Thursday, December 31, 2015

Royally Bamboozled

The way I see it, a whole lot of Montanans, including Sen. Doug Kary, have been royally bamboozled.

In a guest column that’s appeared in several Montana newspapers, Kary, a Billings Republican, cites a recent study by the Bureau of Business and Economic Research to claim that closing the coal fired power plants at Colstrip would be an intolerable disaster for Montana’s economy. And so, he argues, in implementing the Clean Power Plan, the state should do whatever is necessary to keep Colstrip up and running.

Whether or not the Colstrip plants should be closed is a decision that deserves a lot of careful thought and attention, but unfortunately that’s not what it’s getting from Kary, who so misunderstands the actual findings of the BBER study as to turn them on their head.

Kary says that the BBER forecasts that “Montana’s economy will shrink by $1.5 billion if the Colstrip facility is forced to close. Compare that with the $1.2 billion reduction in economic output Montana experienced between 2008 and 2009.”  Had Kary read the BBER study carefully, he would know that it predicts that even if all the plants at Colstrip were shut down, Montana’s inflation adjusted output would increase every single year from 2019 to 2050; it would never shrink as it did during the 2008 recession. The $1.5 billion shrinkage Kary cites, without putting a date on it, is how much lower the BBER projects output would be, in 2025, if Colstrip were closed down rather than left open. So the numbers Kary is comparing don’t measure the same thing. In fact, according to the BBER, between 2024 and 2025 output will rise about $1.7 billion, even if Colstrip is closed.

By the way, the “output” measure BBER is using when it computes the $1.5 billion shortfall is gross receipts (or sales) of businesses and other entities. This is not the measure economists usually use, because it overstates the value of output by allowing a lot of stuff to be counted twice.* Sales usually exceed the accepted measure of output, gross domestic product, by a wide margin – about 70% in the BBER model. Using GDP, the 2025 output shortfall is about $1 billion, rather than $1.5 billion.**

Kary says that if Colstrip is shuttered, “Montana will lose over 7,000 good jobs.” Again, he doesn’t say when this is going to happen. But the BBER study does not predict a decline of 7,000 jobs; it predicts, rather, that in 2025, with the CPP in place, there be 7,000, or about 1.1%, fewer jobs available in the state than there otherwise would be. Between 2024 and 2025, the number of jobs is projected to decline by 735, or one tenth of one percent.

Kary says that closing Colstrip would produce a “$145 million to $155 million a year tax hit” to the state, “about 1 in 10 of the dollars the state collects in tax revenue each year.” Actually, if he had read the BBER study carefully, he would know that $145 million represents the BBER’s estimate of how much lower state revenue from all sources (not just taxes) will be in 2025. In 2013, state revenue from those sources was about $8 billion. We don’t know what that revenue will be in 2025, but something in the neighborhood of $10 billion is a conservative estimate. In that case, $145 million in reduced revenue will translate into 1 out of every 69 dollars the state collects, not 1 out of 10, as Kary would have it.

Kary says that closing Colstrip will cause “double digit” increases in electricity prices without explaining what that means (10 percent? 99 percent?) but doesn’t recognize that  the BBER study predicts that despite increases in the cost of living, real per capita disposable income will increase every single year through 2050, even if Colstrip is entirely closed down. So will population, the labor force, real pay per job, real pay per worker, real gross state product, and real total personal income.

If you’re wondering how Kary managed to so badly garble the results of the BBER study, well, that’s where the bamboozling comes in. And the outfit doing the bamboozling is none other than BBER itself.

BBER wanted the impacts of a Colstrip closure to look as scary as possible, and presented its results so that would happen. It filled tables and graphs with calculations of what it called losses – the difference in what would happen with and without Colstrip being shut down – and suggested closure was a calamity in the making. And Kary bought it.

The only way Kary could have known that virtually every meaningful measure of economic performance would continuously improve, even after Colstrip was completely shut down, would have been to dig around in the numbers in an appendix, because BBER never bothered to point those results out.

The only way Kary could have known that the “losses” depicted in the study were not declines, and not comparable to real recessionary declines, would have been to read the fine print, because BBER itself didn’t succeed in avoiding that particular confusion.

The only way Kary could have known that the “losses” BBER attributed to closure were quite small in percentage terms, or that they would quickly be erased by normal growth, was again to have gone to the numbers in the appendix, because BBER never told him that.

The only way Kary could have known that real per capita income would continue to increase despite higher electricity prices was, you guessed it, to have gone to the numbers and calculated it for himself, since BBER never did it for him.

For a lot of people, including Doug Kary, whether or not Colstrip closes down is a make or break question when it comes to implementing the Clean Power Plan. That concern is not hard to understand, particularly when it’s coming from the people who live and work in Colstrip. But from a statewide perspective, it’s important not to go off half cocked here, and make decisions based on a contorted view of their consequences. None of us, including Doug Kary, is well served by having the wool pulled over our eyes.

*For example, when a farmer sells barley to a brewery, the barley is included in the economy’s output for the first time. When the brewery sells a keg to your favorite watering hole, the barley is counted again, transformed into beer. And when the bartender draws you a pint, it’s counted a third time.

** It’s hard to avoid concluding that BBER used sales rather than GDP because a “loss” of $1.5 billion sounds scarier than a loss of $1 billion.

Tuesday, December 29, 2015

Divisive Politics

You’ve got to feel sorry for Matt Rosendale and his Republican colleagues in the Montana legislature. All they are trying to do is to keep you safe from international terrorism, and for their trouble, Democrats are calling them out as hypocrites. It just isn’t fair.

Here’s the way Rosendale, the majority leader in the Montana Senate, tells the story in a column in the Missoulian:

Last month, after the massacre in Paris, Republicans in the legislature, including Rosendale, wrote to Governor Bullock to express their concern about the safety of Montanans in the face of terrorism. They were particularly concerned, Rosendale says, by the lack of “vigorous screening” prior to allowing “vast numbers of unknown refugees to enter our state or country.” All they were doing was “trying to protect our citizens,” just being “prudent,” simply taking “every precaution.”

And how prescient they were! Just days after they wrote to the governor, 14 people were gunned down in San Bernardino, and one of the killers, Tashfeen Malik, was an immigrant who had managed to make it through the vaunted but clearly inadequate screening process. If only we had listened.

But we didn’t. No, all that happened, Rosendale says, is that legislative Democrats (I was one of them) said that the letter to the governor was “divisive politics.” And worse, the President and other Democrats took advantage of the San Bernardino shootings to again attack the Second Amendment, and deflect attention from their failure to stop people like Malik at the border. The fact that the Second Amendment allows for virtually unfettered access to guns, and that Malik took advantage of that access to arm herself, was irrelevant. What we need to do to stop gun violence is to keep people like Malik out of the country. And since that is not always going to work, what we need to keep mass murderers at bay is to arm ourselves to the teeth.

It’s hard to know where to start with this nonsense, but try this:

The Republican letter to the governor did not simply call for more vigorous screening of refugees. It called upon the governor to "use all legal means to block or resist the placement of Syrian refugees in our great state at this time." Unless the signers of the letter were inconceivably ignorant, they had to know that Governor Bullock had no means to bar Syrian refugees from the state. Their call on him to do so was at best an empty gesture and at worst, deeply cynical.

And they weren’t urging greater caution in admitting immigrants like Malik. They were asking for a ban on Syrian refugees. Those are the people, you’ll remember, who are desperate to get away from the barrel bombs and poison gas their own government is killing them with, from Russian jets dropping outlawed cluster bombs, and from the savagery of ISIS. They are the people who are so desperate to leave that they climb into rubber rafts with their little kids and try to cross the Aegean in the middle of winter. They are the thousands of people, including kids, who are drowning in the ocean, suffocating in closed trucks, and dying on top of trains under the English channel, just trying to get to safety. They are among the more than one million refugees to whom Europe has opened its arms and whom volunteers from all over the world, including Montana, have rushed to help. They are the people who hope to be among the 10,000 Syrians to be admitted to the United States, but only after being screened much more stringently than Malik was. And they are the people whom Matt Rosendale and his Republican colleagues urged Governor Bullock – impossibly - to slam the door on. How is that not politically divisive?

When it comes to guns, and the Second Amendment, it’s not hard to figure out that if Malik had never been admitted to the country, she wouldn’t have ended up slaughtering innocent people in San Bernardino. Rosendale’s got that right, but it’s hardly the point, which is that no screening of immigrants and refugees, no matter how rigorous, is going to stop the incessant gun violence plaguing this country. In 2013, more than 33 thousand people in the United States, the vast majority of them native born Americans, picked up a gun and shot themselves, or somebody else, to death. Seal the borders, and that number will hardly move.

The fact is that we are awash in guns, and any terrorist, any felon, any deranged person can, by hook or by crook, get their hands on one.  And we can’t do a thing about it, because thanks to the efforts of gun rights zealots, including politicians like Matt Rosendale, the Second Amendment has come to mean that virtually no measure to restrict access to guns, however limited, can be enacted.

So the only solution is more guns: arm the teachers, keep a pistol in your bedside table, make sure you are packing when you go out with your kids for dinner and a movie. This is the level to which we have descended, and you’d better watch your back, because nobody  - certainly not a pack of Republican legislators fretting about Syrian refugees - is going to watch it for you.

Wednesday, November 25, 2015

Pushing the Panic Button

When it comes to bashing Barack Obama and the Clean Power Plan, Senator Steve Daines never misses the chance to push the panic button.

At least that’s what he appeared to be doing last week when he robo-called a whole bunch of Montanans (I was one of the lucky ones) to deliver the terrible news: a new “University of Montana” study had shown that implementing the Clean Power Plan would be calamitous for Montana’s economy. We needed to act, and act fast, if we were to stave off disaster! The EPA is running amok! It’s a War on Coal!

Now first things first: “The University of Montana” doesn’t study things and it doesn’t put its imprimatur on studies done by the folks who work there. What Daines was talking about was an analysis conducted by the University’s Bureau of Business and Economic Research and paid for by Northwest Energy. Take that for what it’s worth.

You’ve probably already heard a bit about the BBER paper, which has been, to put it mildly, something of a crazy-making puzzle. But the question about it that has vexed a lot of folks is really pretty simple: how can somebody study the impact of implementing the CPP when nobody knows how it is going to be implemented? And the answer is equally simple: somebody can’t, and so that’s not what BBER really did. No. Rather, at the behest of Northwest Energy, BBER simply assumed that implementation would require the shutdown of all the coal-fired power plants at Colstrip (and the transmission lines they ship power on) and the construction of a new gas-fired plant in Billings. Then they used a computer model to calculate how these events would cause the economy to veer from the path that it might otherwise be predicted to follow. It was this veering from the path that got Daines so het up.

Now whether or not this exercise tells us anything useful is an open question. After all, there are ways of implementing the CPP that don’t lead to Colstrip being totally abandoned, and any implementation plan is going to have effects that go well beyond what happens in Colstrip. So the BBER appears to be assuming both too much and too little, all at the same time. On the other hand, Colstrip closures could just happen, and it’s worth knowing what the results might be. Just how bad are things likely to get?

Well, the table above is a screen shot from the BBER report (which you can download here) which summarizes the bad news. The figures in the table detail what the BBER calls the “losses” we are going to experience from implementation of the CPP. So, for example, according to BBER, as a result of implementing the plan we will “lose” $516 million dollars of personal income* in 2025. That looks pretty bad, and frankly, BBER has presented the information in a way that makes it look as bad as possible. But before you get too alarmed about these results, realize this:

1. The numbers in the table refer to the estimated difference between what would happen with the CPP and without it. So, for example, we would “lose” $516 million in personal income as a result of the CPP only in the sense that in 2025, according to the BBER estimate, personal income would be that much higher without the plan than with it. It doesn’t mean that personal income will fall by that amount in 2025. So another, and better, word for these losses might be “shortfalls.”

2. If you compare the size of the shortfalls shown in the table to the total value of the corresponding measure in the absence of the CPP, they turn out to be relatively small. For example, according to the BBER’s own estimates, without the CPP, total personal income in 2025 would be $54.3 billion. Implementing the CPP would reduce that total by the shortfall - $516 million - or just .95%. And if you have the patience to wade through the BBER’s ocean of numbers, you will find that almost all the shortfalls listed in the table are in about that same size range, i.e. 1% or less.

3. Leaving aside employment and taxes for the moment (I’ll get back to them later), according to the BBER’s own estimates, all the measures of economic performance shown in the table increase every year for the next 40 years, even if the CPP is implemented.  What’s important about this consistent growth is that it will eventually erase the shortfalls.  But how long is eventually? Well, going back to the same example, according to the BBER’s own estimates, between 2025 and 2026, even with the CPP in place personal income will rise by $1.32 billion, from $53.8 to $55.1 billion. This increase will erase the 2025 personal income shortfall in about 5 months. Again, digging around in the BBER’s own data will show that economic growth will eliminate almost all of the shortfalls listed in the table in less than a year.  In the end, what the BBER is predicting is not that implementing the CPP will produce a crisis or even a moderate downturn in economic activity. All that will happen, according to the BBER’s own estimates, is that the CPP will slightly slow economic growth, meaning that with implementation, our enjoyment of any particular level of economic activity (however you want to measure it) will be delayed by only a few months.

Now what about employment? In the BBER’s projections employment – measured in numbers of jobs - grows very, very slowly, and that means that shortfalls in employment will not be eliminated quickly by growth. In fact, in the BBER projections, even without CPP implementation, employment almost completely stagnates during the decade of the 2020s; over the entire 36 year period of projection, 2019 to 2055, employment grows at an average annual rate of just .3%. This appears to be awfully low; by contrast, in the 34 years between 1980 and 2014, employment in Montana grew at an annual rate of 1.46%, almost 5 times as high as the BBER model predicts for the next 34 years.

In fact, the BBER model appears to be generally pessimistic: the growth rates it predicts for personal income, gross state product, population and per capita disposable personal income, as well as employment, all fall well short of the actual growth rates of those measures over the past 35 years. Why that should be is anyone’s guess (the answer is hidden in the black box containing the BBER’s model) but it’s an important question: understating the rate of economic growth has the effect of making shortfalls in income or production or employment seem more significant than they otherwise would. Stated the other way around, the more rapidly the economy grows, the more quickly these shortfalls are erased.

Finally, regarding taxes: BBER provides no data showing projected total tax collections or collections growth to accompany the tax shortfall figures you see in the table, so it’s a little difficult to judge just how worrisome those shortfalls might be. Suffice it to say that right now, total state and local government revenue is somewhat more than $8 billion; by 2025 it should be well more than $10 billion. That means the BBER revenue shortfall for 2025 will be somewhere between 1 and 2 percent.

When you look at it then, nothing in the BBER paper suggests that implementing the Clean Power Plan is going to devastate Montana’s economy. It will keep on growing, keep on providing families with incomes and economic opportunity, keep on providing workers with jobs. And all that will happen at just about the same pace as it would have if the Clean Power Plan had never darkened our doorstep. That’s not to say, of course, that some local economies will not be severely affected; if the Colstrip generators close down, there will be hell to pay in Rosebud County. But we do know that the economy will grow and provide the jobs and opportunities needed to help damaged local economies make it through the transition to a new, low emissions energy future.

Now getting back to Steve Daines. It’s probably too much to hope that he will ever change his mind about the Clean Power Plan or fighting climate change. It’s probably too much to hope that he will ever pay attention to the facts. Because for Daines, the Clean Power Plan is simply a vehicle for attacking Barack Obama, harassing Steve Bullock, and boosting the electoral prospects of Greg Gianforte. That has to be expected. What’s not to be expected, however, is the uncomfortable suspicion than in this effort, Daines is being aided and abetted by the folks at the BBER and Northwest Energy, using the ratepayers’ money.

*Personal income here is basically the total pre-tax income flowing to all households during a particular year. Disposable personal income is what is left over from personal income after households have paid their taxes.

Sunday, November 1, 2015

Wanting to Govern

Greg Gianforte, whose gubernatorial campaign up until now has been soporifically bland, finally took an oblique shot at Steve Bullock this past week.  And really, if that’s the best that Gianforte’s got,  I don’t think the governor has much to worry about.

To be clear, Gianforte has yet to admit that his hat is in the ring. Rather, he has been conducting an “exploratory” campaign, which seems to involve running around the state glad handing the voters and asking them if they think he should run for real.  He’s been soliciting contributions to support this endeavor, which seems to me a bit odd - please support me so I can come round and ask if you support me - but what’s really up with this strategy appears to be that it allows Gianforte to campaign without saying anything of substance. Given the extremity of his views, that’s probably a good move, and he’s pretty much stuck to it. There have been a few bobbles, such as when he opined that “the concept of retirement is not biblical,” but generally he has avoided controversy by confining himself to uttering platitudes about the importance of good jobs.

So it was a departure from the norm when earlier this week Gianforte sent out an email (text below) announcing his support for Attorney General Tim Fox and his suit challenging the Clean Power Plan. And taking a whack at Steve Bullock, Gianforte said that had he been governor, he would have been standing right alongside Fox, unlike “some of our own state leaders” who are “silent … when it comes to taking a stand for Montana’s rights.”

Here's Gianforte's missive:

We all know the West is a special place - we make our living here.  Susan and I raised all four of our children here in Montana.

But the special beauty we’re privileged to enjoy makes special demands on our stewardship of the land - demands that are often misunderstood by DC bureaucrats and liberal interests.

Perhaps the first thing they misunderstand is that those who make their living off the land have the greatest incentive and obligation to protect it.

That DC does not understand this is, sadly, not a surprise. But how can some of our own state leaders be silent on the question when it comes to taking a stand for Montana’s rights?

Just last week, our Attorney General Tim Fox joined Montana as party to a lawsuit challenging the EPA’s new carbon regulations - regulations designed to cripple Montana’s coal industry and take jobs from our state. I can assure you, if I were Governor, I would have been standing alongside Attorney General Fox and his effort to block President Obama’s plan.

President Obama’s plan will shut down Colstrip, and high wage coal jobs all across the state. The threats from Washington must be defeated.

If I decide to run and become your next Governor, you can bet I’ll take a defiant tone in the face of EPA intrusion. I’ll fight wherever and however I can to ensure Montana’s future.

And the more I hear from you, the more encouraged I am to run to take on these challenges.

We’ll be holding our state’s leadership accountable as I travel the state and hear your concerns.

If you share my concern for the future of Colstrip and high wage mining jobs all across Montana, join me on Facebook and follow us on Twitter. Also, please sign this this petition to stand up for Colstrip and high wage Montana jobs.

And forward this email to like-minded Montanans - we need them to join the team.

Let’s demand more from our leadership, together.

Thanks as always,

Like Steve Daines, Gianforte seems to think that President Obama is shoving the Clean Power Plan down our throats just “to cripple Montana’s coal industry and take jobs from our state.” He doesn’t mention a single word about climate change and doesn’t seem to know that the Clean Power Plan would produce billions of dollars of public health and climate benefits. And he fails to recognize that unless the United States is committed to seriously reducing carbon emissions - and Montana, like other states, is prepared to do its part - we will never be in a position to demand international cooperation for climate action.

That’s all pretty standard stuff, but Gianforte rings the changes on the Republican message with results that are downright bizarre. For one thing, he appears to think that the Clean Power Plan has something to do with stewardship of the land!  It’s hard to believe that he has really gone that far astray - maybe all he’s trying to do is perk up the ears of the Sage Brush Rebels  – but either way, it’s worrisome. And then there’s this business about “high wage coal jobs all across the state." You’d think that after all that exploratory campaigning he’s done, Gianforte would know where the coal mines are and aren’t.

And what is he going to do about this terrible plan? Well, besides standing resolutely alongside Tim Fox, if Gianforte decides to run and becomes our next governor, we can “bet” that he’ll take a “defiant tone in the face of EPA intrusion.” Wow, that’ll help.

The fact of the matter is that Gianforte doesn’t really look like someone who wants or is able to govern. He doesn’t see the dimensions of the crisis we are facing; he is willing to cede the lead to the attorney general; he is prepared only to stamp his feet and just say no; he doesn’t appear to recognize the importance of coming up with Montana made solutions; he’s not sure he wants to be governor; and if he is, all he can tell us is that he’ll take a “defiant tone” with the EPA.  And in going up against Steve Bullock, he’s taking on a guy who not only wants to govern, but actually has; a guy that in the face of do-nothing opposition has brought on Medicaid expansion and campaign finance reform and the water compact and a bunch of other stuff. In short, Bullock has governed and Gianforte doesn’t even seem to know what governing is all about. 

Friday, October 23, 2015

Coal Tax Reality Check

When it comes to coal taxes, Duane Ankney needs to run a reality check.

Senator Ankney, who hails from Colstrip and is proud to be a retired coal miner, was in Longview, Washington this week promoting the construction of a terminal through which, he hopes, millions of tons of Powder River coal will someday be exported to Asia.

It’s easy to understand Ankney’s enthusiasm for this project. The coal industry has been taking it on the chin recently.  In the face of competition from renewables and, especially, natural gas, the electric power industry is moving away from coal as a fuel, and domestic coal consumption is falling. As the Clean Power Plan goes into effect and states are required to reduce their carbon emissions, the decline will almost certainly accelerate. So the only potential bright spot for coal – such as it may be - is exports.

Now nobody in their right mind is going to deny that coal exports will be good for the economy of Colstrip and Rosebud County, or for the miners and their families who Ankney represents. And it’s certainly okay for Ankney to be promoting those exports however he can – after all, all politics being local, the guy’s just doing his job.

But what’s not okay is for the senator to make a bunch of fanciful claims about the importance of coal to the whole rest of the state in order to scare people into propping the industry up, no matter what the consequences. And that’s apparently what happened in Washington. According to the Longview Daily News, Ankney told the local folks who are worried about the effects of the terminal on their community, that “Montana depends on coal taxes.” Those taxes “pretty much keeps the wheels greased and the Montana economy running.”

This is simply outlandish. In 2013, the last year for which I can find complete data from the US Census Bureau, the state and Montana local governments collected a total of about $3.85 billion in taxes. That same year, according to the latest Montana Department of Revenue Biennial Report, coal paid severance and gross proceeds taxes of a tad more than $76 million, or 1.9 percent of the total. That, by way of comparison, is about the same as smokers paid in cigarette taxes.

But wait, there’s more! Taxes are actually a relatively modest proportion of the total revenue of the state and local governments. There’s also boatloads of money from the Federal government, hunting license fees, University system tuition, interest earnings, property sales, etc., etc. Add all those revenues, including taxes, up, and you come up with a total for 2013 of $8.06 billion, about .9 percent of which comes from coal. In case you can’t quite wrap your head around that number, the picture above shows the total revenue pie, including the slice of revenue coming from coal. If you’re having trouble seeing that slice, well, that’s the point. And if you’re having trouble figuring out how we can possibly be dependent on that miniscule slice to "pretty much" keep the "wheels greased and the Montana economy running," that’s also the point.

Senator Ankney will no doubt want to argue that because some coal severance tax revenues are earmarked for programs like Long Range Building, those programs are dependent on coal taxes. But it’s not true. If the coal tax revenue we are collecting today were to disappear overnight, we could continue to fund every expenditure we are funding right now, and still have a hefty surplus and money in the bank.

I’m not denying that declining coal production means real trouble for coal miners and their families and communities. But in thinking about the future of coal and climate policy, we shouldn’t be stampeded into thinking that lower production spells disaster for the state’s economy or the public purse, because it just isn’t so.

Thursday, October 15, 2015

Falling Off the Gravy Train

If, like Doyle McManus and a whole lot of other people, you are trying to understand the utter vacuity of the Republican presidential primary, listen to Bernie Sanders.

McManus, a regular on the Los Angeles Times op-ed page, is just plain perplexed by the Republican contest. Understandably so: there is a lot of weirdness floating around out there, including, but not limited to, the enormous size of the field, the presence of loopy candidates who have absolutely no prospect of winning, and, of course, the emergence of Donald Trump as the front runner.

But those aren’t the oddities that have McManus scratching his head. No, for him,

“The strangest thing about this year's Republican campaign (other than Trump) is how it's been hijacked by social issues: immigration, abortion, even whether a Muslim can serve as president. The issues most voters list as their biggest concerns — economic growth and jobs — have taken a back seat.
“Yes, the leading candidates all promise they'll spur the economy by lowering taxes and cutting government spending — standard conservative boilerplate.
“But except for Trump, Jeb Bush and Marco Rubio, none of them have said exactly how. “
Now I don’t want to take anything away from McManus - he’s got a point - but really, there’s no mystery here. The reason Trump, Huckabee, Fiorina, et. al. aren’t talking about economic growth and jobs is that they can’t, at least with a straight face. Because if they’ve paid any attention at all, they know that Sanders has got it right: since Ronald Reagan entered the White House 35 years ago, economic growth, wherever it came from, has benefited the average American household hardly at all.

You’ve no doubt heard how the Republican prescription is supposed to work. Cut taxes (especially for the rich), reduce the size of government, and get rid of all those pesky regulations, environmental laws and consumer protections, and we will liberate the private sector and the economy will flourish. And despite the fact we seem to be handing out all the goodies to the richest people in the country, everybody will be better off because they’ll all be riding on the same gravy train. Unless, of course, they fall off.

One part of this scenario played out as expected: the economy did grow. Between the end of 1980 (just before Reagan took office) and the end of 2014, real per capita GDP grew at an average of 1.7 percent per year. Whether Republican policy was responsible for that growth is another matter. Growth was just as robust under Clinton as it was under Reagan. The worst growth record was compiled by the senior Bush. The junior Bush and Obama come out about equal.* And over the entire 34 years since Reagan was elected, growth has been almost exactly the same as it was during the 34 years before he entered the White House.

The real problem, as Sanders tells us over and over again, is what happened to the distribution of income. Since 1980, as income grew, the share of income received by the least wealthy 80 percent of all US households went down, which of course meant that the share of the wealthiest 20 percent grew. And the farther up households were in that wealthiest 20 percent - up there in the lofty regions of the top 5 or the infamous top 1 percent – the more their share grew.**

Of course, when income is rising, the fact that a household’s share of income is falling doesn’t necessarily mean it’s getting worse off - one tenth of a 14 inch pizza is more pie than one eight of a 12 incher. But for people at the bottom of the income pile, loss of share pretty much offset total income growth. In 2014 households in the bottom fifth had almost exactly the same real income as they had in 1980. Over the same 34 years, income of households in the second and third fifths had grown 10 percent or less. At the other end of the scale, households in the top 5 percent saw their real income increase by more than 70 percent.

As the New York Times reported last week, to date just 158 families have bankrolled the campaigns of the current crop of presidential candidates, with the vast majority of the money going to Republicans. Needless to say, these are the people who have won the income distribution lottery, and they are not giving any of the jackpot to Bernie Sanders. And what are Republicans benefitting from this largesse supposed to do when the inconvenient issue of income inequality comes up? Well, as McManus says, talk about something else.

*That’s comparing the average annual rate of growth over 8 years for Bush (0.8 percent) to 6 years for Obama (0.7 percent). In the two years left to Obama, that average will no doubt rise (over the past year growth was about 2 percent), and the two Bushes will end up with the worst economic records in the past four decades.

** The share of the wealthiest 20 percent grew by about 7.2 percentage points, with three fourths of that gain going to the wealthiest 5 percent.

Sunday, October 11, 2015

Running the Royalty Numbers

Ever since Art Laffer stalked the halls of the Reagan White House, it’s been an article of faith among Republican politicians and policy wonks that if you want to raise tax revenue, you ought to cut tax rates. And on the flip side, if you want to slash revenue, the surest way to get there is to raise tax rates - which Laffer, to be clear, would never, ever, recommend.

That might sound a little paradoxical, but unless you’ve been living in splendid isolation for the last 35 years, you’ve probably heard how this is all supposed to work. When a tax rate is cut, the folks providing the taxed item – labor, natural resources, financial investment, luxury goods, or what have you -  will be so unburdened that they will want to provide more of it - so much more, in fact, that the tax base will grow faster than the rate is cut and, voilĂ , revenue will increase. On the other hand, if government is foolish enough to raise rates, the opposite will happen: people providing whatever it is that’s being taxed will pick up their marbles and go home and all that nice revenue will disappear.

Now there’s nothing wrong with the logic here – everybody can agree that when you tax something you usually tend to discourage, to some degree, its production and use.* But when it comes to figuring out the impact of tax rates on tax revenue, more than just logic matters; you also have to look at the actual numbers.

Take, for example, the case of Federal coal royalties.

This past summer, the Department of the Interior asked for public comment on whether or not mining companies pay the public reasonable royalties when they dig up and sell Federal coal. Needless to say, the companies think they are paying plenty and resent the question even being asked. As far as they’re concerned, it’s just one more salvo in the “Obama administration’s war on coal.” On the other side are folks (full disclosure, I’m one of them) who maintain that the companies have contrived to price Federal coal at well less than its true market value, in order to short the public on royalty payments. Indeed, according to an analysis by Headwaters Economics, pricing coal at true market value could produce over $100 million in new Federal revenue.**

But John Ostlund are Bob Story are having none of it.

Ostlund, who’s a Yellowstone county commissioner, opined in the Gazette in August that the best way to raise more royalty revenue would be to mine more Federal coal, and the best way to make that happen, of course, would be to reduce royalty payments and bonus bids***. And Story, who’s the executive director of the Montana Taxpayers Association and a former president of the Montana Senate, predicted in the Missoulian that if the Federal government increased per ton royalty payments, the “best-case scenario” would be that companies would priced out of the market and stop mining Federal coal entirely, meaning royalty revenue would be zilch.

Well, maybe, but look at the numbers. According to the Headwaters study, Montana and Wyoming, the states that produce the lion’s share of Federal coal, deliver that coal to their customers at a little more than $30 a ton, and pay per-ton royalties of $1.79 (Montana) and $1.56 (Wyoming). Now imagine we cut those royalty payments in half, hoping, with Commissioner Ostlund, that we would get enough additional production for total royalty revenue to actually increase. For that to happen, since we’d be collecting half as much on each ton, we’d have to more than double the number of tons sold; stated otherwise, sales would have to increase by more than 100%. Let’s assume that the whole royalty reduction would be passed on to the buyers in the form of lower prices – none of it would be kept by the companies - so prices would fall by $.85, or roughly 3% in Montana, and by $.70, or again roughly 3%, in Wyoming.

So there you have it: for royalty revenue to increase in this scenario, a 3% decrease in price would have to induce customers to increase their purchases of Federal coal by over 100%. And that just isn’t going to happen. In the short run, in particular, power producers are locked in; a small price reduction is not going to drive them to switch in droves from natural gas or solar or wind to coal, and it certainly isn’t going to allow them to sell twice as much electricity to their customers. Of course they might switch from non-Federal to Federal coal, but in that case, Commissioner Ostlund should be careful what he wishes for. Yes, there would be more Federal coal produced – and royalties paid – but it would be taken out of the hide of the companies and workers who mine state or private coal leases. The net effect on total coal production would be very, very small.

The same objection applies in reverse, but more so, to Story’s “best-case scenario.” According to Story, any increase in royalty payments would price Federal coal out of the market. Any increase in the price of Federal coal, no matter how small, would reduce purchases to zero. But there’s simply no reason to believe any such thing. Just as buyers are not going to flock to Federal coal when the price goes down a little, they are not going to abandon it when the price goes up. If they did, it would be because they were buying state or private coal instead. And if that happened, unlike Story, the folks producing that coal would probably think that raising Federal royalties was really  a pretty darn good idea!

* A noteworthy exception to this rule is labor. Taxing wages can induce people to work more, rather than less.

** One of the pricing reforms that Headwaters proposes would increase revenue by over $500 million, but it doesn’t look likely that that proposal will get very far.

*** Bonus bids are what companies pay to get access to Federal coal in the first place; royalties are what they pay as and when the actually dig the coal up and sell it.

Tuesday, September 22, 2015

Dear Governor Bullock...

You may have read in the papers that a group of Democratic legislators wrote to the Governor last week expressing support for the Clean Power Plan and pledging to work with him to develop the state’s implementation strategy. That may be all you need to know, but it you want the details, here’s the text of the letter:

We write to you as members of the Montana legislature to express our continuing support for the Clean Power Plan as it was recently announced in final form by the Environmental Protection Agency. We recognize that the plan now requires the state to make a larger effort to control carbon emissions than originally anticipated, and accordingly imposes on the state a new set of challenges, but also opportunities. As you know, the plan is designed to give states wide latitude and substantial authority to determine how they can best meet their emissions reductions targets, and we were impressed by the efforts of the Department of Environmental Quality, under your administration, to use that latitude to respond creatively to the initial EPA proposal. We believe that work should continue forward, as provided for under the final plan, and we are committed to assisting you in that effort in whatever way we can.  The consequence of not doing so would be to have a compliance plan imposed upon us by the Federal government, and so far as we know, nobody wants that to happen.

We take it as a matter of settled science that climate change is occurring; that it will have a dramatic and destructive impact throughout the world, including here in Montana; that it is caused principally by the combustion of fossil fuels; and that it can only be arrested by the radical restructuring of global energy systems. We believe that arresting climate change is one of the major social and political imperatives of  our era, and although doing so will be disruptive and somewhat costly, ignoring that imperative in the name of protecting the status quo would be irresponsible, and an abandonment of our duty to protect future generations from irreparable harm. The challenge before us is to help ourselves and our fellow citizens through the process of change and to find a way in which costs of change can be equitably shared. We simply cannot obstinately refuse to recognize the realities of the issue, or cast it as a partisan political battle, or use it as a cudgel to attack the President or the Federal government.

We recognize that climate change is a global problem that can be effectively addressed only by international cooperation, and we know that by itself the Clean Power Plan cannot solve the problem. But we also note that the international system appears to be trapped in a state of inaction in which effective international agreements have been extremely difficult to come by. In this situation, it is imperative that as a nation and a state, we provide leadership to move forward. If we all sit on our hands waiting for some other nation to take the initiative, we will all be sitting on our hands forever.

We want to emphasize the fact that the Clean Power Plan presents us with opportunities, in the form of employment, investment and technological innovation in energy efficiency, conservation and renewable energy production. We believe that these opportunities can effectively offset the challenges posed as established fossil fuel based energy sectors, and particularly coal, contract. Perhaps more to the point: However these impacts balance out, we believe that the Montana economy has already demonstrated remarkable dynamism and the ability to adapt to significant transformation of the energy system. Due mainly to market forces, the transition to less carbon intensive and renewable energy has been under way for some time now, and the sky has not fallen. On the contrary: The Montana economy is healthy and buoyant and is now well situated to absorb the impacts of the plan, whatever they prove to be. We believe that it is simply but seriously mistaken to think that the Clean Power Plan threatens our prosperity. On the contrary: we believe that the potential effects of the plan are quite small when compared to the sea changes that the Montana economy has weathered over the past three decades. That said, we urge you, as you move forward, to seek the most efficient and lowest cost ways to meet Montana’s emissions reductions obligations under the plan.

Again, we stand ready to assist you in any way we can as you and all the citizens of Montana and the nation prepare to meet this critical challenge.

             Sen. Dick Barrett     Rep. Bryce Bennett     Rep. Zach Brown     Rep. Virginia Court
Rep. Willis Curdy     Rep. Kimberly Dudik     Rep. Mary Ann Dunwell     Rep. Jenny Eck
Rep. Janet Ellis     Sen. Tom Facey     Rep. Ellie Boldman Hill     Rep. Denise Hayman
Rep. Jessica Karjala      Sen. Christine Kaufmann      Rep. Kathy Kelker   
Sen. Cliff Larsen    Rep. Ed Lieser    Rep. Nate McConnell    Rep. Margie MacDonald
Sen. Mary McNally     Sen. Sue Malek     Sen. Mary Moe     Rep. Andrea Olsen 
Sen. Mike Phillips    Sen. JP Pomnichowski    Rep. Chris Pope    Rep. Jean Price
Sen. Diane Sands     Rep. Tom Steenberg     Rep. Kathleen Williams   
Rep. Nancy Wilson     Sen. Cynthia Wolken     Rep. Tom Woods

Tuesday, September 15, 2015

Playing with the Numbers

Unlike Steve Daines and Ryan Zinke, who have really gone off the deep end, there are people out there criticizing the Clean Power Plan for reasons that are at least plausible. Plausible, but fatally flawed.

I’m talking here about folks who seem to grudgingly acknowledge that climate change is a real problem, and concede that the Clean Power Plan is an attempt to do something about it. But in their view the attempt fails, because it costs too darn much and accomplishes so darn little.

It’s an argument that’s been around since last year when EPA made its original proposal, and now that the final version of the rules have been announced, it’s come back.* And it’s an argument that ought to be taken seriously. Certainly from an economic point of view, the alarm bells should start going off if someone can convince you that the plan is going to cost an arm and a leg, destroy the economy as we know it, and have climate impacts that aren’t worth a red cent. 

But before you throw up your hands and conclude that we are all doomed by the inexorable logic of economics, take a deep breath and realize that there is a problem here, which is that the folks who purvey this analysis are playing with the numbers by routinely exaggerating the costs and misrepresenting the benefits of reducing emissions.

Costs are overstated by presenting them as great big numbers (billions! trillions!) and then claiming that it is self-evident that any number that big has to have ruinous economic consequences. Here are a couple of examples:

Brad Johnson tells us in a recent Missoulian op-ed that “The EPA itself admits that the plan comes with an $8 billion price tag every year by 2030 just in compliance costs.” This, Johnson says, will result in our “destroying” our economy. Yep, $8,000,000,000 is a pretty big and scary number. But now get out your calculator and divide that number by 320,000,000, the current population of the United States. The answer, $25, is the per capita annual cost of complying with the Clean Power Plan. That’s seven cents a day, about equal to what we spend on chewing gum and potato chips. Does Johnson, a Montana Public Service Commissioner, really believe that’s going to drive us to the poor house?

Not to be outdone, David Kreutzer, who works for the Heritage Foundation, also writing in the Missoulian, claims that according to the Energy Information Administration “in the decade of the 2020s, lost GDP will total $1 trillion, and total employment will fall by as much as 500,000 jobs.” Whew, $1 trillion! That’s a lot of dough, except when you compare it to $270 trillion, which is about what total GDP is going to add up to during than same decade. What Kreutzer is trying to scare us with here is a plan that is going to reduce national output by 4/10ths of a percent. We can make that back up with about six weeks of normal economic growth.

It’s hard to know what Kreutzer means by employment falling by “as much as 500,000 jobs,” but assuming it means that with the CPP there would be 500,000 fewer jobs each year than would otherwise be the case, the effect is again very, very small; employment would be reduced by 3 tenths of a percent.* *

What do we get in exchange for incurring these costs? Well, according to Johnson and Kreutzer, not very much. Just a small, almost imperceptible reduction in global temperatures, and what good is that? Well, think about it. I’m not sure they really mean that the Clean Power Plan will reverse the rise in global temperatures – which would be quite an accomplishment – or simply slow it down, but in any event, what happens to global temperatures is not really a meaningful measure of the economic benefits of the plan. What counts, rather, is the economic magnitude of the damages that are avoided when the plan is put in place. On that score, Johnson and Kreutzer and most of their cohorts are utterly silent.  But here are the numbers from the EPA.

By 2030 avoided damages to the global climate and US public health add up to between $34 and $54 billion per year. Take the lower number, and it completely swamps the $8 billion worth of compliance costs that Johnson worries about.

It’s fine if critics want to perform a hard nosed, sharp penciled cost/benefit analysis of the Clean Power Plan. But if they’re going to do that, could they please get it right?

* I wrote a number of posts on the rule last year, chiefly responding to critics like Mike Miller, Glen Oppel, Rick Hill, Steve Daines, Alan Olsen and Keith Regier, The US Chamber of Commerce, and Roger Webb. If you missed any of those posts, and haven’t gotten tired of me holding forth on this issue, you can click on the links.

** Be very wary when anyone tells you that some variable, x, could change by “as much as y.” What that means is that y is the most that x might change by; x might not change at all – it might even fall! “As much as” describes the extreme case, not what is actually expected.

Thursday, September 3, 2015

A Time to Get Serious

When Steve Daines rose on the floor of the United States Senate last month to talk about the Clean Power Plan, he had the opportunity to address the world’s greatest deliberative body about the world’s most pressing challenge: arresting climate change. Montanans might have hoped that Daines would use the occasion to say something thoughtful and productive about how we can meet that challenge, but no: what we got was tendentious, polemical, and sadly misinformed.

You can watch Daines’ disturbing performance here, but if you’re not up for quite that much vitriol, just consider these points from the speech:

Like a snarky teenager, the senator refers to the EPA as President Obama’s “Employment Prevention Agency.”

Either because he’s delusional or simply doesn’t care about the truth, Daines calls the Clean Power Plan the President’s “plan to devastate Montana’s coal industry.”

Because under the plan Montana’s emissions rate must fall from 2,481 to 1,305 pounds of carbon per megawatt hour between 2012 and 2030, Daines figures our carbon emissions – and by implication, our burning of coal - will go down by 47.4 percent. But it won’t happen. Danes is confusing a decline in the emissions rate with a decline in emissions mass, and doesn’t seem to realize that that the two  will only be the same in the very unlikely event that over those same 18 years there is no increase at all in electricity generation.*

He says the plan would “make construction of any new coal-fired plant virtually impossible,” conveniently forgetting that for market reasons, nobody’s planning to build coal-fired power plants anyway.

He claims that the plan would be “devastating for our economy” and that “thousands of family wage jobs would be lost,” apparently failing to take into account all the jobs that would be created in the renewables and energy efficiency sectors, and grossly overstating the economic impact of a contraction in the coal industry, the extent of which is, in any case, unknown at this point.

He argues that the plan will stifle energy innovation and the development of “clean coal” technology, willfully ignoring the fact that the plan allows states to reduce their emissions however they think best. If coal-fired power plants can really find a low cost, efficient way of reducing emissions that allows them to go head to head with renewables and enhanced efficiency, the Clean Power Plan says more power to ‘em.

And so it goes. But there’s one thing that Daines doesn’t do. He never once – not one single time – mentions climate change. He never once acknowledges that to arrest climate change, carbon emissions are going to have to go down. He never once shows us that he realizes that in order to reduce emissions, the global energy system must be restructured. And he never once admits that since John McCain’s 2008 presidential campaign, no Republican has made any serious proposal whatsoever for dealing with climate change.

We desperately need to have a serious, dispassionate, and thoughtful conversation about how we can arrest climate change. To do that we need leaders who can leave politics, the well-being of campaign donors, suspicion, name calling, obfuscation and abuse of the truth at the door. We won’t get there with leaders who, like Senator Daines, act like a five year old kid who sticks his fingers in his ears, stamps his feet, and just screams “no, no, no!”

*Okay, maybe I should cut the senator a little slack on this point. It is confusing and I tried to clarify it in this post last year.

Saturday, June 20, 2015

Living With The Consequences

Gary Marbut, for whom gun slinging is apparently one of the cardinal virtues, is unhappy with my friend Ellie Hill.

Writing in the Missoulian, Marbut assails Ellie’s seemingly modest proposal that the state should comply with Federal law and report the names of certain severely mentally ill people to the national firearms background check registry. You might think, in the wake of Newtown and Virginia Tech and now, Charleston, that we would all agree that keeping deranged young men from buying guns is a good idea, but Marbut’s having none of it.  Reporting the names of the mentally ill will do nothing to make us safer, he claims, because mental health professionals are unable to predict whether particular individuals will be violent, and people undergoing mental health treatment  are no more violence prone than anyone else. Even worse, Marbut says, is that mentally ill people will not seek treatment if they know that doing so means they’ll lose their right to buy a gun.

Marbut doesn’t appear to have actually read Hill’s bill. The fact is that the bill requires reporting the names of only those mentally ill people who have been involuntarily committed, have been ruled incapacitated and appointed a guardian, or have been charged with a crime and found to be either unfit to stand trial or not guilty by reason of mental disease or defect. These individuals form a very small subset of all mentally ill people. They are not among the vast majority of mentally ill folks who can seek the treatment they need without any fear of being denied the opportunity to buy a gun.  And they are more likely than most of us to harm themselves, or others, if they have access to guns.  True, that can’t be predicted with certainty, but the heightened probability of violence cannot be disputed.

The background check system can only slow, but not stop, gun crime. That’s true for lots of reasons, but the big one is that anybody who can’t pass a background check can still buy one of the thousands of guns that are sold privately or at the gun shows that flourish across the country. And it turns out that if a criminal wants to buy a gun, Montana is a good place to do it. Back in 2010, the Washington Post published an investigative report which listed the states that exported guns that ended up being used to commit crimes somewhere else; Montana came out near the top of that list. Think about it: that means that some of those guns that fly out the door at unregulated Montana gun shows end up being used to rob a convenience store, or in a drive-by shooting, or assaulting someone, or shooting a cop, or in a killing at a school or church.

The gun show and private sale loophole in the background check law is big enough to drive a bus through, and until it is closed, Marbut has nothing to worry about: people can get all the guns they want. But the rest of us will have to live with the consequences.

Saturday, April 11, 2015

Profitable Pollution Control

As I noted in a recent post, corporations are nothing if not inventive when it comes to reducing their property taxes and asking you to pick up the tab. Last week they were touting SB 394, which allows a handful of companies to treat almost all their property as intangible, and therefore not taxable. This week they were back in the Senate Tax committee promoting HB 156, sponsored by Rep. Mike Miller, which would make their tangible pollution control equipment tax exempt as well. If they keep going this way, pretty soon they won’t be worth anything at all, at least for tax purposes.

The rationale these guys offer for exempting pollution control equipment is that it “doesn’t add anything to their bottom line.” They keep it around only because a slew of EPA regulations require them to, and since it doesn’t help them make money, it’s not worth anything. Presumably, if the regulations went away, so would the pollution control equipment, and these folks would be able to pollute to their hearts’ content.

Superficially, at any rate, this seems to make some sense. Capital equipment that allows a business to reduce its costs and increase its profits is obviously valuable and worth having. If I can buy a $1,000,000 machine that over its lifetime reduces my labor, or energy, or raw material costs by, say, $1,500,000, my “bottom line” is going to be a little plumper. But if that machine is simply reducing my pollution, and I can pollute for free, I’m gaining nothing.

The trouble is, the days when I could pollute for free are long gone.

One of the insights of environmental economics that’s wormed its way into the formulation environmental policy is that economic efficiency requires firms to “internalize their externalities.” In real people talk, that means that if companies are imposing costs on the rest of society by polluting the environment, they should darn well pay for them. “Paying to pollute” is a policy that most environmental economists really like: make companies pay, and let them figure out how much and what kind of pollution control equipment they want to install to cut those payments down.

Exhibit A of the “paying to pollute” principle is probably the carbon tax, which a lot of people (not including climate change deniers) tend to like. But that’s not typical. Lots of people get a little queasy about the idea of allowing companies to pump crud into the air and water as long as they pay for it. Sure, the economists say that making companies pay for pollution will induce them to control and reduce it, but can we really count on that? And should the natural environment really be rented out as a dumping ground for industrial and household waste? Because of these doubts, we have typically decided not to require companies to pay for their pollution, and instead required them, through regulations, to install pollution control equipment.

So now imagine that we drop the regulations and that the companies are no longer required to install pollution control equipment. Would their bottom line improve? Well, of course it would, if they didn't have to pay for their pollution,

But that’s not the deal: they are regulated so they don’t have to pay. Take away the regulations and they do. So having that pollution control equipment in place, even if it’s there because the EPA says it has to be, is keeping companies from being presented with big fat pollution invoices, and that adds plenty to their bottom lines.

Friday, April 10, 2015

Water Rights and Wrongs

Over the past few years I have heard sworn enemies of the CSKT compact trot out enough misinformation, mendacity, ignorance, paranoia, calumny, and illogic to last me a life time, and sometimes I wish there were a booby prize for the worst offender. If there were, I figure that Ken Miller would definitely be in the running, at least if his screed in the Missoulian last week is any indication.

Miller, who served in the Montana Senate, chaired the Republican Party and ran, unsuccessfully, for governor, has managed to convince himself, and is trying to convince us, that approving the compact will be the biggest disaster since statehood – comparable, in fact, to electric deregulation. Indeed, he finds the parallels between deregulation and the compact “astonishing.”

Both, he says, were “pushed” by the Federal government.

Both are rife with the potential for corruption: the Bonneville Power Administration, he claims, stands to make big bucks when the Federal government controls the water used to run its dams. So it was with Enron after deregulation, and we know where that got us!

And sadly, both are pigs in a poke. We didn’t know what we were getting when we bought into deregulation, and we know almost nothing about what we’ll be getting if we buy into this compact. All we do know, Miller thinks, is that it will give control over “most of the water in western Montana” to the Federal government.

It’s hard to read this drivel and not conclude that Miller has never even skimmed through the compact, let alone actually read it. If he had, or if he had paid any attention at all to the countless presentations of the compact commission and its staff, he would know that it is the state of Montana that has aggressively and successfully pushed for the completion of water compacts with tribes and Federal government agencies.

If he’d read the compact, he would know that it assigns to the Federal government absolutely no water right that can be used to divert water from Montana users to the BPA – absolutely none.

If he understood the compact, he would know that off the reservation all it gives to the Tribes (or the Federal government in trust for the Tribes, if you insist) is a handful of minimal in-stream flow rights, many of which cannot be currently exercised or are duplicative of existing rights and therefore have no practical effect. Some confer, at most, the ability to make call on a limited number of junior users during very low water years* How Miller thinks the Federal government can parlay rights like that into “control” of “most of the water in western Montana” is a pure mystery.

Miller claims that “without a determination of the amount of water in the compact” the governor, the attorney general and the commission are “literally asking legislators to say yes to a blank check” that will give the Federal government “control of the abundant waters in western Montana.” Oops, wrong again! With the exception of a few de minimis uses (water for traditional religious observations, for example), all the water rights recognized in the compact are explicitly quantified; that happens in all those pages of abstracts that compact opponents endlessly whine about having to read. There are no blank checks. Nobody gets “control” over water, whatever that means.

And so it goes. But here’s the thing: Ken Miller is obviously free to say whatever he wants about the compact, however misinformed and distorted that may be. But if he wants anybody to take him seriously as a public figure whose views should be respected, he ought to take responsibility for the coherence and integrity of the opinions he expresses.

* “Making call” in this context means telling users with a lower priority date that they have to stop taking water out of the stream so that minimal in-stream flows can be maintained. The idea is to protect fisheries, which is something the Tribes are very interested in (and presumably a lot of other people are as well).

Monday, April 6, 2015

A Big Ball of Wax

As you’ll probably remember, a month or so ago Republicans in Helena were all about cutting your taxes. They claimed to be upset over the fact that the state had $400 million dollars in the bank that was really the taxpayers’ money, and they were going to by God send it back where it belonged!

Well, it turns out that they were just kidding. The plan now is to claw that money back from homeowners and small business folks and farmers and ranchers and give it to – you guessed it – a handful of corporations. The vehicle for this sleight of hand is SB 394, sponsored by Senator Mark Blasdel. Backed by the Montana Taxpayers Association, the Chamber of Commerce, corporate lobbyists and the other usual suspects, SB 394 sailed through the Senate with hardly a peep and is now in the House, where it will no doubt be joyously embraced.

You’ve got to get a little wonky to understand how this bill works, but bear with me. It’s kind of interesting, albeit in a depressing way.

It turns out that under Montana law there are companies that are “centrally assessed” for property tax purposes. These are companies that have some sort of extensive unit operation using a bunch of land, buildings and equipment that spills across county lines. Think of a pipeline or cell phone company network or railroad. For property tax purposes, the Department of Revenue calculates a statewide unit value for these outfits and then uses a formula to allocate that value out to the various taxing jurisdictions – cities, counties, districts, etc. – where they operate.

Here’s the rub: only the tangible, physical assets of centrally assessed companies – the stuff you can actually touch – are subject to the property tax, while intangible assets – things like intellectual property, licenses, customer good will, and the like – are not. Now there’s really no sensible way to sort out the value of the stuff that’s taxable versus the stuff that’s not. After all, all of it’s valuable because it produces an income for the owners, and all of the assets, tangible and intangible, work together in a great big ball of wax to make that income happen. There’s no obvious way of picking a chunk of wax off the ball and saying what it’s worth in isolation.

But the law says that’s what has to be done and accountants somehow have to figure out a way to do it. Of course the companies, who pay the accountants, want them to assign as much of the value of the business as possible to intangibles (so they can low ball their taxes), and for years now they have been locking horns with the Department of Revenue – in appeals, hearings, court cases and legislative committees - over how that gets done.  And while some companies have been fairly successful at exempting a growing share of their property from taxes, they never seen to be quite satisfied. Enter SB 394. You can read it for yourself (it’s quite short and deceptively simple) so I’ll spare you the details, but the bottom line is this: SB 394 allows centrally assessed companies to treat even more of their property as intangible than they already do, and in the process, gives them a great big property tax cut. The numbers get pretty impressive.

For example, when it comes to calculating the value of intangibles, there appears to be nobody more inventive than Verizon. They already claim that 70% of their asset value is intangible, and the Department of Revenue estimates that under SB 394, that will go to 82%. Think about that. Verizon is saying that if, tonight, space aliens descended on Montana and took all its physical assets away – if  its cell towers, retail stores, computers, office desks, coffee makers, wires, and switching equipment were all beamed up and gone forever – the company tomorrow would still be worth 82% of what it’s worth today!

By making itself even more intangible than it already is, under SB 394 Verizon will lower its state property taxes by about $3 million a year. When all the other centrally assessed companies pile on, state property taxes (which pay for schools) will go down by something north of $11 million a year. Where the money will come from to keep schools whole and make up for that largesse is anyone’s guess, but my guess is the state General Fund and that means – you guessed it – your income taxes!

But wait, there’s more! When all this property gets declared intangible it will disappear from the tax bases of school districts and local governments all across the state. To keep the doors open and the lights on, school boards, county commissions, city councils and the like will have to raise property tax mills, and the Department of  Revenue figures that that will increase the property taxes of homeowners, local businesses, farms and ranches by about $45 million a year. Make no mistake about it: SB 394 will raise your property taxes.

So before you start thinking about what you are going to do with that juicy income tax cut the Republicans promised you, just remember you might need it when your property tax bill shows up in the mail box.