail to comply. If the ACA survives constitutional scrutiny it will open the door for the federal government to exercise increasing control over the economic decisions of Americans.

Unpopular

A June 2012 New York Times/CBS News Poll of 976 adults showed that 68 percent of them hope that the U.S. Supreme Court overturns the law. As for Montanans, a December 2010 poll of 600 Montana voters commissioned by the Montana Chamber of Commerce found that 60 percent opposed the federal health care reform. Interestingly, the same survey found that the top “financial or pocketbook concern” of Montanans was overwhelmingly “health care costs.” Obviously, Montanans do not see the ACA as a solution to the number one concern affecting their finances.

False Promises of Universal Coverage

Individual Mandate: Although the centerpiece of the ACA, how young and healthy individuals respond to the mandate presents a major problem that will undermine the intended purpose. Many young and healthy individuals will opt to pay the penalty rather than obtain coverage for the simple fact that the penalty is less of a financial burden. This is exactly what happened in Massachusetts after passage of that state’s health care reform, which, ostensibly, the ACA is patterned after. Health insurance plans rely on participation from the young and healthy in order to achieve actuarial soundness and, therefore, affordability and profitability.

Employer Mandate: Although the employer mandate has the same purpose as the individual mandate – universal health insurance coverage – it also will have unintended consequences that will defeat its purpose. Employers will be inclined to drop health insurance benefits for their employees because it is less expensive to pay the ACA’s penalty of about $2,000 per worker. The penalty costs are modest compared to providing health care for an employee. Furthermore, the ACA amounts to a federally mandated increase in the cost of hiring new employees. When the nation’s unemployment is hovering over 8 percent and Montana’s over 6 percent, the timing of the ACA’s negative impact on job creation could not be worse.

Exchanges: The purpose of the exchanges in the ACA is to allow individuals and workers in small companies to create larger risk pools to achieve economies of scale enjoyed by larger companies. The exchanges are predicated on the theory that market share will enable the bargaining down of prices and therefore reduce premiums. It is not as though the exchanges will operate free from heavy federal and state regulation, so it is hardly fair to label the exchanges a competitive environment when insurance plans in the exchanges must comply with the ACA. The Massachusetts health care reform set up an “exchange” scheme called the “Connector.” It was predicted to reduce premiums by 25 to 40 percent, but premiums still went up 11 percent.

Insurance Market Overregulation

The ACA’s insurance regulations will increase premiums, reduce choice, and drive consumers to government-run insurance. When it comes to the litany of insurance regulations, the ACA violates the principle that “there is no such thing as a free lunch.” Currently, health insurers do have some latitude to hold down costs by structuring plans so that consumers shoulder some costs. The ACA bans many of these practices that hold down costs predicated on consumer responsibility, including:

 ban on denying coverage and underwriting based on health status except for older patients and smokers;

 ban on rescissions (revoking coverage);

 ban on lifetime limits;

 limits on deductibles;

 maintain medical loss-ration (insurers must maintain a ratio of benefits paid to premiums collected of 85 percent for large groups and 80 percent for small groups and individuals);

 allow parents to keep their children on until age 27; and

 agency power (wide latitude given to the U.S. Secretary of Health and Human Services to promulgate rules to administer the new market and to singlehandedly create public policy when unanticipated situations arise).

Massive Expansion of the Welfare State

Massive expansion of Medicaid: The ACA mandates that the states expand Medicaid to cover all with incomes below 133 percent of the federal poverty level, with generous matching grants from the federal government. Between 2014 and 2019, federal spending on Medicaid is projected to increase $443.5 billion while state outlays will increase $21.1 billion. Imposing an eligibility threshold of 133 percent of FPL in Montana will dramatically increase enrollment and cost in our Medicaid program. Depending on participation rate assumptions, by 2019 Montana will see Medicaid additional enrollment increases in the range of 57,000 to 79,000, with an additional cost burden for the state budget ranging from $100 million to $155 million.

Subsidies for individuals not eligible for Medicaid: Individuals with incomes too high to qualify for Medicaid but below 400 percent of poverty or $88,000 will be eligible for subsidies to assist purchase of private insurance. The subsidy will be in the form of a refundable tax credit that will increase federal costs about $457 billion between 2014 and 2020.

Subsidies for small businesses: Businesses that have 25 or fewer employees with average wages less than $50,000 are currently eligible for tax credits. To be eligible, the business must provide insurance to all full-time workers and pay at least 50 percent of the costs of coverage. Once exchanges are operational, businesses with 10 or fewer employees with average wages below $25,000 will be eligible for a tax credit of up to 50% of the employer’s contribution toward a worker’s insurance. According to a July 2011 member survey by the National Federation of Independent Business, by overwhelming margins small employers believe that the ACA will not reduce health care inflation, will not reduce the administrative burden, and will add to the federal deficit. The survey also found that small employers believe that low-wage employees with large premium cost-share will have a powerful incentive to leave an employer’s health plan for the newly established and heavily subsidized exchanges. If employees begin to leave for an exchange, 26 percent of small employers that currently offer insurance say that they are very likely to explore dropping their health insurance plans while another 31 percent say they are somewhat likely to do so.

Undermining Consumer-Directed Health Plans

The ACA places considerable new restrictions on HSAs and FSAs. For example, the ACA increases tax penalties for HSA withdrawal and narrows the definition of “qualified medical expense” (QME) so that common expenses such as over-the-counter medications are not a QME. Of course, as mentioned, the fact that the ACA is likely to squeeze high-deductible, catastrophic plans out of the new market could be the demise of HSAs since federal law requires HSAs to be couple with such plans. As for FSAs, the ACA cut the maximum tax-exempt contribution to these accounts in half from $5,000 to $2,500 starting last year. The new definition of QME also will be applied to FSAs.

Mind Boggling Cost in the Deficit Age

The ACA is projected to cost the federal government $2.7 trillion over 10 years of full implementation, which, after accounting for aforementioned penalty revenue and new tax revenue (see below), will add $823 billion to the national debt. It is hard to predict how the State of Montana will fund the additional $100 million to $155 million in Medicaid expenditures through 2019. It may be true that Montana is currently projecting a $600 million surplus for the 2015 Biennium, but the structural deficits in the state budget due to unfunded liabilities in various public employee and teacher pension systems dwarfs the surplus. The additional costs associated with the ACA’s Medicaid mandate gobbles up resources that Montana could use to address its structural deficits.

New and Increased Taxes During the Great Recession

If there is one way to impede economic progress and deepen a recession, it is to raise taxes. The ACA imposes over $629 billion in new or increased taxes in its first 10 years of operation. When you couple the ACA’s new and increasing taxes with the possibility that the Bush Administration tax cuts could expire at the end of 2012, America could plunge even deeper into recession. These taxes include:

 taxes on “Cadillac” insurance plans;

 payroll tax hikes;

 taxes on investment income;

 higher threshold to itemized deductions for medical expenses;

 tax on prescription drugs;

 tax on medical devices;

 additional taxes on insurers; and

 taxes on tanning beds.

Taxpayers likely are leery of the fact that the Internal Revenue Service will add 11,800 additional agents, auditors, and examiners for enforcement of the ACA.