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.