Dark, Dark Money

Talk about dark money! What on earth are the Missoula County Republicans up to?

I was looking over my opponent’s latest campaign finance report recently and saw she reported that back in June, the Missoula County Republican Central Committee donated $1,400 to her campaign. That’s a pretty good chunk of cash, and got me wondering whether other Republican candidates had enjoyed the same largesse. And it turns out they did: according to their various individual fillings, Republican candidates in the county had received a total of $7,700 from their central committee.

Now that’s an even bigger chunk of cash channeled into campaigns, and it would be nice to know where it came from. And tracking that down shouldn’t be hard to do, because just like candidates, political party committees are supposed to file reports with the Commissioner of Political Practices detailing where they got their money and how they spent it. You can find that information on the Commissioner’s website. But here’s what the Missoula County Republican Central Committee's reports to the Commissioner tell us:

Essentially nothing.

The Missoula County Republicans have not filed a report since July 27, which means they have failed to account for their activity in August and September, as required by law.

Since the beginning of the year, when they started out with zero in the bank, they report that they have had no expenditures – not one penny – even though the candidates claim they got that total of $7,700.

According to their last report, they have $20,316.19 in the bank, all of which they say they took in during January and February. But again, contrary to the law, they provide absolutely zero information about where that money came from.

So there is $7,700 being spent by Republican candidates in Missoula county that comes from unknown sources. It may be the result of incompetence or negligence rather than anything more nefarious, but any way you slice it, that money’s about as dark as it can get.

By the way, it may look like the Republican candidates are blameless in all this – after all, they can’t force the central committee to file accurate and timely financial reports – but it’s not that simple.  Because guess what? It turns out that two of the candidates getting donations – Adam Hertz and Sashin Hume - are executive officers of the Missoula County Republican Central Committee!

Sad

Last April I posted that while there were certain superficial similarities between Greg Gianforte and Donald Trump, there were also big differences: Gianforte, while not much of an original thinker, was a civil guy and a straight shooter. I didn’t think he would stoop to the abuse, fear mongering, narcissism and falsehoods that come so naturally to Trump.

Well, I spoke too soon.

Last week the Gianforte campaign mailed out fliers attacking Steve Bullock for “bringing Syrian refugees into Montana” and assuring us that if he is elected, Gianforte would “BAN refugees from countries known to harbor terrorists like Iran and Syria.” It was pure Trump, filled with frightening but deceptive imagery, misstatements of fact, and absurd boasts about what Gianforte would and could do to make us all safe.

Like Trump, Gianforte depicts Syrian refugees as masked, armed terrorists, not the kids and mothers and fathers who are being bombed in Aleppo or drowning in the Aegean as they try to escape. He says his heart goes out to these people and that we have a moral obligation to help them. No doubt he believes that, but what is he really prepared to do? It’s a mystery how we can help them if we refuse to provide shelter from the incessant bombs and rocket fire and bullets and poisonous gas that are killing them every single day. The name says it all: they desperately need refuge.

Like Trump, Gianforte exploits the public’s anxiety by claiming that refugees coming to Montana would be “unvetted,” when it has been reported over and over again that nobody entering the United States from abroad is exposed to more comprehensive vetting than refugees are.

Like Trump, Gianforte promises to do something that he cannot possibly do. He either doesn’t understand or willfully ignores the fact that as governor of Montana, he cannot ban refugees from any country, let alone from a list of countries of his own choosing. He cannot stop refugees admitted to the United States from settling in Montana communities. He cannot protect Montanans from violence by preventing refugees from settling here.

And like Trump, when his absurdity and dishonesty are exposed, Gianforte simply denies that he meant what he clearly said.  As the Missoulian reported last week, when asked about the flyer, Aaron Flint, Gianforte’s spokesman, claimed, incredibly, that it wasn’t about refugees, but ISIS. Equating refugees to ISIS fighters may make Gianforte look resolute in the fight against terrorism, but it also reveals a frightening willingness to follow, politically, the path of least resistance.

I assume that Gianforte’s decision to take this position was a calculated one. I imagine he’s looking at polls and finding that the narrow and worn out economic message he has been purveying up until now just doesn’t have legs, and Trump, playing on the voter’s insecurities, is doing a lot better. So Gianforte, if he ever did have reservations about doing politics Trump’s way, has now abandoned them.  Anything to get elected.

As Trump himself likes to say, “Sad.”

Political Amnesia

Gubernatorial aspirant Greg Gianforte, whose only discernable and dubious claim to political fame is that he will do miracles for Montana’s economy, has a problem.

It turns out that during most of the time that Steve Bullock, his opponent, has been governor, the Montana economy has done pretty well. Employment growth has been robust, the unemployment rate is well below the rest of the country’s, and the state’s budget has been managed sensibly. More people than ever have health insurance. Child welfare has improved significantly. And we lead the nation in business startups. With Bullock’s record looking like that, there’s really not much for Gianforte and the Republican Party to hang their hat on when they say they’re going to make things all better.*

So it was no surprise when the Billings Gazette reported last week that a couple of Republican legislative bigwigs – Sen. Fred Thomas and Rep. Jeff Essmann – seized on the news that the state’s economy had shrunk over the past six months** to go after Bullock. The downturn in the economy, which resulted mostly from declines in energy production, agriculture, and transportation, also means that tax collections are lower than expected, that the state is spending more than it takes it, and that we’re going to have less money in the bank than we thought when we close the books next June.

And all of this, according to Thomas and Essmann, is Steve Bullock’s fault.

Yep. According to Thomas, whose economic theorizing is always inventive (to put it charitably), “over the last 12 years, the environmentalists have occupied the governor’s office and the chickens are coming home to roost.” Exactly how the “environmentalists” managed to drive the world price of oil from $100 to $40 a barrel, or produce the cheap natural gas that’s pushing coal out of the market, or depress grain prices, or strengthen the dollar and weaken exports, Thomas, if he knows, isn’t saying.

Thomas claims that "if we’re going to have a natural resource state, we need new leadership at the helm.” But the new leader in question is obviously Greg Gianforte, whose economic strategy so far appears to consist exclusively of big tax cuts for big businesses and wealthy taxpayers. That has even Thomas hemming and hawing a bit: given the current decline in tax revenue, Thomas tells us that he has cautioned Gianforte that he needs to show some “flexibility” in implementing tax cuts. The only problem with that is once he’s been flexible on tax cuts, Gianforte’s got nothing.

Thomas’ take on how the economy works and what Gianforte can do about it may suffer from incoherence, but when it comes to budgeting, Essmann appears to suffer from flat out politically inspired amnesia. According to the Gazette, Essmann “singled out spending based on ‘overly optimistic’ governor’s office revenue projections” as the reason the state has a deficit and is running through its cash reserves.

Well, no, not really.

When the legislature sets the level of spending and builds a budget, it develops its own revenue estimate; it doesn’t rely on the governor’s. And in 2015, when the legislative staff and the governor’s budget guys were coming up with wildly different numbers for revenue, we set up a special joint subcommittee (full disclosure: I was a member) of the House and Senate Tax committees to reconcile the differences and come up with an estimate of our own. We hammered away at it and in the end we – not the governor - created the revenue number that drove the level of spending. And the chair of that special joint subcommittee was none other than -  wait for it! - Sen. Fred Thomas! It’s astonishing that Essmann seems to have forgotten how that all happened.

And if that's not ironic enough for you, consider that throughout budget deliberations the governor kept insisting that whatever the revenue estimate, we needed to limit spending enough to keep $350 million on hand, just in case anything went wrong. Well, something has gone wrong, we’ve needed the money, and we should be glad we have it. Bullock was pushing fiscal responsibility. Without it, by now we’d be slashing programs, laying people off, and making a bad situation worse. And there were a whole bunch of Republicans running around the Capitol in 2015 saying that keeping that much cash on hand was a bad thing – that we should give it back, a la Gianforte, or spend it on infrastructure.

Thomas and Essmann should thank their lucky stars – and Steve Bullock - that that didn’t happen.

*Well, there’s always Donald Trump. Oh wait…

**To be precise, the decline in gross state product occurred in the last quarter of 2015 and the first quarter of 2016. The data are not yet in to tell us what has happened since March of this year.

The Twenty Percent Factoid

One thing you can count on with an election around the corner is that  Republican politicians will trot out a bunch of numbers that supposedly demonstrate that growth of government is “out of control.” And the other thing you can count on when you hear those numbers bandied about is that they will be a bunch of hooey. Consider, if you will, the Twenty Percent Factoid.

Back in March, Tom Burnett, a Bozeman legislator whose antipathy to government is always on display, produced a calculation in a letter to the Bozeman Chronicle that purported to show that total state spending had increased by 20.6% between this biennium and the last. Now that number is big and scary (but not at all consistent with the facts, which I’ll get to in a moment), and it appeared to go viral among other Republicans, particularly those on the right. Soon enough, Greg Gianforte was claiming that “We have had massive growth in state spending; up over 20 percent in the past three years.” Gianforte assured us that, as part of a bizarre budget plan based on the fact that our area code happens to be 406, he was going to bring that growth down to zero. And hard on the heels of that announcement, the Beaverhead County Republican Central Committee censured Reps. Jeff Welborn and Ray Shaw, on the grounds that they had voted for bills that “increased state spending over 20 percent for the biennium,” thereby flunking the Central Committee’s test of Republican purity. And so the Factoid took on a life of its own.

Unfortunately, because it should have died a quiet death months ago.

Since the numbers are not in yet for the current, 2016, fiscal year, it really isn’t possible to compare this biennium to the last one. But we do know that in fiscal year 2015, the first year of this biennium, total state spending – including Federal dollars appropriated by the state for programs such as Medicaid – was $5.521 billion, and that back in 2013 it was $5.182 billion.* So over the two year period it increased by 6.5%. Not 20% or anything like it. And in fiscal year 2012 total spending was $5.092, so over the three year period between 2012 and 2015, which seems to be what Gianforte’s talking about, spending rose by 8.4%; again, not even close to 20%.

Okay, so 20% is a monumental error, but still: Are we looking at excessive growth of government? Is a 6.5% increase in spending from one biennium to the next a lot or a little? Compared to what? Should we be worried? Well, enter Art Wittich. Wittich, in a letter to the Belgrade News, doubled down on the Twenty Percent Factoid by claiming that “During the last three legislative sessions, the state budget increased three times faster than inflation, population, or the private economy.” Now that sounds pretty bad, but again, it’s not true.

It’s not completely clear what time period Wittich is talking about here, but let’s go back to fiscal year 2010, the last year before the 2011 Legislature’s budget went into effect. From 2010 to 2015, the price level rose 9.7%, population rose 4.2%, the state budget (including, again, the Federal component) rose 9.1% and total state personal income, which is as good a measure of the size of the private economy as we have, rose 26.3%. So over this period, the state budget did not expand “three times faster” than anything; in fact, it did not even keep up with the growth of prices or personal income.

The point Wittich is trying to make but badly mangling here is that the growth of government spending should be considered in relation to the prices of the things that government buys, the number of people it serves, and the amount of income those people earn. The right way to do that is to compare the growth of real (inflation adjusted) per capita spending to real (inflation adjusted) per capita personal income. When you do that, here’s the picture you get:

Over the long haul since 2002, the economy has grown faster than state spending, rather than the other way around. There's no "massive" growth going on here. Nothing is out of control. There was a time, during the Great Recession, when state spending grew rapidly while the economy was contracting. That was because the state spent a bunch of federal Recovery Act dollars. And that was not a problem: On the contrary, without that infusion of Federal money, the recession would have been a lot worse.

* The issue of expenditure growth is a perennial favorite, and it produces lots of arguments among legislators, and Amy Carlson, the Legislative Fiscal Analyst, published a report in 2014 intended to sort the whole mess out. You can access that report here. The numbers I cite in this post were used in the preparation of that report, and I thank Ms. Carlson and her staff for providing them, updated to 2015, to me. 

The Gun Nut

Donald Trump’s appearance before the NRA last week was a perfectly predictable olio of bloviation, narcissism, incivility and misrepresentation. It also revealed, although you probably knew this already, that the guy is a little nuts.

Trump told the NRA faithful assembled in Louisville exactly what they wanted to hear: that he was in favor of more guns everywhere. In schools. In high crime neighborhoods. In Paris night clubs. Everywhere.  Gun-free zones would become a thing of the past.

The reason for this frenzy is, of course, “self defense.” For Trump, and for the NRA, we live in a dangerous world surrounded by people who are out to get us. And the only way we can stop them in their tracks is to have guns; either, one hopes, to deter attacks in the first place or, if worse comes to worst, to shoot back. And for Trump, Hilary Clinton becomes “Heartless Hilary” because she would take people’s guns away from them and deprive them of their one opportunity to defend themselves. This is Trump at his adolescent best, lying and name calling in one fell swoop.

Of course it doesn’t bother Trump in the slightest that there is no evidence that having lots of guns around will deter gun violence. On the contrary: anyone paying attention knows that gun ownership is much higher in the United States than it is in other high income countries. And so is the probability that somebody will shoot you to death. The extent to which the United States is an outlier in both these regards is truly stunning. Take a look at this chart.*

What you’re seeing here is that in 2007, there were about 15 guns present for every 100 members of the population in 21 high income countries other than the United States. For the US, the comparable number was 113. In 2010 in those same 21 countries, there were a little more than .1 gun homicides per 100,000 members of the population; in the US there were 3.6. The probability of being murdered with a gun in the United States was 25.2 times as high as in other high income countries. Is it really possible to look at that number and conclude that having lots and lots of guns around is making us safer?**

Here’s where the question of Trump’s sanity rears its ugly head. In the face of overwhelming evidence that the accumulation of guns has not made us a whit safer in the past, Trump believes that more guns will make us safer in the future. And that, as a wise man once told us, albeit in more polite terms, is nuts.

* To prepare this chart I used data from two sources: the Small Arms Survey 2007 and “Violent Death Rates: The US Compared with Other High-income OECD Countries, 2010,” in the American Journal of Medicine, 2015.

** Don't be thinking that "Well sure, as long as we've got these guns around, we''ll use them when we want to kill somebody. Folks in all those other countries are going to use knives, or poison, or cricket bats or something." It doesn't work that way. Regardless of method, people in other countries murder each other at much lower rates. It's harder to get the job done if you don't have a gun to do it with.

Paying a Fair Share

One of great mysteries of Greg Gianforte’s gubernatorial campaign is how on earth he thinks he’s

going to get elected by promising to get rid of the business equipment tax. After all, every voter in Montana who owns property   - a home, a commercial building, farm or ranch land, a forest tract – pays property taxes. And while we may not be particularly happy about it when we’re writing the check, most of us recognize that property taxes go to pay for essential local services like schools, or the fire and police departments, or the upkeep on parks, or street maintenance.  We all know we benefit from those services and we all have to pay our fair share of the cost of providing them. But now along comes Gianforte saying, “Hold on a second: It’s all right for all you other suckers to pick up the tab, but when it comes to big companies with a pile of business equipment, well, that’s a different matter.”

Of course Gianforte doesn’t enunciate his position in quite those terms. On the contrary, he needs to convince us that we all have a stake in letting those big companies off the hook. Here, from his website, is the argument, such as it is:

One Montana business person told me that he invested in a single piece of equipment that created 20 high wage jobs.  His reward?  A $300,000 business equipment tax bill over 10 years.  If we want Montana small businesses to grow and succeed, why would we punish job creators for purchasing more equipment to hire more Montanans?

The Business Equipment Tax is one of the most regressive taxes on the books in Montana.  It is an annual tax on all the equipment job creators own.  Hotel owners even have to pay it on every fork and spoon they own—EVERY YEAR!  It hits farmers, manufacturers, construction, oil/gas and high tech hard; basically any business that invests to create jobs is currently incentivized to invest elsewhere.  It chases off investment and jobs.  Most states don’t have a tax like this.  Also, because equipment value is self-reported, the tax is prone to being under-reported.  I am committed to eliminating the business equipment tax over 4 years as revenue from other sources grows.  Any reduction in the business equipment tax must also provide relief to counties that depend on these tax revenues today.

So there you have it: The reason we should give large corporations a pass on the taxes all the rest of us have to pay is that if we don’t, they’ll take their business elsewhere. Republicans have been saying this kind of thing since Reagan was president, and it’s weird that Gianforte, who’s supposed to be an outsider who knows how to get things done, can’t come up with a fresher idea. What’s even weirder is that he doesn’t seem to realize that in recent legislative sessions the business equipment tax has already been hacked to bits. Sixty percent of Montana businesses – the small guys – don’t pay it all. And for the somewhat larger guys, the rate has been cut in half.* We even have – get this! – the sixth best business tax climate of any state in the country. And so while Gianforte constantly bemoans the current state of Montana’s economy, his prescription for fixing it is to do even more of what we have already been doing for the past decade.**

Gianforte has a prodigious capacity to overlook evidence and rely instead on a choice anecdote, no matter how implausible, fabricated or inapt it may be. After all, this is a guy who ignores everything known about human life expectancy and forms his notions about when you should be able to retire based on the ancient myth of a 600 year old boat builder. He says he knows that the business equipment tax is keeping companies out of Montana because somebody at Facebook told him so, but the narrative is made up out of whole cloth. And now he cites, as evidence of the tax’s destructive impact on investment, the story of a company that invested and payed the tax!

Gianforte wants you to believe that when companies invest in new plant and equipment, they invariably create more jobs. That’s why you should pay property taxes and big companies shouldn’t have to – one of those new jobs may be yours, or your neighbor's, or your kid's. He trades here on the misconception that businesses are always “job creators.” They are, of course, but if hiring people is creating jobs, then laying people off is destroying jobs, and that happens all the time. The fact is that hundreds of thousands of people lose jobs every week; here's the chart showing weekly new unemployment claims since 2000:

Properly managed businesses eliminate jobs all the time; indeed, reducing labor costs (which is a more attractive way of saying laying people off) is often taken to be a sign of efficient management. And while lowering the cost of capital, which is what happens when the business equipment tax is cut, may well encourage investment, new plant and equipment coming on line can displace workers rather than leading to new hiring. Consider the mechanization of agriculture: When farmers replaced steam threshers and mule teams with combines and tractors, thousands of people lost their jobs.

Now obviously, all those combines crawling across the land were a good thing, even if they did put a lot of people out of work. They dramatically increased agricultural productivity and output. Investment in plant and equipment contributes importantly to the growth of employment and economic activity, but firms do not build new factories or buy new machines and computers because they are itching to create jobs. They buy that stuff in order to produce more efficiently, lower costs, improve product quality and ultimately make more money.  Business equipment is not being taxed to “punish job creators.” It’s being taxed, like all other property, because is enhances the ability of its owners to generate income and pay a fair share of the costs of government services from which they benefit.

* Given these changes in its structure, it’s a mystery how Gianforte concludes that the business equipment tax is “one of the most regressive on the books in Montana.” A regressive tax is one that falls disproportionately on low income individuals and households, and it’s hard to imagine that those are the folks that own the large businesses paying the business equipment tax.

** The problem here is not just with the logic. Montana’s economy, and the state’s budget, are actually performing well. But as Dave Parker, at the Big Sky Political Analysis blog, points out, Gianforte is relying on the wrong data to get to the opposite conclusion. He’s got to do that, of course; otherwise, what would he run on? 

Budgeting by Area Code

Last week Greg Gianforte announced something he’s calling his “406 Tax Relief” plan.  Strip away the spin, and what this scheme amounts to is the elimination, over 4 years, of the business equipment tax, and a reduction of the top marginal income tax rate from 6.9 to 6 percent. Together, those two tax cuts would eat up about $200 million a year in revenue, which Gianforte plans to pay for by freezing state spending. So: 4 years, 0 increase in state spending, and 6 percent and there you have it: a budget plan inspired by an area code!

Not surprisingly, there’s no guarantee at all that this thing will work. Gianforte admits that his freeze on spending can happen only after we make some badly needed but unspecified investments in education, job training and infrastructure. Oh, and then we also have to account for the effects of inflation and population growth. Nobody knows how much all those things are going to cost us nor if, after coughing up $200 million a year in tax cuts, we’ll have the revenue to cover it, but Gianforte blandly assures us that “technology should help us generate some efficiencies elsewhere.” If that doesn’t work, we’ll probably just have to do what they’re doing in Kansas right now, in the aftermath of big tax cuts, and that’s to slash funding for essential programs. You know, things like schools, or health care, or highway safety. This is Reaganism at its finest: cut taxes first and ask questions later.|

It may seem that a budget plan like this is a complete mess, but believe it or not, for Gianforte it actually represents a modicum of progress. For the last couple of months, Gianforte was running around the state touting these same tax cuts, but was planning to pay for them by using up the cash reserves the state keeps in the bank in case of a budget emergency. As I pointed out in an earlier post, there were two big flies in that ointment. For one thing, Gianforte grossly overestimated the reserves he would have to work with. And more to the point, you simply can’t pay for permanent tax cuts with cash reserves, because the cuts are forever but the reserves are gone - spent down to zero - in a year or so. What’re you going to do then?  No, budget arithmetic pretty much dictates that if you have to balance the budget and you want to cut taxes, you’ll have to cut spending as well.  And with this new tax plan, Gianforte is reluctantly acknowledging that painful reality.

Gianforte may have the budget math down, but he’s still in the dark when it comes to budget policy. Every other year the legislature and the governor, Republicans and Democrats, get together in Helena to hammer out a biennial budget. It’s a difficult, contentious and wrenching process. There are all sorts of ways we can use tax dollars, and there’s not enough of those dollars to do everything we should or would like to do. So coming up with a budget requires some thoughtful weighing of the alternatives. And what Gianforte is proposing – to first and foremost cut taxes and then let the chips fall where they may – is about as far from thoughtful as you can get. But then what can you expect from a guy who actually relies on an area code to get his budgetary priorities lined up?

Finding a Well Planned Path

Here, by way of a "guest post," is a letter to legislators from Tom Schneider, a former member of the Public Service Commission. Tom asks whether or not it's a good idea - for either tax or rate payers - for Northwestern Energy to buy the coal-fired power plants at Colstrip, presumably to prevent what is otherwise their likely closure. For me, the critical concern here is that we not, by locking ourselves into the Colstrip plants now, tie our hands when, some day in the future, we need to put in place an efficient, cost effective policy to cut carbon emissions. And I don't think that day is very far off. But here's Tom's take:

April 9, 2016

Dear Legislators:

I served as a Montana Public Service Commissioner from 1977-1984 and again from 2003-2006. I am deeply concerned about the rash of proposals and media flurry regarding Colstrip’s future, particularly the suggestion that NorthWestern Energy (NorthWestern) purchase a larger portion of the Colstrip plant. There are enormous economic and environmental risks associated with these coal plants. As a former Commissioner I understand what it takes to plan energy systems. I understand about protecting consumers from risks. And these proposals are absolutely heading in the wrong direction. NorthWestern’s purchase of any additional portion of Colstrip could very well put Montana ratepayers and taxpayers at risk.

The ownership structure of the Colstrip plant is complex (see table at the end of this letter). The two older units, 1 & 2 are owned by Puget Sound Energy (PSE) and Talen Energy. PSE is a regulated utility and Talen Energy is an unregulated power provider. (Talen took control of PPL’s share of Colstrip and its operating obligations last year when PPL spun off all of its unregulated assets, including Colstrip, into a new company named Talen Energy.) Recent red flags raised by regulators, financial analysts, and the owners should not be ignored. The Washington Utilities and Transportation Commission (WUTC), the entity that regulates PSE, expressed concern after it reviewed the economic viability of the two older units, 1 & 2. An analysis by NorthWestern showed significant financial liability associated with purchasing PPL’s coal plants, and particularly Units 1 & 2. Independent financial analysts who review Talen, have increasingly expressed concern regarding the significant and mounting liabilities associated with the plants. The conclusions of all three is that the older two units of Colstrip are increasingly uneconomic.

The WUTC has not only expressed concern regarding the two older units’ economic viability[i] but recently completed an analysis of PSE’s remediation obligations for units 1 & 2.[ii] PSE and UTC analyses provide a glimpse into the hefty price tag that Montana ratepayers and/or taxpayers could shoulder if ownership is transferred to NorthWestern.[iii] In its remediation analysis, largely based on data provided by PSE, the WUTC determined that the preliminary estimate of environmental remediation and decommissioning costs for units 1 & 2 would be $134 million to $195 million (the report said that the law contains no decommissioning requirements). The report said that these costs would increase the longer the plant stayed open. If either PSE’s or Talen’s share of Colstrip were to shift to NorthWestern, Montana ratepayers could be on the hook for those costs. 

Financial analysts have also issued warnings to Talen Energy about Colstrip continuing to be a highly risky investment. UBS, an international financial firm, was PPL’s financial advisor when it tried to sell all of its generation assets to NorthWestern, including the Colstrip plant.[iv] UBS issued a report on March 7, 2016, in which it called Colstrip a “money-losing” asset for Talen. It said that Talen should find a way to monetize its ownership in the plant.  This declining valuation is reflected in Talen’s property taxes to the State of Montana and local governments. In the last three years PPL and Talen have written down the value of its interest in Colstrip by 87%, meaning its share of Colstrip 1, 2, and 3 has no real value.

Ultimately, NorthWestern has already determined that purchasing any portion of Colstrip would be a risky investment. In 2013, when it purchased the hydroelectric dams from PPL, its own analysis showed that also purchasing PPL’s share of the Colstrip plant would be a major liability. At that time, NorthWestern assigned a negative $340 million value to PPL coal plants and a negative $127 million value to Colstrip units 1 and 2 specifically.[v] Since 2013, the liabilities have only increased.

In its most recent planning document submitted to the Montana Public Service Commission, NorthWestern acknowledges it does not need the additional power. That means the intent of this proposal is probably for NorthWestern to purchase additional power to serve large industrial customers that are currently buying power on the open market and likely contracting for power with Talen (because that information is proprietary it is impossible to know for certain where Montana’s industrial customers get their power). If the large industrial customers, who sought deregulation and embraced the market, believe that the Colstrip plant has value then they ought to acquire the plants themselves. This negative value means that Talen and PSE might even have to pay NorthWestern (or the large industrials) to take these plants off their hands – an absurd result.

It is likely that NorthWestern would only consider buying an additional interest in Colstrip if the state of Montana and taxpayers and/or ratepayers subsidize the financial and environmental liabilities. That scenario would be disastrous. Montana taxpayers and ratepayers should not foot the bill. Instead of placing an additional and hefty burden on Montana businesses and families, Montanans should be working on prudent Montana energy solutions. Planning a different energy future will take time and resources. It will require detailed assessments of remediation obligations, worker and community responsibilities, reliability and transmission studies, contracts, and more. Considerable progress was being made in Montana prior to the unprecedented action of the U.S. Supreme Court to stay the Environmental Protection Agency’s Clean Power Plan. The positive Montana momentum has been slowed and the uncertainties magnified. The delay has sidetracked productive efforts with a rash of half-baked ideas and political theatre from major political candidates of both parties.

Montana deserves better. We need real Montana solutions, not false hope. The workers and the community of Colstrip deserve our focused attention. Utilities need certainty. Consumers need to be protected. We don’t need to be distracted from the important challenges before us. The market is determining Colstrip’s fate. Concerns about the economic, public health, and environmental impacts of climate change are helping to drive the market. Our job is to help Montana have a thoughtful and well planned path to a cleaner, more affordable energy system. Montana has a responsibility to build a better energy future. We must not squander that opportunity.

Sincerely,

Thomas J. Schneider

---

Colstrip Ownership Structure

Owner	Unit 1	Unit 2	Unit 3	Unit 4
Puget Sound Energy	50%	50%	25%	25%
Talen Energy	50%	50%	30%*
Portland General Electric			20%	20%
NorthWestern Energy				30%*
Avista			15%	15%
Pacificorp			10%	10%

*Talen Energy and NorthWestern Energy have an agreement to share the output of units 3 & 4.

Endnotes

[i] Washington Utilities and Transportation Commission Comments on Puget Sound Energy’s Cosltrip Study, Docket UE-120767, Feb. 6, 2014.

[ii] WUTC, “Investigation Report. Investigation of coal-fired generation unit decommissioning and remediation costs.” UE-151500, Feb. 2016

[iii] Puget Sound Energy’s 2013 and 2015, Electric and Natural Gas Integrated Resource Plans.

[iv] NorthWestern Energy, Application for Approval to Purchase and Operate PPL Montana’s Electricity Supply Rates, for Approval of Issuance of Securities to Complete the Purchase, and for Related Relief, Testimony and Exhibits, Docket No. D2013.12.85, December 2013.

[v] Ibid. And NorthWestern Energy Submittal to Public Servic Commission, Project Mustang Valuation Spreadsheet, “PSC-066 Mustang Valuation – 2032 Case - 6-24-13.”

Struggling to Survive the Revolution

Superficially, at any rate, there are some striking similarities between Greg Gianforte and Donald Trump. They are both business guys who have made piles of money and can pretty much pay for their own campaigns. They are both outsiders who assure us they will clean house if they end up in the Governor’s Mansion or the White House.  When it comes to public policy, they both have ideas that are mind bogglingly half baked. And they both claim that as captains of industry, if elected they would know how to “create jobs.”

But there the similarity ends. Unlike Trump, Gianforte is not a loud-mouthed, misogynistic, narcissistic, bullying fool. So far as I know, he does not think he can force Mexico to build a wall on its northern border (although for a lot of Mexicans, that’s beginning to look like a pretty good idea). There’s no evidence that he’s obsessed with the size of his hands and his sexual prowess. He doesn’t recommend beating up people who disagree with him, or torturing prisoners of war, or bombing their children. And unlike Trump, Gianforte is not trying to tear to shreds the Reaganism that has inhabited Republican thinking for the last 35 years.

Reaganism, as David Brooks describes it in a recent New York Times column, is that familiar notion that the road to economic prosperity is paved with deregulation and tax cuts, especially for the rich. And it’s the belief that when those policies unleash the energies of the private sector and the pace of economic growth quickens, all boats will rise with the tide, and prosperity will trickle down.

The trouble is, Brooks says, Reaganism just doesn’t work any more (if it ever did), and Republicans, in their heart of hearts, know it. They know instead that “technological change, globalization and social and family breakdown mean that the benefits of growth, to the extent there is growth, are not widely shared.” Ideologically, they are in a crisis, looking for a new and better way to understand the world and needing desperately to respond to the mostly white, typically not-well-educated men in their base who are the ones who have not “widely shared” in the benefits of growth. It’s a situation that’s ripe for Trump to step into - not, of course, because he can lead the Republican party onto firmer ground - but because he is a port in the storm to people for whom the party has become little more than a trail of false promises.

And that’s where Greg Gainforte comes in. Despite being an outsider and an entrepreneur and a fresh face and a job creator, Gianforte is still peddling the old time, Reaganite Republican religion. He says he is going to make things all better by bringing in “good jobs,” but if you’re paying attention, you’ll notice that the way he's going to do that sounds like he’s channeling Reagan himself. He wants to cut taxes on capital gains and on the personal property of big businesses. He promises to get rid of pesky regulations. He refuses to say where he is on right to work. He’d appoint a business guy to run the Department of Environmental Quality, presumably because more business is better for us than a clean environment. All the things, in other words, that orthodox Republicans have pinned their hopes on since the 1980s.

Brooks argues that the Republican world view – Reaganism - is in a crisis brought on by its increasing inability to explain reality. And invoking the theories of Thomas Kuhn, Brooks says that that world view is about to undergo a revolution – an abrupt and wrenching shift in perspective – impelled by the ravings of Donald Trump.* That could be, and if it is, it looks like a revolution Greg Gianforte will struggle to survive.

*Kuhn’s book, The Structure of Scientific Revolutions, first published in 1962, itself developed a revolutionary account of how science progresses over time. Personally, I think it’s a bit of a stretch for Brooks to apply Kuhn’s thinking to what’s happening in the Republican party, but it’s an engaging argument.

Losing Touch With Reality

In recent meetings with the editorial boards at the Helena Independent Record and the Billings Gazette*, gubernatorial wannabe Greg Gianforte has laid out a plan for tax cuts and infrastructure spending that frankly loses touch with reality. A former businessman, Gianforte is a Republican outsider with no experience in governing, which may explain how he has come up with a proposal that would make a complete mess out of the state’s budget.

According to Gianforte, the state has a surplus of “almost half a billion dollars.” With that  money, he figures, we could eliminate the business equipment tax, which he claims is the “most regressive” tax on the books. We could also adopt a measure to cut income taxes that made it through the 2015 Legislature, only to be vetoed. And after both of those tax cuts, Gianforte figures, we would have enough left to spend $200 million on infrastructure projects.

Consider Gianforte’s claim that we have a “surplus” of half a billion dollars. He appears to be referring to the $455 million the state had in the bank at the start of the current biennium. But he doesn’t seem to realize that by the beginning of the next biennium, that cash on hand is expected to be reduced to $357 million. It’s only then that Gianforte, if elected, could begin to put his tax and spending proposals in place, so he would be doing that with about $98 million less to work with than he thinks.

But it gets worse. Right now, the amount of ongoing revenue the state takes in just about equals the amount that it spends. The budget is currently balanced; there is no surplus or deficit. The money that’s in the bank is not a current surplus; it’s a reserve that has been set aside out of past surpluses. So if Gianforte really did cut taxes and increase spending, the state would run a deficit, and the only way we could pay for it would be by eating up our reserves.

And with Gianforte’s plan, those reserves would disappear very quickly. Assuming that the state would make up for the loss to local governments, eliminating the business equipment tax would cost at least $160 million over the next biennium. Depending on the details, cutting the income tax could easily cost another $100 million.** And then there’s the $200 million Gianforte says he will spend on infrastructure. All that adds up to $460 million, which means that we would blow through our $357 million cash reserve well before the biennium was over, and would still be running a serious deficit with no way to pay for it. Needless to say, running a deficit and cannibalizing our reserves would obliterate the track record for sound fiscal management put up by Steve Bullock. And the state’s credit rating, which right now is excellent, would go in the tank. Nobody would want to lend money to a state that had lost all sense of fiscal discipline.

Quite aside from being fiscally irresponsible, Gianforte’s proposal to eliminate the business equipment tax is misinformed.  Several past legislatures have already substantially reduced the tax, and in 2013, eliminated it entirely for 60 percent of Montana’s small businesses. The bulk of the tax is now paid by large businesses. How Gianforte concludes that that makes it the most regressive tax around is a mystery to me.

Another big problem with eliminating the business equipment tax is that it puts a major dent in the budgets of local governments, which means that they either have to cut services or shift the tax onto other taxpayers, mainly homeowners. To prevent that from happening, the legislature would have to make up for the loss of local revenue with state funds. That's what it's done in the past, and it works, but it simply means that the dent moves over to the state budget.

Gianforte’s taxing and spending plans don’t pencil out, but you shouldn’t let that worry you too much. Because even though Gianforte doesn’t seem to know it, the state constitution requires the budget to be balanced. So his plan is simply unworkable. There’s some comfort in that, although it’s alarming to think that there is a candidate out there who doesn’t seem to know or care that he is pitching a plan that can never get off the ground.

* You can see video of these meetings here, for the Independent Record and here for the Gazette.

** Gianforte says he would have signed the income tax cut bill that Steve Bullock vetoed. Since the governor in fact vetoed three such bills, it’s anyone’s guess what Gianforte is actually talking about. The three bills (SB 171, SB 200 and HB 166) would have cost, in lost revenue, $22, $112 and $85 million respectively. The Republicans were only serious about the first one, SB 171. The other two were obvious budget busters that were sent to the governor so that he would have to veto them, which would give Republicans a chance to go after Bullock in his re-election campaign. And sure ‘nuff, that’s what Gianforte’s doing.

Good Job Dreams

Greg Gianforte, whose grasp on the facts always seems a bit tenuous, has been trying to make the case recently that Montana’s economy is a disaster. And David Parker, over at the Big Sky Political Analysis blog, has called him out on it.

If you’ve heard one thing from Gianforte lately, it’s the claim that Montana is “49^th.  in wages.” That sounds pretty bad, but as Parker, who teaches political science at MSU, noticed, it doesn’t seem to square with what we know about the state’s rankings in household and per capita income, the unemployment rate, and employment growth, all of which are really pretty decent. So Parker did some digging around, and it turns out that the measure of “wages” that Gianforte is relying on, and at which we appear to be so miserable, is, to put it mildly, deeply flawed.

 Measuring state wage levels in a way that means something is tricky, and different measures mean different things. For example, if we want to know what kind of living a Montanan can provide for herself by working – and that’s what I think we're talking about here - then average annual wages per worker seem like a pretty good index.* But as Parker discovered, the measure Gianforte is using, which was calculated by an outfit called Transactional Records Clearing House (TRAC), is not that at all. It is, rather, the total wage income reported by Montanans on their 2013 Federal tax returns, divided by total number of returns. If you are interested in annual wages per worker, that number is going to be way too small.

Why? Well, as Parker notes, some wages get left out of this calculation when self-employed folks – and we’ve got a lot of them in Montana - report wages as business income rather than listing them on a W2 form. And then there’s the fact that there are more returns than there are workers earning wages, because people with non-wage income have to file too; that means wages per return are smaller than wages per worker.

Now Gianforte could argue here that sure, TRAC’s wage figures are too low, but they’re too low for every state, so however you calculate it, Montana probably still comes in in 49^th. place. That’s plausible, but not helpful, because it reminds us that rankings really don’t tell us much. Sure, being 49^th. sounds awful, and it suits Gianforte’s purposes for you to think it sounds awful, but if the actual dollar difference in wages between Montana and the rest of the country  is  small, why should we care?

None of this is meant to deny that wages in Montana are below the national average. That’s a fact of life that’s been with us for a long time. And it’s important to understand how far below average we are, and why.

The way Gianforte tells the story, Montana wages fall so far behind the rest of the country’s because we don’t have enough “good jobs.” The notion is that compared to the rest of the country, we have too many people collecting the minimum wage by flipping burgers, or greeting people at Walmart, or loading chairs at Snowbowl, and not enough well paid people mining coal, or drilling for oil, or writing computer code or performing brain surgery. And what Gianforte wants us to believe is that if he is governor he can create a lot of those good, well paid jobs – after all, he’s done it before! – and haul Montana out of the wage basement. Exactly how the guy flipping burgers is going to make the transition to brain surgery is a little murky, but I guess that’s a detail we can work out.

How Gianforte’s going “create good jobs” isn’t clear either – at this point he’s adhering to the old time Republican religion of deregulating businesses and slashing their taxes – but the real problem with his strategy for raising Montana’s wages is that it simply won’t work.

To see why that’s true you can go to this very handy data set from the Bureau of Labor Statistics. It lists, for Montana, the average annual wages per job, and the number of jobs, in 574 different occupations. There’s a total of almost 428,000 jobs spread across all those occupations, and in 2014 the average wage for all jobs was $39,752. The list obviously contains both good jobs – chemical engineers, for example, who average $95,000 a year – and not so good ones, like veterinary technicians, who average $24,600.

The data set also provides this information for the country as a whole. It turns out that nationally there are 129 million jobs in this same set of occupations, and the 2014 average annual wage for all those jobs was $47,175, so there’s a $7,423 wage gap between Montana and rest of the country. Now Gianforte attributes that gap to the fact that in Montana we work at relatively more bad jobs and relatively fewer good ones than other Americans. He doesn’t seem to recognize another possibility, namely that all jobs in Montana – good, bad, or indifferent – pay less than their national counter-parts.

To sort this out, we can engage in a little thought experiment. What if we held the wage for each occupation constant at its Montana value, but changed the distribution of jobs among occupations so that we had exactly the same mix of good and bad jobs as everybody else? What would happen to the $7,423 Montana wage gap? Well, according to Gianforte, it should largely go away.

But if you run the numbers, that’s not what happens. The average wage would rise by $1,596. That ain’t chickenfeed, but it means that Montana would still be $5,827 behind the rest of the country. Stated otherwise, the bulk of the Montana wage gap is there because pay levels are generally lower in all occupations, and not because we are cursed with a lack of good jobs.

There are lots of reasons why Montanans tend to earn less than their occupational counterparts in the rest of the country, not all of which are necessarily bad.** But if we really think we’ve got to close the wage gap, it’s not enough to fantasize about “creating good jobs.” It may seem like common sense and make for a good political soundbite, but it just isn’t going to work.

* But it gets complicated.  There are workers who only want to work part time, for a whole bunch of reasons, and they will drag the average wage of all workers down, which will understate the earning opportunities of people who work full time. There is also a lot of data available that refers to wages per job, which sounds like the same thing, but isn’t, because a worker can hold multiple jobs, or a fraction of one job. If you really want to contemplate the grizzly details, you can consult Post-Cowboy Economics: Pay and Prosperity in the New American West, which Tom Power and I published back in 2001.

** Again, take a look at Post-Cowboy Economics for an extended discussion of this issue.