wasted treasure in the treasure...

Wasted Treasure in the Treasure State2012 Edition

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Freeing Montana, one mind at a time November 2012

1MonTana PIG TaLES 1

InTroducTIon:

nce upon a time there was a wonderful land with untold riches. This land had fertile soil to grow more food than the locals could eat, gems and minerals that were sought after worldwide, trees for their houses and abundant fuel for their stoves. This wonderful

land was filled with opportunity, and happy families prospered with each generation better off than the previous. There were also helpful folks in the land’s Capitol City who worked for the happy families and did the kinds of things that everyone could benefit from. They built roads and schools and made sure everybody played by the same rules. And they kept the king in far-away DC Land from trying to run their lives. But then something happened, something awful and selfish.The people in DC Land and Capitol City stopped working for the happy families and started ruling over them. They grew larger and larger and decided to regulate and tax and dictate more and more parts of the happy families’ lives. The land of opportunity became a land of limitations. Laws were passed to protect people from themselves instead of just from each other. Rules were made keeping the happy families from using all the riches that the land offered and pitting them against each other. The land with untold riches became one of the poorest in the kingdom. The happy families could no longer pass on opportunities they had enjoyed. And so the once-happy land got older and poorer, until finally the only people who could enjoy its beauty came from other places. The land of opportunity became a land of futility. And the once happy families were scattered to the winds.Montana is still that happy land of opportunity, but we won’t pass that heritage along to our kids if we continue the current path of bigger government, more regulation, and control by Washington bureaucrats. We still have the riches that made Montana the Treasure State, but we’re losing the legacy of opportunity that those riches could provide. We increasingly have a government that has become its own special interest instead of our employee. And we’re being tied down with one size fits all solutions that may be great for New York or Mississippi, but not for Montana.Welcome to "Pig Tales: Wasted Treasure in the Treasure State" — a one-stop shopping guide to Montana government. This is the second in a biennial look at Montana state government, our people, and our opportunities.Our simple goal is help provide as much useful information as possible so that as the people who represent us make decisions that affect our lives and our families, we will have a confident and informed voice. Enjoy the tale!

Montana ExEcutivE Branch

Secretary of State (elected)

Governor and Lieutenant Governor

(elected)

Department of Public Service Regulation

Public Service Commissioners(elected)

Superintendent of Public Instruction

(elected)State Auditor

(elected)

Department of Administration

(Director)

Department of Revenue

(Director)

Department of Transportation

(Director)

Department of Military Affairs

(Adjunct General)

Department of Corrections(Director)

Board of RegentsCommissioner of Higher Education

Board of Education

Board of Public Education

(Executive Secretary)

Department of Agriculture(Director)

Board of Livestock Board

(Executive Secretary)

Department of Environmental Quality

(Director)

Department of Commerce(Director)

Department of Natural Resources and

Conservation(Director)

Department of Public Health and Human

Services(Director)

Department of Labor and Industry

(Director)

Department of Fish, Wildlife, and Parks

(Director)

Montana Judiciary Branch

Supreme Court1 Chief Justice,

6 Justices

Water Court1 Chief Judge, 4 Water

Judges, Water Masters as needed

Worker’s Compensation Court1 Chief Judge administratively attached to the Department of

Labor & Industry

District Courts56 Courts

22 Districts43 Judges

Municipal Courts5 Courts

City Courts82 Courts

Justice Courts66 Courts

Montana LEgisLativE Branch

State LegislatureHouse/Senate

Legislative Services Division

Legislative Audit Division

Montana Consumer Council

Legislative Fiscal Division

MonTana STaTE GoVErnMEnT

Attorney General (elected)

Department of Justice

3MonTana PIG TaLES 3

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Montana State Government Chart . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Montana Compared to the U .S . — Just the Facts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

Some Montana Communities Resort to Sales Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5-6

Montana's Tax Freedom Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7-8

We Get Back More Than We Give . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

Love Thy Neighbor's Rating? A Look at How States Are Judged . . . . . . . . . . . . 10-15

Difficult Decisions Await 63rd Legislature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Economists Give "Mixed" Review to Recovery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-18

Growing Pains: State vs U .S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Where Does the Money Go? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20-21

Debate Continues on Public vs Private Pay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-23

Government Still the Big Boss in Montana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24-25

Top 25 State Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26-27

Despite Pay Freeze, Plan Allowed Some Salary Increases . . . . . . . . . . . . . . . . . . . . 28-29

Pension Plans Need a Change in Direction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30-31

Cures Sought for State's Ailing Pensions Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . 33-35

Pensions By the Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Health Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37-38

Waste Not . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39-48

Calls to Government Abuse Hotline Increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Did you like this study? Here’s how to help . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

TabLE of conTEnTS

MonTana PIG TaLES4 5Montana PIG taLES

MonTana coMParEd To ThE u.S. — juST ThE facTS

The Pig says: “How do we keep young folks in this beautiful state? Good paying jobs is one way to do it.”

1 Montana QuickFacts from the U .S . Census Bureau, quickfacts .census .gov/qfd/states/30000 .html U .S . Census Bureau, Application Support Division, March 2012

The 2011 population estimate: 998,199 for Montana, 311,591,917 for USA1 People under 5 in 2011: 6.2 percent in Montana, 6.5 percent in the USAPeople under 18: 22.3 percent in Montana, 23.7 percent in USAPeople 65 and over: 15.2 percent in Montana, 13.3 percent in USAWhite/Caucasian: 89.9 percent in Montana, 78.1 percent in USABlack/African American: 0.5 percent (4,027 residents) in Montana, 13.1 percent in USAAmerican Indian and Alaskan Native: 6.4 percent (62,555 residents) in Montana, 1.2 percent in USAPeople per square mile: 6.8 in Montana, 87.4 in USAHigh school grads 25+: 91 percent in Montana, 85 percent in USAHousing units (2010): 482,835 in Montana, 131,704,730 in USAMedian household income: $43,872 for Montana, $51,914 for USA

MonTana PIG TaLES4 5

SoME MonTana coMMunITIES rESorT To SaLES Tax

Montana often gets kudos for being one of five states (along with Alaska, Delaware, New Hampshire and Oregon1) that does not have a statewide sales tax .However, the “no sales tax” bliss does not apply to all of the Treasure State .According to the Montana Department of Revenue (DOR), people purchasing some goods and services in eight Montana communities and areas do get charged as much as 3 percent above and beyond the price tag through locally approved “resort taxes .”Is this a case of a sales tax by another name smelling (or is it, stinging) as sweet?Whitefish City Manager Chuck Stearns said he hears people refer to the 2 percent “resort tax” in his community as a “sales tax” only when they are saying something derogatory about it .The taxes pay for services and the communities that have them must meet specific “population and economic” conditions, according to the DOR website . “The fundamental idea behind resort taxes is to allow places with high numbers of visitors, but relatively few residents, to manage the wear and tear on local infrastructure without overburdening local citizens,” the DOR website states .The Department of Commerce approves the designation for a resort and community area . Local voters must approve the tax, its duration and allocation .Under state law, the population of the community must be less than 5,500 for a town and less than 2,500 for an unincorporated area . Also, the DOC must find that the major portion of the community’s economic well-being is from businesses catering to non-business travelers . The maximum resort tax is 3 percent . At least 5 percent of the resort tax revenue must offset municipal property taxes .The tax is on the retail value of all goods and services, except for those sold for resale, according to the DOR website . Among the goods and services are:

• Hotels, motels and other lodging or camping facilities• Restaurants, fast-food stores and other food service businesses• Bars and other businesses that serve spirits by the drink• Destination ski resorts and other such recreational businesses• (E)stablishments that sell luxuries .”

The DOR defines luxuries as an item normally sold to the public or tourists with the exception of “unprepared food, medicine or medical supplies, appliances, hardware supplies and tools, or any necessities of life .” Luxuries include sporting good rentals, books, magazines, souvenirs and antiques . 2

Stearns, the Whitefish city manager, said the resort tax has been an “immense help” for the community of 6,400 residents . He said the tax raised about $2 million last year . Of

• Hotels, motels and other lodging or camping facilities• Restaurants, fast-food stores and other food service businesses• Bars and other businesses that serve spirits by the drink• Destination ski resorts and other such recreational businesses


that, 65 percent was put into roads, 25 percent into property tax relief, 5 percent into parks and trails and 5 percent for vendors .Stearns added that the revenue also has allowed his city to have more police officers than other cities have per capita .He said the tax applies to consumable food served, which has led to some interesting interpretations . For example, Stearns said that if a person buys one doughnut and eats it at the location, it’s taxed . But if a person buys a bag of doughnuts and eats them at home, they’re not taxed .3 The resort tax has grown on residents, who passed it initially with a 56 percent to 44 percent margin . In 2004, residents renewed the tax with a 76 percent to 24 percent vote .Stearns said he believes the vote was somewhat swayed by “fewer potholes and new roads .”“If people don’t like the sales tax, they better like the property tax a whole lot,” he said .Gregory Minchak, spokesman for the National League of Cities, a resource for 19,000 cities, towns and villages, said sluggish economies have prompted more cities to consider ways to increase funding .“Our research shows that more cities are looking at sales taxes and other revenue sources during these tough times,” he said .4 Other states with local option sales taxes include Iowa, Nebraska, Vermont, Minnesota, California and Nevada . Staff officials also note that Montana also has a 4 percent “bed tax” on overnight lodging that supports tourism promotions and state parks, historic sites, and other programs .5

1The Tax Foundation: “Ranking State and Local Sales Taxes,” by Scott Drenkard, Sept . 22, 2011 http:// taxfoundation .org/article/ranking-state-and-local-sales-taxes-1

2 Montana Department of Revenue: “Resort Tax” http://revenue .mt .gov/forindividuals/taxes_licenses_fees_permits/Miscellaneous_Taxes_and_Fees/resort .mcpx

3 July 10, 2012 interview with Montana Watchdog4 Aug . 16, 2012 interview with Montana Watchdog5 Montana Department of Transportation website: http://www .mdt .mt .gov/research/toolkit/m1/ftools/

fd/rlot .shtml

Source: Montana Dept. of Revenue


MonTana’S Tax frEEdoM dayTax Freedom Day arrived in Montana in 2012 on April 15 — two days before the rest of the country, according to the Tax Foundation’s annual tally that determines how long Americans must work from Jan . 1 to pay their tax obligations at the federal, state and local levels . Montana ranked 21st, Idaho was 17th (April 17), North Dakota was 14th (April 18), South Dakota was 46th (April 4) and Wyoming was fifth (April 23) . For most of the country, Tax Freedom Day arrived on April 17, the 107th day of 2012, according to the Tax Foundation’s annual calculation that uses government data on income and taxes .The total tax burden on residents varies considerably by state, not only due to differing state tax policies, but also because of the steep progressivity of the federal tax system, Tax Foundation officials said .Five main categories of taxes that make up the majority of tax burden:

Higher-income states celebrate Tax Freedom Day later: Connecticut (May 5), New Jersey (May 1), and New York (May 1) because residents face a significantly higher total federal tax burden than lower-income states .1 Residents of Tennessee had the lowest average tax burden in 2012, with Tax Freedom Day arriving there on March 31 . Also early are Louisiana (April 1), Mississippi (April 1), South Carolina (April 3), and South Dakota (April 4) .In 2011, Tax Freedom Day fell on April 12 as a nationwide average, and on April 5 in Montana . It ranked 31st that year .

Montana’s state and local tax burden well below national averageMontana’s state and local tax burden is 8 .6 percent, ranking the Treasure State 38th nationally and well below the national average of 9 .9 percent, according to the Tax Foundation . Montana taxpayers now pay about $3,089 per capita in state and local taxes .Montana has improved 11 places since 1977 .

State ranks eighth in 2012 business Tax climateMontana ranks eighth in the Tax Foundation’s State Business Tax Climate Index . The Index compares the states in five areas of taxation that impact business: corporate taxes; individual income taxes; sales taxes; unemployment insurance taxes; and taxes on property, including residential and commercial property .Neighboring states rank as follows: Idaho (21st), Wyoming (first), North Dakota (29th), and South Dakota (second) .

• Individual income taxes – including federal, state and local – require 40 days of work;

• Payroll taxes take another 23 days of work;• Sales and excise taxes, mostly state and local, take 15 days to pay off;• Property taxes take 12 days;• Corporate income taxes take another 10 .


Montana’s 15th in Individual Income Tax System Montana’s personal income tax system consists of seven separate brackets with a top rate of 6 .9 percent, kicking in at an income level of $16,000 . That rate ranks Montana 15th highest among states levying an individual income tax .The state’s 2010 state-level individual income tax collections were $724 per person, which ranked 27th highest nationally .

Sales and Excise TaxesMontana levies no general sales or use tax on consumers, joining Delaware, Alaska, New Hampshire and Oregon as the only states with no general sales tax . Local excise tax collections were $545 in 2009, the last year for which Census data exists . This ranks Montana 49th highest nationally . Montana’s gasoline tax stands at 27 .8 cents per gallon, which ranks 21st highest nationally . Montana’s cigarette tax stands at $1 .70 per pack of twenty, ranking 15th highest nationally . The gasoline tax was adopted in 1921 and the cigarette tax in 1947 .

Montana’s corporate Income Tax System Montana’s corporate tax structure consists of a flat rate of 6 .75 percent on all corporate income . Among states levying corporate income taxes, Montana’s rate ranks 28th highest nationally . In 2010, state-level corporate tax collections (excluding local taxes) were $94 per capita, which ranked the state 26th highest nationally .

Property Taxes comparatively ModestMontana is one of the 37 states that collect property taxes at both the state and local levels .As in most states, local governments collect far more . Montana’s localities collected $1061 per capita in property taxes in fiscal year 2009, which is the latest year the Census Bureau published state-by-state property tax collections .2 At the state level, however, unlike most other states, Montana collects substantial property tax revenue: $240 per capita during FY 2009 . That brings its combined state/local property tax collections to $1,301 per capita, ranking 23rd nationally .

nearly 3 dozen taxes in MontanaThe state of Montana alone has 35 taxes and fees to raise revenue3

1 The Tax Foundation “Tax Freedom Day,” April 2, 20122 The Tax Foundation “Facts & Figures: How does your state compare?” 20123 “General Fund Revenue by Revenue Source,” Sept . 1, 2011, by the Legislative Fiscal Division

Beer TaxCigarette TaxCoal Severance TaxCoal Trust Interest EarningsCorporation TaxDrivers License FeeElectrical Energy TaxHighway Patrol FinesIndividual Income TaxInheritance TaxInstitution ReimbursementsInsurance Tax

Investment LicensesLiquor Excise TaxLiquor ProfitsLodging Facilities Sales TaxLottery ProfitsMetal Mines TaxNursing Facilities FeeOil Severance TaxProperty TaxPublic Contractor’s TaxRailroad Car TaxRental Car Sales Tax

Retail Telecom Excise TaxTCA Interest EarningsTobacco SettlementTobacco TaxTelephone TaxU.S. Mineral LeasingVehicle License FeeVehicle Registration FeeVideo Gaming TaxWholesale Energy Trans

TaxWine Tax


WE GET back MorE Than WE GIVE

As noted in the November 2010 Montana Pork Report, Montana gets more money from the federal government than it gives .This Feb . 22, 2012, map from Talking Points Memo shows that in 2010 Montana got $1 .77 back from the federal government for every $1 it sent .1 Some folks call this being a “welfare state .”In 2001, Montana received $1 .61 for every $1 sent . In 1981, the state received $1 .06 for every $1 .2 The blue dots on the map show states with Democratic senators and the red dots show Republican .Talking Points Memo put the map together using 2010 Bureau of Economic Analysis and Internal Revenue Service data .

1 “The Map That Proves Red Staters Use The Safety Net Too,” Feb . 22, 2012, by Brian Beutler, Talking Points Memo

2 “Montana receives more money than it contributes,” November 2010, Montana Pork Report


LoVE Thy nEIGhbor’S raTInG? a Look aT hoW STaTES arE judGEdIs the grass greener on the other side of the fence? Well, in some cases yes, in some cases no, and in some cases Montana straddles the fence . Many residents would say the perks of Montana are wide open spaces, easy access to outdoor recreation and scenery that can’t be beat . But what about the other measures of life? How does Montana stack up—especially against its neighbors? Here is a sampling:

South Dakota: 824,082 (46th)Wyoming: 568,158 (51st)

average PayMontana: $32,224Idaho: $33,544North Dakota: $33,086

South Dakota: $31,655Wyoming: $37,054

Sales Tax (Lowest)Montana: 47th

Neighbors: ID – 35th, ND – 30th, SD – 41st, and WY – 42nd

Montana North Dakota

South Dakota

Wyoming

Idaho

Who’s In The Money?

Idaho: (1 .7 percent) 48thNorth Dakota: (2 .68 percent) - 16th

South Dakota: (2 .1 percent) - 34thWyoming: (2 .39 percent) 20th

The Tax Foundation finds that 1.77 percent of Montana’s tax filers reported making $200,000 or more in 2010, ranking the state 46th nationwide . 3

Montana: 8th

Neighbors: *ID – 21st, *ND – 29th, *SD – 2nd, and *WY – 1st .

Getting down To businessThis tax climate for business survey measures the top-ranking states that do not have one or more of the major taxes: Corporate, individual, income or sales.

Percent of residents In Poverty

The Taxpayers Network, U.S. Census Bureau 2011

Montana: 25 .4 percent (ranked 21st among states and Washington, D .C .) 2 Idaho: 28 percent (15th)North Dakota: 21 percent (39th)

South Dakota: 24 .6 percent (25th)Wyoming: 19 .7 percent (41th)

Montana: 998,199 (44th) The state claims the population is now more than 1 million, although federal Census information has not been updated .1

Idaho: 1,584,985 (39th)North Dakota: 683,932 (48th)

Population


Tax burden Per capita

Montana: April 15– 21stNeighbors: ID – April 17 – 23rd, ND – April 18 – 14th, SD – April 4 – 46th, and WY – April 23 - 5th

Montana: 38th 4

Neighbors: ID – 36th, ND – 22nd, SD – 42nd, and WY – 14th

hey, Look us over!So how do you think Montana is viewed by others in the United States? Well, most Ameri-cans seem to have a favorable impression of the Treasure State. In a survey by Public Policy Polling, a Democratic polling company, Montana finished pretty high .7

freedom!Tax Freedom Day measures how long Americans must work from Jan. 1 to pay their tax obligations at the local, state, and federal levels. The U.S. average is April 12.5

Economic freedom

Transparent failureWhen it comes to showing all its cards, Montana gets a failing grade, as do many of its neighbors . In “Online Transparency: A report by the Public Interest Research Group,” the report notes that Montana does not have an online checkbook that lets the public view government spending . Sheryl Olson, deputy director of the Montana Depart-ment of Administration (DOA) told Montana Watchdog she was told by PIRG before she filled out the survey that the state would get an F . She said under PIRG’s criteria, the state has to offer a single portal that would take people to a spot offer-ing the information they are seeking . Olson said DOA staff worked with Rep . Tom Burnett, R-Bozeman, in the 2011 legislative session on House Bill 444 that would have improved government transparency . While it passed the Legislature, lawmakers did not include funding and it was vetoed by Gov . Brian Schweitzer .Schweitzer said it would have cost nearly $400,000 but would “provide no return on taxpayer investment .” He also noted legislators already have the authority to upload information on the state’s fiscal affairs on their own website . Olson said there would be recurring cost of $100,000 with HB 444 to pay for staff and system-related fees . She said Montana residents visit the state’s websites for 230 “e-gov” services such as permits, hunting licenses, and election filings . She said in 2011 the state had 6 .4 mil-lion visits for e-gov services, and since 2005 the state has received 25 awards for these electronic services . She said Montana is taking steps to eventually get to checkbook level on its website .8

Montana: 24thNeighbors: ID – 4th, ND – 3rd, SD – 1st, and WY – 23rd 6

Montana: 6thNeighbors: ID – 23rd, ND – 19th, SD – 4th, and WY – 17th .

Montana: FNeighbors: ID – F, ND – C, SD – B, and WY – F


“rich States, Poor States”Montana remained status quo for 2012 in terms of economic performance and eco-nomic outlook, in a report issued April 2012 by a Washington, D .C .-based nonpar-tisan association of state legislators . The state retained its ranking from 2011 of No . 3 for economic performance and 36th for economic outlook, according to the fifth edition of “Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index .” The economic performance ranking was based on personal income per capita (Montana ranked fifth, however, a report released in late March by the Bureau of Economic Analysis ranked the state at 35th), absolute domestic migration (Montana ranked 21st), and non-farm payroll employment (Montana ranked seventh) . The eco-nomic outlook ranking was based on 15 criteria that included: average workers’ com-pensation costs (ranked 50th), remaining tax burden (46th), top marginal personal income tax rate (21st), sales tax burden (No . 1), and property tax burden 36th) . The state ranked third for “Recently Legislated Tax Changes,” 50th as a “Right-to-Work State,” 38th for Public Employees per 10,000 people, and 38th for State Minimum Wage . 10

IntegrityUniversity of Montana journalism professor Dennis Swibold writes in a nationwide study that even though Montana enjoys a reputation for open government, due in part to such laws and the scrutiny bred by intense political rivalries, “the reality in Big Sky country doesn’t always match the image . ” He added that’s in part because “finding money to boost transparency is a tough sell in light of more basic needs like schools and services for the poor .”Montana received a D+ and a numerical score of 68, ranking it 27th nationwide in a State Integrity Investigation study, which is a collaboration of the Center for Public Integrity, Global Integrity, and Public Radio International . Its authors are calling the yearlong study “a first-of-its-kind, data-driven assessment of transparency, accountabil-ity, and anti-corruption mechanisms in all 50 states .” Swibold says in Montana “ethics laws suffer from ambiguity and weak enforcement, and a rash of top-level hires by the current administration has raised questions of cronyism .” He also said “Weak disclo-sure requirements and inadequate staffing frustrate efforts to monitor lobbying and track the assets of officials responsible for overseeing public funds .”9

Montana: D+ (27th)

Neighbors: ID – D- (40th), ND – F (43rd), SD – F (49th), and WY – F (48th)

Montana: 44th

Neighbors: ID – 33rd, ND – 1st, SD – 31st, and WY – 50th

domestic Product GrowthFrom Bureau of Economic Analysis:

"While some scores are good, the bad grades for transparency and integrity are shocking!"


Economic Performance

Economic outlookMontana – 36thNeighbors: ID – 6th, ND – 5th, SD – 2nd, WY - 4th

business Tax IndexMontana ranks 30th in a new business index evaluating the states on the effects of their tax systems on entrepreneurship and small business .The Small Business & Entrepreneurship Council’s “Business Tax Index 2012” pulls together 18 tax measures, and combines them into one tax score that allows the 50 states and the District of Columbia to be compared and ranked .Among the measures used to create the rankings are each state’s top personal income tax rate, top individual capital gains tax rate, top corporate income tax rate, property taxes, sales and excise taxes, and unemployment taxes .11

best State for business12 From Forbes magazine:

From CEO magazine:Montana – 28th, ID - 19th, ND – 24th, SD – 15th, and WY - 14th

Montana – 23rd, ID – 16th, SD – 17th, ND – 4th, and WY – 14th

fiscally fit?Montana – 7thNeighbors: ID – 17th, ND – 2rd, SD - 5th, WY – 1st

The Institute for Truth in Accounting (IFTA) released a study of all 50 states’ assets and liabilities, including pension and retirement health care obligations . According to figures from 2009, and based upon each state’s Comprehensive Annual Financial Report, Wyoming, North Dakota, Nebraska, and Utah topped the list as having assets available to pay their “taxpayer burden,” which is debt and obligations divided by the state’s taxpayers . Montana needs $226,019,000, or $700 per taxpayer, to pay its taxpayer burden the study claimed .13

Montana – 3rdNeighbors: ID – 17th, ND – 4th, SD – 7th and WY – 1st

Montana – 30thNeighbors: ID – 36th, ND – 21st, SD – 1st, WY – 4th .

Montana - 20th for mature businesses

Neighbors: ID - 38th, ND - 15th, SD - 18th, WY - 1st

Montana - 23rd for new business

Neighbors: ID - 32nd, ND - 18th, SD - 11th, WY - 9th


Location, Location, LocationMontana ranks 20th nationwide for “mature” operations and 23rd for new businesses, according to The Tax Foundation report: “Location Matters: A Comparative Analysis of State Tax Costs on Business .” Mature business was defined as being in business for more than 10 years . 14

federal LandThe federal government owns 28 .9 percent of the land in Montana . Of Montana’s 93,271,040 acres the federal government owns 26,921,861 .Here’s how our neighbors stack up:• Idaho: 61 .7 percent of the state’s 52,933,120 acres (32,635,835 acres are federally owned) .• N. Dakota: 3 .9 percent of the state’s 44,452,480 acres (1,735,755 acres are federally owned) .• S. Dakota: 5 .4 percent of the state’s 48,881,920 acres (2,646,241 acres are federally owned)• Wyoming: 48 .2 percent of the state’s 62,343,040 acres (30,043,513 acres are federally

owned) .Overall, the federal government owns about 640 million acres, or 28 percent of the 2 .27 billion acres of the United States . Of that, about 609 million acres are admin-istered by the U .S . Forest Service in the Department of Agriculture (193 million), the National Park Service (80 million acres), the Bureau of Land Management (248 million acres), and the Fish and Wildlife Service (89 million acres) . Also, the Depart-ment of Defense administers 19 million acres for military bases, training ranges, and others .15

did you know?Montana has 429 school districts for its 142,082 students (331 students per district) . Wyoming has 48 districts for 87,420 students (1,821 students per district), North Dakota has 185 districts for 94,998 students (513 students per district), South Dakota has 152 school districts for 122,055 students (802 students per district) and Idaho has 115 school districts for 278,000 students (2,417 students per district) .

1 The Taxpayers Network, based on state population estimates from the U .S . Census Bureau2 Bureau of Labor Statistics, Bureau of Economic Analysis, Census, “Tapping Capitalism,” November 2011, Montana Policy

Institute3 The Tax Foundation, “Percentage of Filers Making over $200,000,” the Internal Revenue Service, July 27, 2012, Montana

Watchdog4 “Montana ranks 7th for lowest ‘taxpayer burden,’ new study finds,” June 28, 2011, By Phil Drake, Montana Watchdog5 Tax Freedom Day hits Montana on April 15; April 17 U .S . average,” April 2, 2012, By Phil Drake, Montana Watchdog 6 CEO Magazine and “Tapping Capitalism,” November 2011, Montana Policy Institute7 “Montana gets favorable view by fellow Americans in new survey,” Feb . 21, 2012, By Phil Drake, Montana Watchdog8 “Nationwide survey gives Montana an ‘F’ for online transparency,” March 16, 2012, By Phil Drake, Montana Watchdog9 “Montana gets D+ for corruption risk, ranked 27th in nation: study claims,” March 19, 2012, By Phil Drake, Montana

Watchdog10 “Montana ranking remains same in 2012 in ALEC performance report,” April 11, 2012, By Phil Drake, Montana

Watchdog11 “Montana ranks 30th in study of tax systems’ impact on small business,” April 27, 2012, By Phil Drake, Montana

Watchdog12 Forbes and CEO magazines, “Tapping Capitalism,” November 2011, Montana Policy Institute13 “Montana ranks 7th for lowest ‘taxpayer burden,’ new study finds,” June 28, 2011, By Phil Drake, Montana Watchdog14 “Montana above average for new and existing businesses, study finds,” March 1, 2012, By Phil Drake, Montana

WatchdogAZ15 “Federal Land Ownership: Overview and Data,” Feb . 8, 2012, Congressional Research Service


dIffIcuLT dEcISIonS aWaIT 63rd LEGISLaTurERep. Mark Blasdel, R-Somers, wrote a column for this report on the 2013 legislative session.

As the 63rd legislative session starts Jan . 7, 2013, there will many difficult decisions awaiting members . I am heartened by some returning members who want to get to the heart of major issues and work on resolutions before Day 1 . Many are encouraged by the fact there will be a change in leadership at the governor’s office and hope to change the tenor of past sessions .

One of the most highlighted facts coming into the next session is the projected $457 million surplus and ideas on how to spend it . I caution that discussion because of the large number of outstanding bills we have to pay back . Two of the top bills pertain to the education funding lawsuit and the massive fire season we experienced this past summer .

With the governor’s veto of House Bill 316 in 2011, there was a void expected in the inflation rate for Fiscal Year 2013 in HB2 of approximately $54 .4 million . However, a combination of higher than anticipated U .S . mineral royalties and bonus payments from oil, gas, and coal have helped reduce this to $34 .5 million

Regarding the massive fire season, current projections are at $44 million in costs for this summer with no end in sight as of this article . In 2007, a special session was called to deal with fire costs of that past summer . A fire suppression fund was established to have in reserve for such times as these .

During budget discussions in 2011, the governor wanted to empty the fund in its entirety depending on his own emergency funding for such issues . The appropriations committee was able to maintain a $17 million amount which all but $4 .1 million was spent in the summer of 2011 . The governor’s emergency fund can cover about $14 .4 million, leaving a $26 million bill for the 2012 fires with the season still going . The next Legislature will not only be faced with these expenditures, but also deciding how to replenish these funds drained over this current biennium .

The biggest issue facing this state’s fiscal sustainability will be dealing with pension system liabilities . Currently, projections show $3 .9 billion in unfunded liabilities between the Public Employees Retirement and Teachers’ Retirement systems . In 2003, the PERS had 28,604 active members and 14,401 retired . In 2011, PERS had 28,659 active members and 18,183 retired members . In 2003 the TRS had 19,537 active members and 9,682 retired members . In 2011, the same TRS had 18,484 active members and 12,899 retired members . Although poor return on investments and the GABA have a part to blame in the pension debt, the growing disparity between active and retired members have a huge negative contributor to the problem .

They say “Whiskey is for drinking and water is for fighting .” That will be true this session as we continue working on how to deal with exempt wells . Typically, this has always been an issue in western Montana where large residential construction has taken place . This discussion is now in eastern Montana as we move forward on developing natural resources in regards to hydraulic fracturing . Water is a key component of this effort and will have to be addressed .

The 2013 Legislature has the makings to do a lot of great things for the state of Montana . My hope is that we can continue on the fiscally prudent path of the past session and keep the taxpayers in mind .

Rep. Mark Blasdel can be reached at [email protected]


EconoMISTS GIVE ‘MIxEd’ rEVIEW To rEcoVEryThe job market is healing, housing prices are beginning to recover and energy investment is “robust.” At least that’s what attendees at an Aug. 8, 2012, state economic update in Helena were told. But, there is a downside as the spring and summer have been dry, as retail is still weak and the global economy is affecting energy and commodity prices.

unemployment by region, 2011

State unemployment vs. u.S. rate

Speakers from the Bureau of Business and Economic Research at the University of Montana said in their “Seventh Annual Mid-Year Update to the Economic Outlook” that the United States has hit another mid-year economic “malaise,”


although the Western states are doing better than the rest of the country. The symptoms included weak consumer spending that brought United States growth below 2 percent in the second quarter, and a European recession curtailed with the looming prospect of a currency crisis that “hangs” over the global economy, Patrick M. Barkey, bureau director, said at the Montana Chamber of Commerce event. Barkey said U.S. housing was doing better and has been showing an upward trend since the beginning of 2012. He said among the encouraging signs in Montana, income tax withholding has been increasing at a rate of 11 percent since November. “Anytime anything approaches double digit growth, it’s something you pay attention to,” Barkey said. He also said the drought was causing his bureau to revise its outlook for agriculture to optimistic, but mixed.Barkey read from a report that noted there were 225 oil well permits in the first half of 2012 and in 2011 there were 232 total permits. The state now has 20 drilling rigs, compared to about 200 in North Dakota, which is experiencing a boom in the Bakken oil fields.1 “The energy boom looks real to us, even with a skeptical lens on,” he said. Paul E. Polzin, former UM Bureau of Business and Economic Research director, told the crowd you can’t always see recovery. He said the country is now in its third year of the recovery cycle and added that the “trough” was in 2009.Polzin, whose presentation mostly focused on Lewis and Clark County, said there have been no sizable layoffs with employment and that retail remains weak at the county, state and national levels. He said for the first time, a majority of Montana’s urban areas were growing slower than the statewide average, attributing that to oil activity in eastern Montana.In January, Barkey said Montana’s economy will outperform the U.S. economy in 2012, with a projected annual growth for the state of 2 percent to 2 1/2 percent in nonfarm earnings for the next four years. 2 Barkey said this recession, which began in 2008, was different than previous recessions in which the economy bounced back strongly. While the economy is back to where it was in 2007, it has not grown. And he said this recession was different because it was coupled with a banking crisis.Barkey said the U.S. economy practically stalled in the first six months of 2011, growing less than 1 percent. He now estimates that Montana’s nonfarm earnings were lower in 2011 than 2010. He said that was due to inflation which “blew up” to about 4 percent, mostly from increases in food and fuel prices.

1 “Mid-year economic update shows upside and downside for Montana,” Aug . 8, 2012, by Phil Drake, Montana Watchdog

2 “Mid-year economic update shows upside and downside for Montana,” Aug . 8, 2012, by Phil Drake, Montana Watchdog

“It’s sad to note that some industries in Montana will never return to their former glory.”


The graph in ‘Figure 1’ shows the percentage of growth between 1965 and 2011 for the US gross domestic product (US GDP) and the Montana gross state prod-uct (MT GSP) as based on the value in 1965. The graph in ‘Figure 2’ shows the percentage of growth from 2000 through 2011 for the US GDP, Montana’s GSP, the Consumer Price Index (CPI), Montana’s population, and total spending for the state of Montana based on the values in 2000. For example, ‘Figure 2’ shows that between 2000 and 2010 the population in Montana rose 10% while total state spending rose 70%.

Figure 1-percent growth base 1965

Figure 2-percent growth base 2000

Sources: http://leg .mt .gov/content/Publications/fiscal/2010-Expenditures/Summary-Expenditure3 .pdf, http://www .usinflationcalculator .com/inflation/consumer-price-index-and-annual-percent-changes-from-1913-to-2008/, http://www .bls .gov/cpi/, http://2010 .census .gov/2010census/data/, www .bea .gov/national/xls/gdplev .xls , Bureau of Economic Analysis

GroWInG PaInS: STaTE VS u.S.

Compiled by Brian O'Leary

Compiled by Brian O'Leary


WhErE doES ThE MonEy Go?In “The Montana 2013 Biennium Budget,” Jeffrey Greene, a University of Montana political science professor, notes that 40 percent of the $8.9 billion 2013 biennium budget went to the Department of Public Health and Human Services, 26.3 percent went to kindergarten through 12th grade and higher education and 5.8 percent went to corrections.About 30 percent went to all others.1

In 2015, it is expected that 45 percent of the General Fund will go to education ($1.74 billion), 24.3 percent for public health ($954 million) and 8.8 percent ($347 million) to corrections.

did you know?About 41 percent ($4.3 billion) of Montana’s 2013 biennium budget came from federal funds?2

Individual state income tax is expected to make up about 50 percent, or $2 billion, of the General Fund in the 2015 biennium budget. It’s the largest component of the General Fund.3

The new state budget is due by Nov. 15, 2012. But the governor-elect has until Jan, 7 to submit any budget changes.34

Source: Montana Legislative Fiscal Divisiion


1 “The 2013 Biennium Budget,” 2011, by Jeffrey Greene, University of Montana political science professor2 2013 Biennium Legislative Budget by Fund Source, July 2011, Legislative Fiscal Division chart3 Preliminary Budget Outlook for the 2015 Biennium, June 12, 2012, the Legislative Fiscal Division4 Revenue and Transportation Interim Committee report, July 19, 2012

“Just because we have it doesn’t mean we have to spend it. How about keeping a little grain in the bin? Or better yet, why not give some back to the taxpayers?”

Source: Montana Legislative Fiscal Divisiion


dEbaTE conTInuES on PubLIc VS. PrIVaTE PayMontana’s public employees are better compensated and enjoy greater job security than their private sector counterparts, according to an analysis for the Montana Policy Institute. 1

It’s not exactly the same message that a state official told a legislative panel in June. She said state workers earned 14.9 percent less than their private sector counterparts. And her report noted that the average state employee salary is $43,680 and 0.35 percent of state employees earned $100,000 or more. 2

The MPI analysis found public employees’ take-home pay in 2010 was 5.7 percent less than for workers in the private sector, but it becomes a whole different story when some extras are tossed into the mix.When factoring in all fringe benefits, public employees earn 15.4 percent more than their private sector counterparts, the study claims.The study also claims private-sector workers are working longer for less and should expect a less secure and lucrative retirement than their public-sector counterparts, according to the analysis for MPI and other statewide policy organizations, conducted by economists William Even of Miami University and David Macpherson of Trinity University. The study used other factors such as educational attainment, sex, age, race, disability, and work experience. Total compensation included wages, paid time off, health insurance, retiree health coverage, other benefits, and pension costs.The employer contribution to the pensions of public employees is more than twice as much as it is for private-sector workers, the study found. Private-sector employees see an annual contribution of $3,184 while public employees enjoy $6,733.Public employees also enjoy more generous health insurance than private sector counterparts, making up the largest chunk of their fringe benefits. The annual employer contribution for public employees is $10,923, almost two times more than the $6,506 for private-sector employees.

“The adage of ‘follow the money’ needs to be replaced with ‘follow the benefits.’”


Other findings of the MPI report include:

1 Montana Public Employees Fare Better Than Private-Sector Employees,” October 2012, Montana Policy Institute, Miami University and Trinity University

2 “Broadband Pay Plan in Montana’s Executive Branch,” June 11, 2012, by Paula Stoll, state Human Resources Division

3 Montana Public Employees Fare Better Than Private-Sector Employees,” October 2012, Montana Policy Institute, Miami University and Trinity University

4 “Broadband Pay Plan in Montana’s Executive Branch,” June 11, 2012, by Paula Stoll, state Human Resources Division

However, the state has its own findings.Paula Stoll, administrator of the Human Resource Division for the state Department of Administration, said that as of May 30, 2012, the average state worker earned 14.9 percent less than private and public sector people performing the same job, she said, citing market surveys. However, the state benefit package is 4 percent better on average than the private and public counterparts, lowering the disparity to 10 percent or 11 percent, she said. “The state continues to lag behind its private and public counterparts,” Stoll told the Legislative Finance Committee at its June 2012 meeting 4

Stoll also said that record numbers of state employees are retiring. By November 2009, 295 employees had retired, a -6.1 percent drop from the previous year. However, by November 2010, 365 employees had retired, a 23.7 percent increase from the previous year. In 2011, that number was 433, which is 18.6 percent from the previous year.

• Although a smaller proportion of fringe benefits, public employees garner more than four times as much compensation from “other insurance” — e.g. life, long-term care, supplemental insurance, etc — than private-sector workers. Public employees see $1,630 annually to a private-sector worker’s $388.

• Legally required benefits include the employer’s costs for Social Security, Medicare, federal and state unemployment insurance, and workers’ compensation. For Montana workers, the analysts show that private-sector employees see an annual employer contribution of $4,510 versus $2,924 for public employees.

• If workers receive different amounts of paid leave or vacation time, the analysts made an adjustment to reflect the difference. For example, if two workers have identical earnings for the year and one receives no paid vacation and the other receives four weeks of paid vacation, the latter person is receiving a higher level of compensation. In Montana, the analysts calculate that private-sector employees get $4,555 to a public employee’s $4,952, which is about 9 percent higher, for paid leave.

• There are a couple non-monetary “benefits” that aren’t part of the calculus of compensation. One of which is job tenure. Government studies show that job tenure tends to be higher in the public sector, and layoff and quit rates tend to be considerably lower.

• Public employees tend to retiree earlier than workers in the private sector. The average age of retirement for a public employee in Montana is 57 compared to 63 for private-sector workers. 3


GoVErnMEnT STILL ThE bIG boSS In MonTana

Government remained the No. 1 employer in Montana, a title it has held for many years.According to the 2011 state Comprehensive Annual Financial Report (CAFR), the state was the top employer with about 22,500 employees, which is 5.42 percent of the 410,639 jobs in the state. Second on the list was the federal government with as many as 15,000 employees, representing 3.59 percent.The largest employer in the private sector was Walmart, with as many as 5,000 employees, or 1.16 percent of the workforce. Billings Clinic was fourth, with 0.79 percent.Filling in the fifth through eighth slots were several companies with about 2,500 employees or 0.55 percent. They were: Town Pump, Albertson’s, St. Vincent Hospital, and Benefis Healthcare.Avitus Group finished ninth with about 2,000 employees (0.43 percent) and Kalispell Regional Medical Group finished 10th, with about 2,000 employees as well. In state government, the category with the most employees in 2011 was Montana State University with 4,285 workers. University of Montana was second with 3,746. In other government departments, health and social services had 3,092 employees, and general government work employed 2,596, according to the CAFR. Public safety and corrections employed 2,786, transportation employed 2,234; and resource, recreation and environment employed 2,157. In 2000, there were as many as 20,000 employees working for the state, making up 5.24 percent of total state employment. There were as many as 12,500 federal government employees, making up 3.25 percent, and 3,500 were employed by Walmart, making up 0.86 percent of total state employment.

here are some 2011 numbers compared to their 2001 totals: State employees: as many as 20,000 in 2001, 22,500 in 2011

(11% increase)Federal government: 12,500 in 2001, 15,000 in 2011 (12%

increase)Walmart; 3,500 in 2001, 5,000 in 2011 (14% increase)Billings Clinic: 2,500 in 2001, 3,500 in 2011 (14% increase)Albertson’s: 2,500 in 2001, 2,500 in 2011.1

State employees by function: 2002 vs. 2011Here are totals of state employees in some state departments in 2002 and 20112

General government: 1,375 in 2002, 2,596 in 2011 (88.8% increase)Public safety/corrections: 1,925 in 2002, 2,786 in 2011 (44.7% increase)


Transportation: 2,036 in 2002, 2,2234 in 2011 (9.72% increase)Health/social services: 2,674 in 2002, 3092 in 2011 (15.6% increase)Education/cultural: 416 in 2002, 492 in 2011 (18.2% increase)Resource/rec/environment: 1,430 in 2002, 2,157 in 2011 (50.8% increase)Economic development: 912 in 2002, None reported in 2011Total: 10,768 in 2002 vs. 13,357 in 2011 (24% increase)

The total increases if the university system, housing authority and state compensation insurance, and other departments ares included.Total: 18,223 in 2002, 21,997 in 2011 (20.7% increase)

For every 10,000 residents, Montana has 585 people working in state or local government. In Idaho, it’s 539, in South Dakota it is 546, in North Dakota it is 649 and in Wyoming it is 918. 3

did you know?If you want to know more about the fiscal state of your state, the Comprehensive Financial Annual Report (CAFR) is a good place to start. It’s a publication of the Department of Administration, State Accounting Division and State Accounting Bureau. The CAFR looks at the state’s financial condition, demographics and statistical information. Go to: http://accounting.mt.gov/cafr/default.mcpx

“I like Walmart as much as the next guy, but I must say I am surprised to learn it’s Montana’s No. 1 employer in the private sector. Shouldn’t there be some other business or industry other than government that gives Walmart a run for its money?”

1 State of Montana 2011 Comprehensive Financial Annual Report, Montana Department of Labor and Bureau of Labor Statistics, U .S . Department of Labor

2 State of Montana 2011 Comprehensive Financial Annual Report, Montana Department of Labor and Bureau of Labor Statistics, U .S . Department of Labor

3 “How do we stack up?” Tapping Capitalism, November 2011, Montana Policy Institute


ToP 25 STaTE SaLarIES

The following is a list of the top 25 state salaries for 2011 among 14,789 state employees listed by the Montana Policy Institute website opengovmt.org. This list does not include the salaries of university system employees.

did you know?Gov. Brian Schweitzer, at $114,922, has the 145th highest salary in the state of Montana.Of the top 100 salaries in the state of Montana for 2011, 25 are with the judiciary, 20 are in the Montana State Fund, 14 are with the Department of Public Health and Human Services, and 8 are with the Department of Transportation.

*DPHHS: Department of Public Health and Human Services**DOC: Department of Correctionshttp://www .opengovmt .org/Montana_Salaries/default .aspx

1. Laurence Hubbard, president, Montana State Fund, $288,504 *2. Virginia L . Hill, psychiatrist, DPHHS, $234,268 3. Thomas J . Gray Jr ., psychiatrist, DPHHS, $229,685 4. Sheila M . Stearns, higher education commissioner, $227,275 5. Mark Jay Catalanello, DPHHS physician, $211,182 6. Goia Liviu Constantin DPHHS, $207,284 7. Clifford Sheets, Board of Investments administrator, $205,040 8. Robert M . St . John, physician, DPHHS, $202,990 9. Tatjana Caddell, psychiatrist, DPHHS, $199,467 10. Edward Lee Simes, psychiatrist, DPHHS, $193,869 **11. Daniel W . Hash, dentist DOC, $192,061 12. Steven Wayne Palmeri, physician, DPHHS, $191,108 13. Daniel A . Nauts, psychiatrist, DPHHS, $190,928 14. Albert Parisian, chief information officer, State Fund, $190,093 15. David Blaine Carlson, psychiatrist, DPHHS, $181,452 16. Steve D . Helgerson, physician, DPHHS, $180,054 17. Gary E . Dale, medical examiner, DOJ, $176,801 18. Nancy Butler, general counsel, State Fund, $176,140 19. Tristan Elliot Kohut, physician, DOC, $172,636 20. David Schaefer, psychiatrist, DOC, $171,257 21 . Mark C . Barry, vice president, corporate superintendent, State Fund, $166,947 22. Carroll South, Board of Investments, $164,769 23. Stephen H . Meloy, Board of Education admin Board of Public Education, $161,869 24. Scott S . Piranian, physician, DOC, $160,828 25. Richard B . Root, vice president, operations, State Fund, $158,122


“What’s the holdup with providing the salaries of university system employees? Their salaries should be made public, just like any other state employee.”

There are 7 each with the Department of Corrections and Commissioner of Higher Education, 5 each are with the Department of Commerce and the Legislative branch, and 3 are with the Department of Justice.There’s one each with the Department of Public Education, Department of Revenue, Department of Natural Resources and Conservation, Fish, Wildlife & Parks, the Public Employees Retirement System and the Teachers’ Retirement System.

✙ ✙ ✙

On July 12, 2012, the Montana Policy Institute launched a website listing salary and benefit information on 14,789 state employees at www.opengovmt.org, following a legal battle with the state. That’s where the salaries listed above came from.No sooner was the site up when complaints came in from employees and union officials that information was incorrect.State officials balked at providing some of the information MPI requested. On Jan. 27, 1st Judicial District Court Judge Dorothy McCarter ruled in favor of MPI.1 On July 18, 2012, Eric Feaver, executive director of the MEA-MFT, the state’s largest employees union, wrote an open letter to Carl Graham, the chief executive officer of MPI and publisher of this report, claiming the site portrayed an inaccurate picture of salaries. He said the site shows percentage increases in employee salaries based on previous year’s compensation levels, regardless of whether or not employees listed worked a full year, changed jobs, or were promoted. He also noted that employees promoted or changed jobs appear to have received compensation increases without explanation. In a July 21, 2012 response, Graham said Feaver’s frustration was “misplaced.”

“While we simply presented data provided by the state and cannot independently verify whether it’s ‘flawed,’ it’s also true that the data would be much more useful if it contained greater detail, omitted certain things, and provided more context. We’d like that, too.”

“Mea Culpa on us for not explaining that better. But after months of delays and unexpectedly high fees from the state, we simply felt we had done the best that we could. That being said, the best MPI can do from the outside is certainly not the best that can be done,” he stated.He stated that if “the state publishes a timely, credible, and comprehensive website: one that includes information currently at opengovmt.org while addressing Mr. Feaver’s concerns, the pay portion of MPI’s site will go dark the very next day. We can pull the plug on it together.” 2

1 “Judge rules state must release employee salary information,” Jan . 30, 2012, by Phil Drake, Montana Watchdog

2 “Missives exchanged over new website listing state employee pay,” July 21, 2012, By Phil Drake, Montana Watchdog


dESPITE Pay frEEzE, PLan aLLoWEd SoME IncrEaSESSo did they or didn’t they?As the debate rages on over a state pay freeze over employee salaries by the 2011 Legislature, there are some reports that many workers received increases after all.A June report to a state legislative committee found about half of the executive branch employees in state government had received pay increases under the state’s “broadband” pay plan. In all, 5,460 of 10,850 workers in 22 of the 26 executive branch agencies received pay raises, according Paula Stoll, administrator of the state Human Resources Division of the Department of Administration, in a June 11, 2102 report to the Legislative Finance Committee. 1 Amounts varied and the average base salary for state employees rose to $43,680 annually, which is 2.2 percent higher than last year, she said.“It doesn’t look good to the people of Montana,” House Speaker Mike Milburn, R-Cascade, told KXLH-TV in January 2012. “We need to be careful that also we aren’t paying for that type of thing. So once we leave town we don’t like them to be maneuvering money around.” 2 The revelation came after raises negotiated for the 2013 biennium between Gov. Brian Schweitzer and the unions were rejected in the 2011 legislative session. If passed, the raises were to be enacted for about 12,000 employees over two years, with 1 percent in 2012 and 3 percent in 2013. Lawmakers said the state could not afford the salary increases — estimated to cost $19-21 million — even though state employees had gone two years without a raise. The governor and union officials note the state could have afforded the raises as Montana has $496 million in cash reserves. The unions have since challenged the Legislature in court. 3 In late June, the three unions OK’d a proposal negotiated with Schweitzer’s administration for the next biennium to raise their base pay by 5 percent in 2013, and another 5 percent in 2014. It also calls for increasing the state’s health insurance contribution by 10 percent in each year of the upcoming biennium. The proposed deal would cost up to $138 million from all sources of funds, including $71 million from the state general fund. 4 The Legislature will vote on that proposal in its next session, which begins in January.Broadband began in 1997 as an alternative to the 1975 classification and pay plan, Stoll wrote and was designed to give executive branch agencies more flexibility to develop their own pay plan rules. Broadband pay adjustments as authorized by directors, and longevity, which provides an increase for workers for every five years they work for the state.The only executive branch agencies that didn’t give pay raises to employees were the state Board of Public Education, Office of Public Instruction, State Library and Department of Transportation. They lacked the surplus cash to provide the raises. Stoll told the Legislative Finance Committee that Gov. Brian Schweitzer told executive branch directors to raise workers’ pay through the broadband plans if they could afford it. Citing market surveys Stoll indicated that on average state workers earned 14.9 percent less than comparable private and public sector jobs.However, the state benefit package is 4 percent better on average than their private and public counterparts, lowering the disparity to 10 percent or 11 percent, she


said. “The state continues to lag behind its private and public counterparts,” Stoll said.5

Pay raises ruffled feathers elsewhere earlier. In December 2011, state Rep. Tom Burnett, R-Bozeman, said his own review of state employee salaries shows that workers are getting raises.He said he randomly sampled 35 employees and found that 26 (or 74 percent) got raises ranging from 1.5 percent to 12 percent during a 17-month period. He said the average raise was 4.13 percent, ranging from $355 to $14,327.6

Union officials refuted his claims, saying the employees received pay increases due to built-in pay progressions for meeting professional and performance “benchmarks, promotions and longevity” that all state employees receive at varying years of service.They also said salary increases were given when employees were hired at higher rates than employees who had been working for the state for years.Burnett said he requested salary information for 12 names and compared the salaries between May 2010 and November 2011. “I really didn’t know what I would find so I was surprised,” he said. “Their raises were so ubiquitous. Some raises were surprisingly large.”Stoll also warned the legislative committee about other employee-related challenges facing Montana. She said state employee turnover is topping 12 percent, after decreasing to less than 9 percent in 2009 during the recession. State government is also seeing record retirements, with the total for this year already 10 percent more than in 2011, she said. A big increase was expected in July and August.7 To read more of Stoll’s June 11, 2012, report, “Broadband Pay in Montana’s Executive Branch,” go to http://leg.mt.gov/content/Publications/fiscal/interim/2012_financemty_June/Broadband%20Pay%20Plan.pdf

1 “Half of state workers in Montana executive branch get raises despite freeze” June 14, 2012, Charles S . Johnson, Lee Newspapers State Bureau2 “Some state workers get raises under broadband pay plan,” January 2012, Marnee Banks, KXLH-TV3 “Unions ask court to reverse unfair labor practices decision on state employee pay raises,” 31, 2012, Phil

Drake, Montana Watchdog4 “Unions Ratify Pay Proposal,” June 27, 2012, Lee Newspapers State Bureau5 “Half of state workers in Montana executive branch get raises despite freeze” June 14, 2012, Charles S .

Johnson, Lee Newspapers State Bureau6 “Lawmaker’s claim of state worker raises disputed by union chief ” Dec . 21, 2011, Phil Drake, Montana

Watchdog7 “Half of state workers in Montana executive branch get raises despite freeze” June 14, 2012, Charles S .

Johnson, Lee Newspapers State Bureau

"A pay raise by any other name smells as sweet — or sour."


PEnSIon PLanS nEEd a chanGE In dIrEcTIonSen. Ron Arthun, R-Wilsall, has been keeping a close eye on the state’s pension situation over the interim and is expected to take a leadership role over pension reform in the 2013 legislative session. Arthun is a member of the Legislature’s State Administration and Veterans’ Affairs Committee, which is considering pension fixes. Here he answers some questions about Montana’s state employee pension systems.

1. How would you describe the current status on Montana’s nine pension systems?

A. I would say that some of the smaller pension plans are doing OK but the two larger ones are having some serious fiscal issues.

2. What number are you using for unfunded liabilities? (e.g. Numbers that range from $3.9 billion to $8.8 billion --$10.5 billion since this question was asked)

A. I am staying on the positive end on these two figures. I don’t like either one but I think that the lower figure represents a better assessment. They are both extremely large figures that are hard to “pay off” due to the fact that Montana has such a small population.

3. What action needs to be taken to fix the problems?A. Our pension plans definitely need some monetary help. We can’t go on

accruing these liabilities and expect them to recover without some infusion of money. We need to work on making the current plans more fiscally responsible. If the current plans have to stay in place for a while longer we need some major tweaks to make them close to sustainable. I also think that we need to change the overall direction of our pension plans to be fair to the employees and to the taxpayers of Montana.

4. What kind of legislation will Montanans see in the 2013 legislative session? Will pension reform be a major issue?

A. I think that some major realignment needs to take place with the current plans. I think that we need to go down a different road and install a cash-balance plan or some facsimile that will work in Montana for new hires and others who would like to participate. I think pension plans will be a big issue this next session. New accounting rules will expose some of the deficiencies in our current system. I think that the people of Montana would like to see this issue resolved.

5. Are you in favor of small, incremental changes or a major overhaul? Can Montana’s pension systems survive if no changes are made?

A. I think that we need some of each. Everyone in the system must share some of the burden that is required to make these plans sustainable. I am of the opinion that it will be hard to change current retirees’ plans but that everyone else must be at the table and willing to accept some reductions. The current plans will not survive the way that they are structured. We definitely need a change in direction if there is to be any plan left for anyone.


6. Are there any proposals on the table that you favor?A. I am in agreement with a lot of the ideas coming out of SAVA. We need

to increase inputs from the employee and the employers. Retirement age requirements need to be addressed. Salary averaging needs to be looked at in different plans. GABA (Guaranteed Annual Benefit Adjustment) and even the retirement multiplicative factor need close scrutiny. I think that the current pension plans need some major tweaks for current employees and an entirely new plan for new and non-vested employees.

7. What role will current and retired state employees in the pension systems have in finding a solution?

A. I think I have answered this one. I don’t want to change the current retirees plan, tweaks (large and small) to current employees and an entirely new plan to new hires.

8. Are there any states that have successfully tackled the problem? Will those proposals work in Montana (why or why not)?

A. “Successfully” is the operative word. I am pointing to the examples of Kansas and Nebraska. Nebraska has been in their new plan for a number of years and it seems pretty successful. These two states are both involved in cash-balance plans. Montana legislators will have to come up with a Montana plan that will be fair. I look forward to working on this issue.

did you know?That in 2011, there were 2,246 bill draft requests for the legislative session? Of those, 1,179 bills were introduced and 484 bills were adopted.In 2009, there were 2,369 bill drafts. Of those, 1,316 were introduced and 569 were adopted.In 2007, there were 2,581 bill draft requests. Of those 1,526 were introduced and 586 were adopted.1

1 Montana Legislature: Bill Statistics” Http://leg .mt .gov/css/About-the-Legislature/Facts-and-Statistics/bill-statistics .asp

"It's going to take much more than a bipartisan effort to reform pensions. I'm sure employee unions will take a very active role."


curES SouGhT for STaTE’S aILInG PEnSIon SySTEMSThe 2013 legislative session will be remembered as the time when Montana either did a massive overhaul to protect its pension systems for future generations of public workers, or just patched up an ailing retirement plan only to work on it another day.State officials have been reviewing reforms to the pension system, which is now a mix of defined benefit and defined contribution plans. While some estimates put the state’s unfunded liability at $3.9 billion, other estimates put it as high as $10.5 billion (Officials said the $3.9 billion figure was $600 million more than the year before, but less than anticipated). 1

Unfunded pension liabilities are when pension obligations are paid from current income rather than from a separate fund to which it has contributed over time. 2

At the forefront is a proposal by the governor, which says reform can be done without tax increases and gives the system a surplus by 2021. It’s an idea the State Administration and Veterans’ Affairs Committee, in September, sent to the Legislative Finance Committee for review.Public pensions have been around in one form or another since the Roman Empire. Military pensions have a long history and were used to attract and keep military personnel. In the United States, pensions predate the signing of the U.S. Constitution. The Montana Constitution requires public pension systems to be funded on an actuarially sound basis (meaning they are like a mortgage and can be paid off in 30 years), which a state report noted has been a challenge since 2001 and the systems are now “significantly” underfunded.Four of the eight plans administered by the Public Employee Retirement Board are actuarially sound, five are not. That includes a program not overseen by the PERB, the Teachers’ Retirement System (TRS), which has a $1.8 billion unfunded liability.The unsound pension programs are the TRS, the Public Employees Retirement System, the Highway Patrol Officers Retirement System, the Sheriffs Retirement System and the Game Wardens’ and Peace Officers Retirement System.The sound programs are: Judges Retirement System, Municipal Police Officers Retirement Systems (MPORS), Volunteer Firefighters Compensation Act and Firefighters Unified Retirement System (FURS). Officials said they are waiting to see when the FY 2012 valuations are completed in October. They may show the MPORS and FURS could be found unsound.3 And the Judges Retirement System actually shows a surplus. But because it is a small system, any “bumps” or deviations could deliver a nasty wallop. Dave Senn, executive director of the TRS, wrote in an October 2011 opinion piece that: “Far from needing an immediate and staggering infusion of taxpayer dollars, the fund can be righted with more prudent, gradual, and relatively small adjustments.” 4 He said that thanks to a relatively moderate-risk investment portfolio (managed by the Board of Investments), TRS has fared better than many


other retirement systems. In six of the last 10 years, TRS’s investment returns exceeded its expected rate of 7.75 percent.At a December meeting of the Legislative Finance Committee, Carroll South, executive director of the Board of Investments, told the panel to consider raising employee contributions, do not increase benefits and don’t “infuse a large amount of cash to fix the problem.” 5 While some people said Montana could get higher than the 7.75 percent it expects to make off investments, South warned the state would not be able to “invest its way out of the problem.”In late July 2012, a subcommittee of members from two Montana state panels recommended their full committees consider a proposal that Gov. Brian Schweitzer said would bring reform to the state’s ailing pension systems. Schweitzer said he would use revenues to pay off liabilities and dip into record revenues from state lands raised through sales of natural resources such as coal, oil and timber sales. 6

For the TRS, he proposed taking $25 million from the state land guarantee account from natural resource development, a $14.7 million one-time only contribution from the employer and a 1 percent increased employee contribution and benefit change.For the Public Employees Retirement System (PERS), he proposed an $18.1 million state contribution and more local government contribution, a 1 percent increase employer and employee contribution.Officials said the employee contributions would increase under the plan to 7.9 percent for the PERS and 8.15 percent for the TRS. Some state employee unions have already publicly supported the governor’s plan.More proposals for pension reform will come forward as the legislative session nears.Sen. Ron Arthun, R-Wilsall, briefly proposed a plan at the Aug. 8, 2012 SAVA meeting said a cash benefit plan could be a solution. He said employees would be guaranteed a 5 percent return on their money. At the end of their career, even with early retirement, they can take that money with them. The plans are not tied into the 7.75 percent return the state now seeks. He said the plan is being used in Kansas and Nebraska. 7

But the bad news keeps on coming, at least for Montana cities. The Governmental Accounting Standards Board has proposed to states that they distribute unfunded pension liabilities to local governments starting in 2014. In the past the state listed those liabilities. In Montana, that would mean nearly $2.3 billion in state employee retirement plans would be tacked on to local governments’ financial portfolio. The news has some local governments worried. Officials from organizations that represent Montana’s cities and counties have told the state their members don’t have the money to pay that bill. “We don’t have $360 million in our budgets to throw into this,” Scott Turner, Yellowstone County finance director, told the Legislative Finance Committee in October 2011.8

Official feared it could impact bond ratings, which would cost county governments more.


did you know?Montana is among the 40 states that provide pension benefits to legislators. The 10 states that don’t are: Alabama, California (after 1990), Louisiana (after 1996), Nebraska, New Hampshire, North Dakota, Rhode Island (after 1994), South Dakota, Vermont, and Wyoming. 9

1 “Montana pension investments up, but so are obligations” Aug . 9, 2012, by Phil Drake, Montana Watchdog

2 Financial Times Lexicon3 “Public sector pensions in the United States,” by Lee A . Craig, North Carolina University, Feb . 1, 2010 .

EH .Net Encyclopedia4 “Commentary: Teachers’ retirement needs tweaking, not major surgery,” Oct . 12, 2011, by TRS Executive

Director Dave Senn, Montana Watchdog5 “Lawmakers told state pension system must change in order to survive,” Dec . 6, 2011, by Phil Drake,

Montana Watchdog6 “Governor proposes plan he says will ‘fix’ state pensions” April 12, 2012, by Phil Drake, Montana

Watchdog7 “Senator tosses cash balance pension plan into the reform mix,” Aug . 14, 2012, by Phil Drake, Montana

Watchdog8 “Local governments could be forced to list unfunded pension liabilities,” Oct . 6, 2011, by Phil Drake,

Montana Watchdog9 “State by State: Benefits available to state legislators,” USA Today, Sept . 23, 2011 http://www .usatoday .

com/news/nation/story/2011-10-11/state-legislators-pensions-records/50523328/1

“I sense growing tensions over growing pensions.”


1 “Montana Public Employees Retirement Plans, summary table,” March 2012, Megan Moore, Legislative Services Division2 “Montana Public Employees Retirement Plans, summary table,” March 2012, Megan Moore, Legislative Services Division

MontanaMontana had $7.8 billion in total cash and investment hold-

ings for pensions in Fiscal Year 2011.That’s about a 13 percent increase from $6.9 billion in 2010.Montana has $11.3 billion in pension obligations.In FY 2010, that number was $11,065,556,000.75,136 people are participating in Montana’s nine defined

benefit pension systems.53,014 were active members.There were 34,299 total beneficiaries receiving periodic

benefit payments.Payments ranged from $15,000 to $19,999.1

PEnSIonS by ThE nuMbErS

a look at the 9 state pension systems• *Teachers’ Retirement System: 18,484 active members, 12,889 benefit

recipients, $1.79 billion in unfunded liabilities. Years to amortize (pay off): 71.

• *Public Employees Retirement System: 28,659 active members, 18,183 benefit recipients, $1.6 billion in unfunded liabilities. Years to amortize: Does not amortize.

• Judges Retirement System: 54 active members, 58 benefit recipients. It has an $18 million surplus.

• *Highway Patrol Officers Retirement System: 214 active members, 302 benefit recipients, $60 million unfunded liabilities, Years to amortize: 48.2 years.

• *Sheriffs Retirement System: 1,230 active members, 441 benefit recipients, $63 million in unfunded liabilities. Years to amortize: Does not amortize.

• *Game Wardens’ and Peace Officers Retirement System: 951 active members, 145 benefit recipients, $29 million in unfunded liabilities. Years to amortize: Does not amortize.

• Municipal Police Officers Retirement Systems: 702 active members, 676 benefit recipients, $180 million in unfunded liabilities. Years to amortize: 25 years.

• Firefighters Unified Retirement Systems: 579 active members, 552 benefit recipients, $135 million in unfunded liabilities. Years to amortize: 16 years.

• Volunteer Firefighters Compensation Act: 2,105 active members, 1,183 benefit recipients, $9 million in unfunded liabilities.

Years to amortize: 8.8 years.2

* Unsound, meaning could not be paid off in 30 years.


hEaLTh carEThe hotly debated Patient Protection and Affordable Care Act, commonly called “PPACA” or “Obamacare,” comes with a hefty price tag for Montana.Gov. Brian Schweitzer said the law championed by President Barack Obama would add an estimated 84,000 people to Montana’s Medicaid program, doubling its size. Although the federal government would pay the vast majority of the additional costs, Montana’s Department of Public Health and Human Services estimates the state’s share would reach $71 million in 2019.1 Outside groups say the costs would be far lower. And yet, others say the costs could be as high as $155 million. The health care law passed in March 2010 extends health insurance coverage to more than 30 million Americans through an expansion of Medicaid. The law also requires people to buy health insurance in 2014 or pay a penalty. It specifies that states or the federal government must set up health care exchanges for people to purchase health insurance. While the federal government is covering some of the initial costs of the ACA, the burden over the long run falls to the states.2 Supporters say the new law provides affordable health care for millions of Americans and will reduce the nation’s deficit by more than $100 billion by 2020 and by $1 trillion by 2030. Those opposed say it is socialized medicine that will increase the cost of health care while decreasing its quality. They claim it will cost more than $2.5 trillion over 10 years. The law got a shot in the arm June 12 when it was upheld by the U.S. Supreme Court, but it was not a clear-cut win as there were strings attached.One major aspect, the individual mandate, which requires all Americans to possess health insurance in some form or another, was declared legal under the Commerce Clause. But it was ruled a tax due to the fact that it imposes a penalty on citizens for not complying, which supporters vehemently denied. Montana Attorney General Steve Bullock refused in March 2010 to join 26 states in the Supreme Court lawsuit opposing the new health care law, saying their lawsuit lacked merit. However, 71 Montana GOP lawmakers and organizations participated through a friend of the court brief. 3 The GOP-led state Legislature rejected a plan in 2011 for Montana to design its own health care exchange, leaving that up to U.S. Department of Health and Human Services.Therefore, if the PPACA is not overturned by Congress, the exchange will be federally-operated. Montana could operate its own state-based exchange after transitioning from a federal exchange, but it would need to do so without any federal funding.Another large aspect of the PPACA before the Montana Legislature in 2013 is the expansion of Medicaid in the state.


The U.S. Supreme Court found in the PPACA ruling that the federal government cannot withhold funding from states that do not expand a program, saying that would be deemed coercion. Therefore, states, such as Montana, may choose to expand Medicaid from the current level of 0-100 percent of the Federal Poverty Level and raise the level to people who are up to 133 percent FPL. Schweitzer said he was worried about the financial impact on the state.“Unlike the federal government, Montana can’t just print money. We have a budget surplus, and we’re going to keep it that way.” 4 For updates on health care throughout the 2013 legislative session, go to: montanapolicy.org.

1 “Medicaid expansion a tough sell to governors of both parties,” July 12, 2012, by N .C . Aizenman and Karen Tumulty, Washington Post2 “Draft Blueprint for Approval of Affordable raft Blueprint for Approval of Affordable State-based and

State Partnership Insurance Exchanges,” by the Center for Consumer Information & Insurance Oversight3 “U .S . Supreme Court upholds ‘Obamacare’ in 5-4 decision,” June 28, 2012, by Dustin Hurst, Jon Cassidy

and Phil Drake, Montana Watchdog4 “Draft Blueprint for Approval of Affordable raft Blueprint for Approval of Affordable State-based and

State Partnership Insurance Exchanges,” by the Center for Consumer Information & Insurance Oversight


WaSTE noT …Talking about waste in government almost always sparks a discussion that mirrors the intensity of the great Lincoln-Douglas debates: After all, can’t one person’s trash be another person’s treasure? Yes on both counts—but there are more than two people involved.That argument cannot be the only litmus used when measuring the effectiveness and benefit of being a guardian of the public’s money. Other factors come into play such as effective execution of programs, weighing costs and benefits and whether goals are accomplished.With that in mind, we offer up these examples where we think government could have done better.

Efficiency, what a conceptThe Select Committee on Efficiency in State Government has come up with several suggestions on how government could be run better, and, a little cheaper.Of course, that’s only if you consider $1.5 million “a little.”This committee was started by the 2011 Legislature, and given a $100,000 budget. At its September 2012 meeting members were told that about half of that budget had been spent.The committee was formed through House Bill 642 to

look at efficiencies in four areas of government: budgeting, health care, technology and natural resources. According to its mission statement, the committee seeks sug-gestions for making government run better.The committee’s final report outlines eight proposed bills to be considered by the 63rd Legislature. The panel will discuss the bills in more detail at its November 2012 meeting.So far, the big ticket item is a letter, which the committee plans on sending to the House Appropriations and Senate Finance and Claims Committee, in which they recommend they lower the utilization review budget for the Department of Public Health and Human Services from $1.7 million to the minimum amount required (at one time estimated to be $185,000). Utilization review requires pre-authoriza-tion of certain services.An outside company, Magellan Health Services, was hired by the DPHHS to do the reviews for the state. However, the state required review of more mental health services than mandated by federal laws, the efficiency report stated.The committee learned the state was not only paying for the services, but many of the mental-health providers said the process prevented them from providing services in a timely fashion.

Sen. Jon Sonju (R-SD 4)


“Consequently, the committee concluded that the state could save money and im-prove children’s mental health services by reducing the utilization review appropria-tion,” the efficiency report stated.Other proposals by the efficiency committee include:LC 123 - Create a Medicaid pay-for-performance pilot project. This was suggested by mental health providers who said it ensures better results for children. Providers who achieve certain goals get more money than other providers. LC 124 - Require Department of Public Health and Human Services to measure results for children’s’ mental health services. This will determine the effectiveness of services provided. The committee approved the DPHHS to work with providers on this but the department declined, a staff report stated. The DPHHS said it already has a tool it is using; the committee then drafted the legislation.LC 125 - Revise requirements of 72-hour presumptive eligibility for crisis stabiliza-tion services. Providers said the current program limited diagnostic interviews and reimbursement. It may increase costs to the General Fund, but may result in less need for more expensive services, the committee report stated.LC 150 - Revise Medicaid application process. The committee found that the cur-rent system is not used much and repetitive with documents from other sources.The jury is still out for some on whether this committee completed its goals, but it’s obvious it was a good thing for state lawmakers to sit down and dig deep into some departments and their programs. If it’s true that it has come up with money-saving ideas and came in under budget, the 63rd Legislature should consider giving this efficiency committee another try.

hey you guys, privatizeWhen there’s talk of saving taxpayers’ money – and there often is – the idea of privatizing some government services is usually sug-gested.And it’s usually killed.During the 2011 legislative session, privatizing came up several times only to be swatted back into remission.One of the most impassioned debates over the issue occurred at the Nov. 3, 2011, meeting of the Legislative Audit Committee when Sen. Taylor Brown, R-Huntley, discussed a report, “Improving

Montana’s Office Supply Acquisition Process,” that claimed the state could save $139,000 in six months if it changed the way in which it bought office supplies. The existing contract has the office supplies delivered to a central warehouse in Hel-ena and then delivered to the ordering agency, and a 20 percent markup is added to cover the overhead and delivery. The auditor suggested the state adopt a vendor-direct delivery system. However, the General Services Division administrator said the markup was used to pay his staff. “The only result is I’ll go broke,” he said.1

Sen. Taylor Brown (R-SD 22)


The auditor noted there was a study in 2004 that suggested turning over the system to the private sector. It was soon followed by a bill in the 2005 session prohibit-ing the privatization of private stores. The bill didn’t pass, but the plan to privatize Central Stores lost its momentum.“We have money going out the door,” Brown said, adding it was found in 2004 that the system was not saving money. “And here it is, seven years later.”At the October 26, 2012, audit committee meeting, the state announced it was go-ing to switch vendor-director delivery model. The state now says it could make the change without changing laws, saying it would use an existing cooperative purchase program it has with other states. Officials said coopertive contracts are exempt from much of Montana's current process.

charity case

Sen. Jeff Essmann (R-SD 28)

State Sen. Jeff Essmann said a recent discussion about tax exempt properties in Montana proved two things: There is no compre-hensive list on the number of such properties, and the state has no idea if some properties tax exempt since statehood still meet that qualification.Even though a committee stalled a bill which would create such a list, the Billings Republican said he will introduce his own bill in the 2013 legislative session that proposes a pilot program for one or two counties to see how much work it entails.He said updating the rolls could relieve the burden on taxpayers

by proving that some properties are not tax exempt and should pay their fair share of taxes.On Sept. 13, 2012, the Revenue and Transportation Interim Committee derailed a proposed bill to crack down on tax exempt properties after members feared it would cost too much, and be more work than current staff could handle.2 The proposed bill mandated the state verify if the applicants deserved the designa-tion, and set a July 1, 2015, deadline for the Department of Revenue (DOR) to complete its first renewal application update. The department was to request docu-ments that included showing ownership, deeds, articles of incorporation, bylaws, Internal Revenue Service tax-exempt status, photographs of the properties, lease agreements, and proof that the occupant is a member of the clergy and using the property for religious housing.The DOR’s deputy director warned the bill could come with a high price tag and could be a daunting task to gather the information.“We have grave concerns about this bill,” Deputy Director Alan Peura told the revenue committee on Sept. 13, adding it would require the state to approach 56 counties that used 56 different criteria.“While we agree with the good government intentions of this, this bill has a lot of unrealistic expectations and unrealistic deadlines,” he said.


Peura said there was no cost estimate yet attached to the bill, but added it would be expensive. The DOR began oversight tax exempt properties in 1981 from counties, which had that responsibility since 1889. The state Constitution was revamped in 1972 and ordered the state to take it over. According to the DOR, within Montana 418 properties worth about $124 million were granted or partially granted tax exempt status in 2011. In all, 464 applications were received and 46 were denied. There are now 11,034 active exemptions, which do not include the exemptions the counties granted prior to 1981.In August 2012 Attorney General Steve Bullock released the fifth annual report on the charitable performance of Montana’s nonprofit hospitals which found that Montana’s 10 largest hospitals provided $61.41 million in charity care in 2010. In 2006 that figure was $33.56 million. 3 “It’s hard to tell from the bill what the problem is,” said Liz Moore, executive direc-tor of the 670–member MNA. “Are they concerned about unrelated business tax not being paid? ... Let’s not use a broad-brush approach.”

bored of horse racing?What are the odds the Montana Board of Horse Racing can emerge from its finan-cial quagmire?A few years ago the board took over simulcasting when a previous operator bowed out. In the world of fantasy the board would make scads of money. However, in the real world the board lost what was recently estimated to be about $628,428 in the year it took over.The board’s executive secretary was let go, four new members were named to the seven-member board, and a new operator took over simulcasting. The board, administratively linked to the Montana Department of Livestock, has been told the DOL does not have the resources it can devote to guide it through the financial muck of how they lost the money and how much.In August 2012, a study by a former simulcast operator found the BOHR was ill-equipped to take over simulcasts, understaffed the operation, did poor financial accounting and didn’t respond quickly to daily challenges.4 The 20-page report, “Statewide Simulcast Business Planning Study,” by Tom Tuck-er, chief executive officer of IMS Consulting Group Inc. (which previously operated the simulcasts), urged the board to “act quickly” to save horse racing, saying private industry should be used to eliminate the “often-slow response” of government.His report also serves as a rallying cry to return horse racing to its former glory in 1984, when it had 143 days of racing at 13 venues in Montana. In 2011, it had 13 days at three state venues.And he noted that fantasy sports could play a major role in the board’s success. Fantasy sports allow players to create racing teams or football teams for a chance to win. “Fantasy Sports can be the Golden Goose,” he said, adding the board needs to work with the Montana Lottery to create new games.


Tucker, who said the simulcasts alone lost $120,268, could not provide an estimate as to how much was lost overall, but said he doubted it was as much as $628,428.In December 2011, the board suspended simulcasting at its eight off-track sites while an advisory committee appointed by the governor tried to determine why it lost money. The board began managing simulcasting in November 2010 after end-ing its contract with Montana Entertainment, which took over from MSP in 2009. Tucker noted in the report that one of the eight operators owed the state $50,000.It is very doubtful a private entity would have allowed that to happen, just from the problem it creates with cash flow,” Tucker wrote.He said the board took over a million-dollar business and treated it like a lemonade stand.A new operator out of Missoula, Montana Simulcast Racing, brought back simul-casts to some Montana locations May 17, two days before the Preakness. Tucker turned down an offer from the board to come back and run the program but agreed to serve as an adviser.At a Sept, 19, 2012, meeting of the board, the new operator said simulcasts had generated $44,000 for the state in four months.The Board of Horse Racing is at a crossroads, not only about simulcasts, but about horse racing in general. Do Montana residents want to continue the sport in their state, or send it packing? There’s a rich history of horse racing in Montana. The 1889 Kentucky Derby winner, Spokane, was born in the Big Sky state. Regardless, the state should provide the necessary resources to determine what happened. Who knows, it could be better than believed, or it could be a dark, dark nightmare.

double troubleState Sen. Frederick “Eric” Moore said he got a firsthand taste of a computer glitch when he said he spent the better part of a morning explaining to a law enforcement officer that his 2004 Gooseneck Featherlite Trailer was not a 1997 pickup truck stolen out of Billings.Apparently, the Miles City Republican’s vehicle was among the 78,000 duplicate license plates that exist in Montana. Moore’s comments, made during a June 19, 2012, meeting of the Legislative Audit Committee, were sparked by an audit of a $28 million state computer system used since 2009 by the Motor Vehicle Division.Lawmakers were told the Montana Enhanced Registration and Licensing Informa-tion Network (MERLIN) has improved since it was implemented and apparently is beginning to work its magic.A survey showed that 54 percent of counties queried said the computer system has improved greatly and another 44 percent said it improved somewhat. Two percent said it had not improved.


Ninety-two surveys were sent out to various officials in all 56 counties, and 39 counties responded. The audit was to determine if MERLIN accurately records and processes title and registration transactions, motor vehicle title and regulation fees and if the state Motor Vehicle Division has established effective communications with county offices to promote accurate motor vehicle registration using MERLIN.At the June 19 audit committee meeting, Diedre Murray of the Legislative Audit Division said that staff found that MERLIN accurately recorded 90,309 registration changes for September 2011.Tim Burton, deputy director with the Department of Justice which oversees MER-LIN, said he was heartened by that news.He said the most significant findings of the audit were that MERLIN accurately captures and records transactions at the county level.“We couldn’t have said that three years ago,” Burton told the committee.In June 2010, Sen. Shannon Augare, D-Browning, chairman of Law and Justice Interim Committee, requested a review of MERLIN, citing continuing problems after receiving complaints from residents, automobile dealers and others.He outlined several problems with the system that included accounting of fees and lack of timely MVD help desk and customer service provided to help county trea-surers and others with questions.The audit found that the data integrity, accuracy of vehicle ownership and lien information of MERLIN could be improved.Thirty-seven percent of the respondents said they had duplicate license plate num-bers during the fall of 2011. Audit staff said reasons included the duplicate plates existed in the system used before MERLIN and then transferred to the new system, and a program error was introduced into MERLIN in 2011, impacting plate order sequencing, causing du-plicate plates to be made across different plate types. The department has corrected this problem, but has not removed duplicate plates from circulation. The audit also noted counties have similar numbers. A plate in Lewis and Clark County can be assigned plate number 5-1234 while a plate in Jefferson County can be given plate number 51-234. Audit staff noted they did not believe this to be duplicate plates as the numbers are distinct by a dash. Moore said 78,000 duplicate plates seemed high for a state of 1 million.Burton said the DOJ was aware of the duplicate plate problem prior to the audit and was taking steps to rectify the problem. He said the MVD would develop a plan to contact customers and replace duplicate plates with “unique-numbered plates.”Attorney General Steve Bullock noted that each year MERLIN issues nearly 400,000 titles, sends out 870,000 registration renewal notices, adds or releases nearly 300,000 security interests and liens, and responds to more than 170,000 formal requests for vehicle ownership information. 5


In Fiscal Year 2011, it collected more than $160 million, with $35.6 million kept by counties and more than $3 million forwarded to organizations that sponsor specialty license plates. In that same year, it did more than 1 million vehicle titling and registration transactions.Between April 21, 2009, and March 31, 2012, more than $482 million – with $110 million kept by counties and $7.6 million passed on to specialty license plate holders.

doc auditAn audit of the Department of Commerce for two fiscal years that ended June 30, 2011, found the DOC disbursed $2 million without appropriations, which audi-tors said is contrary to the state Constitution. It also found that five contracts did not have required signatures, and there was missing payment authorization for an employee who now runs a nonprofit group. The DOC was also faulted for giving funds to schools for deferred maintenance and energy efficiency, but not doing reviews after the final disbursements were handed out. 6 Also, $10,000 in unreported expenditures was made to the Montana Council on Developmental Disabilities, including a $40 bar bill. Furthermore, $1.74 million out of $1.79 million was doled for the American Recovery and Investment Act without proper information to the recipients.The Department agreed or partially agreed with some of the recommendations, but disagreed over claims $2 million in funds were disbursed without appropriations. The DOC also disagreed over the claim no reviews made before final disbursements in school deferred maintenance and energy efficiency.favoritism allegedAn audit of the Department of Public Health and Human Services’ Sate Veterans’ Homes in June 2012 found that the disbursement of the state cigarette tax favored

"State audit committee meetings and their reports are a 'must' for anyone interested in savings and waste in state government. Check them out at: http://leg.mt.gov/css/audit/Default.asp"


the Columbia Falls home over the Glendive home 4:1 (Columbia Falls home receives $51.20 and Glendive receives $12.25 per-bed-day). Also DPHHS does not follow the sate law’s prescribed rate calculator when determining the rates for these two homes. The average costs, in ten different areas, at the Columbia Falls home are higher than the average costs in other Montana nursing homes. If the state changed the current state staffing model to a private contractor model the Colum-bia Falls home could save over $1.3 million. DPHHS agreed with the rate calcula-tions and the staffing model but gave no reply to the cigarette tax disbursement. 7

Mine, mine, mineAn audit of the Department of Labor and Industry’s mine safety and inspection training programs for January 2012 found that state inspections of coal and sand and gravel mines may not be effective or necessary. Currently $110,000 is spent on these possibly ineffective inspections. Also the audit found that in 2008 there were $7,802 in funding shortfalls and in 2011 these shortfalls reached $69,939. Training programs are now done on an as-needed schedule. Class size varies from 1 to 15 and the cost for the DLI for each class is around $3,000. The DLI agreed with the recommendations of the audit.8

a loss of fundsAn audit of the Department of Labor and Industry for the two fiscal years that ended June 30, 2011 found that in some cases the DLI did not comply with many requirements of the Workforce Investment Act which could lead to a loss of funds. The DLI also did not return or use excess cash in the Unemployment Insurance benefit account which is required by Montana law and may have led to a loss of $150,000 in the Unemployment Trust Fund. Due to improper remitting of income tax withheld on unemployment insurance payments the DLI may have lost at least $5,300 in investment earnings during 2011. The DLI failed to include fees for the legal service fund on their 2011 budget and the actual expenses in 2011 for this fund were $40,121. Also the DLI listed SEFA expenditures twice which resulted in an overstatement of $1.4 million. The DLI agreed with all of the recommendations of the audit. 9

Laptop security questionedA study of 100 government laptops among four state agencies found that of 15 “control areas” tested, four had comprehensive security in place but 11 controls were missing in a majority of the various agencies.Forty percent of the computer users interviewed for the Information Systems Audit said they had stored sensitive information on their laptops, and of 84 laptops users interviewed during the audit, 42 were not aware of agency policies. However, most users were generally aware of laptop security, the Legislative Audit Committee was told at its Feb. 8. 2012, meeting.In 2011, the Biennial Information Technology report found laptops make up 23 percent of all computers used in the state compared with 14.6 percent in 2009.


State officials report 3,431 laptops are in service through 34 state entities, a figure which does not include the university system. Reportedly, there are 14,986 desktop computers among Montana’s nearly 11,000 employees.10 The audit looked at security at the Departments of Justice, Revenue Labor and Industry, and Public Health and Human Services.The auditors recommended agencies routinely monitor laptop security settings, make workers more aware of security policies, take steps to ensure sensitive data on laptops is encrypted (which makes files unreadable to unauthorized users), and agencies should analyze business need, security risk and cost effectiveness prior to assigning laptops.The report stated that many of the users said laptops were given to them by supervi-sors who believed the staff needed them for travel, but they rarely work out of the office and when they do they don’t need a computer.The audit states that agencies have pool of laptops that can be checked out for temporary use.

a conflict of interestA Department of Transportation audit for the two fiscal years that ended June 30, 2011 found that the DOT should ensure the safety of employees during the hiring process and also ensure that conflicts of interest are properly resolved. The audit found one potential conflict of interest (that was unknown to the proper authority) exists where a division manager used and authorized the use of a private business whose part owner is the spouse of the division manager, the costs from 2009-2011 were $32,039. The DOT does not fully comply with federal regulations found in the Federal Transit Program and it does not fully comply with the Davis-Bacon Act requirements which lead to contractors underpaying their employees between $200,000 and $350,000. Due to accounting practices that do not follow state accounting practices the capital outlay for Fiscal Year 2010-11 is understated by a total of $5,810,693. Improper fuel tax accruals resulted in the State Special Rev-enue Fund for FY 2009-10 being overestimated by an estimated $564,344. There was no tax accrual recorded in the Aeronautical Grant Account when there should have been $61,786 recorded. Due to improper fund use the Investment Trust Fund revenues are overstated by $76,124 and expenditures are overstated by $24,859, while the State Special Revenue Fund is understated by the same amount. An im-proper allocation of funds in the Snowmobile Account lead to an overstatement of tax revenue by $7,198 and an understatement in the same amount in the Restricted Highway Special Revenue Account. Six tribes receive a gas tax distribution and due to a clerical error in Fiscal Year 2009-10 these tribes received an extra $234 and were owed $7,494 for the first three quarters of FY 2010-11. The DOT agrees with most of the recommendations of the audit but only partially agrees with the recom-mendation that deals with conflict of interest problem. 11


Eligibility compromisedAn audit of the Department of Public Health and Human Services’ Combined Healthcare Information and Montana Eligibility System for Medicaid (CHIMES) during February 2011 found that the ability to determine Medicaid eligibility had been compromised due to outsourcing the management role. The audit found other security and management issues within CHIMES. Also the audit found that some records were missing some of the data that is necessary for processing client eligibil-ity, and over$70,000 has been paid to recipients who are missing the required Social Security number on their forms. The DPHHS agrees with all of the recommenda-tions of the audit report. 12

What others think as waste …Much like our 2010 Montana Pork Report, we asked people for suggestions on what they thought was government waste. We are keeping their names anonymous and offering their comments:The state of Montana has a lack of modern management practices, said one state official. There’s no vehicle fleet monitoring, no aircraft fleet monitoring and there is employee timekeeping that is “volitional rather than using the best practices of even the smallest businesses.” He added there was poor task accounting.

1 “Proposal shelved to save money on buying state office supplies,” Nov . 8, 2011, by Phil Drake, Montana Watchdog

2 Essmann wants nonprofits checked out to ease taxpayer burden,” Sept . 19, 2012, by Phil Drake, Montana Watchdog

3 “Montana’s Hospitals: Issues and facts related to the charitable purposes of our hospitals and the protection of Montana’s consumers,” Aug . 16, 2012, prepared for Attorney General Steve Bullock

4 “Study says state board not ready to take reins in horse racing,” Aug . 21, 2012, by Phil Drake, Montana Watchdog

5 “MERLIN auto license system now working its magic, audit panel told,” June 22, 2012, by Phil Drake, Montana Watchdog

6 “Department of Commerce, for the two fiscal years ended June 30, 2011” January 2012 Legislative Audit Division

7 “Montana State Veterans’ Home, Department of Public Health and Human Services” June 2012 Legislative Audit Division

8 “Mine Safety Inspection and Training Programs, Department of Labor and Industry” January 2012 Legislative Audit Division

9 “Department of Labor and Industry, for the two fiscal years ended June 30, 2011” October 2011 Legislative Audit Division .

10 “Growing number of state laptops sparks concerns over security,” Feb . 14, 2012, by Phil Drake, Montana Watchdog

11 “Montana Department of Transportation, for the two fiscal years ended June 30, 2011” October 2011 Legislative Audit Division

12 Combined Healthcare Information and Montana Eligibility System for Medicaid, Department of Public Health and Human Services” February 2011 Legislative Audit Division .


caLLS To GoVErnMEnT abuSE hoTLInE IncrEaSECalls to the state-run hotline reporting alleged government fraud, waste, and abuse are coming in at a quicker pace than a year ago, a Feb. 8, 2012, report to the Legis-lative Audit Committee revealed.The Legislative Audit Division received 24 reports to its hotline in Fiscal Year 2011, with one of those calls referred to the Department of Justice, a state panel was told. Within the first six months of FY 2012, the hotline had received 33 reports.1 The hotline (1-800-222-4446 or, in Helena, 444-4446) receives reports of fraud, waste and abuse of state government resources. It also receives tips on possible penal violations that include reports of theft or other violations of the criminal code.The hotline enables state employees and the public to report alleged fraud, theft and other illegal activities by state employees, departments and agencies. Improper gov-ernmental activities include corruption, bribery, misuse of state property or time, incompetence, inefficiency and gross misconduct.Calls included claims of misuse such as sick leave, state vehicles, state equipment, state benefits, and difficulty in contacting agencies for services.It also included complaints of state employees with criminal records, unprofessional conduct and problems with contracts.Legislative Auditor Tori Hunthausen told the committee the complaints are treated as allegations until the audit work substantiates the claims. Letters are also sent to department heads and they are required to follow up with the audit division.In FY 2012, the 33 reports involved 11 agencies. The hotline has received 17 letters or contacts with agencies and 13 of the letters have been forwarded to staff, Debo-rah F. Butler, legal counsel for the audit division, said.Those calls included three in which hiring practices were questioned, nepotism at two agencies, misuse of leave at two agencies, conflicts of interest and complaints regarding the bidding process.In FY 2011 there were 50 reports of alleged penal violations, 12 agencies were impacted; $10,000 stolen, 17 computers or mobile devices, missing drugs and one agency reported a theft directly to the Department of Justice.From July 1 through Dec. 31, 2012 there were 36 reports that affected eight agen-cies. Nearly $2,600 in cash was stolen, 16 computers or mobile devices stolen, two stolen firearms and one vehicle was swiped.The hotline number is 1-800-222-4446 or, in Helena, 444-4446 or e-mail at [email protected] out the state’s website regarding the hotline at http://leg.mt.gov/css/audit/Fraud%20Hotline/fraud_hotline.asp

1 “Calls to state fraud, waste & abuse hotline increase, lawmakers told” By Phil Drake, Montana Watchdog, Feb . 21, 2012


concLuSIon:

As our little book of tales illustrates, our leaders made some progress in identifying ways to limit state government’s growth and encourage eco-

nomic development and job creation during the 2011 legislature; but we’ve got a long way to go in 2013. The boom years brought in enormous revenues that the folks in Helena stuffed into our baseline budget but that we simply can no longer afford. Now, just like a lot of Montana families, we may have money in the bank but our bills far outstrip our checking account and future earning potential. We have to get beyond fairytales and wishing and make some adult decisions. Montana state government simply must get a handle on spending or the pri-vate sector and job creators will continue to get squeezed out. The inevitable result is the downward spiral that so many other states and countries have seen since the boom ran into bust. There are models for failure and models for success out there. We can and must decide which of them to follow…and soon.We need to reevaluate current spending, but the real danger lies in future liabilities: things like pensions and entitlements. If we’re going to keep the promises that we’ve made to our employees and to our society we simply must address these out-of-balance accounts now. If we act today, we won’t have to harm retirees or cut needed programs like Medicaid that impact those among us who most need help. But instead of shoring up those pro-grams we’ve seen the politicians and special interests hand out goodies to their friends and themselves as if the day of reckoning would never arrive. That simply has to stop if we want to return the legacy of opportunity that has been Montana’s birthright for so many generations.We hope that you’ve enjoyed reading Pig Tales and that you’ve gathered some useful information from our little project. We also hope that you’ll use the information in this book to advocate for more responsible, sustainable, and fair decisions in Helena. Remember, fairness isn’t everybody getting the same thing; it’s everybody having the same opportunities. And happiness doesn’t come from getting someone else to give you stuff. It comes from the satisfac-tion and pride that can only be earned through hard work and success. That’s the environment most Montanans grew up with, and we can get it back. There may not be any fairytale endings. That’s why they’re called fairytales. But we can live happily ever after. We just have to earn and protect our right to pursue happiness, and respect everybody else’s right to do the same. Gov-ernment’s job is to guarantee that right, not to grant it. The sooner we get back to that basic principle the sooner we’ll see opportunity and prosperity return to our great Treasure State.


dId you LIkE ThIS STudy? hErE’S hoW To hELPThis study was produced by the Montana Policy Institute, which relies solely on the generosity of those who share our commitment to freedom. MPI does not accept any government funding.Because MPI is a tax-exempt organization under section 501(c)(3) of the Internal Revenue Code, U.S. citizens will find their contributions to be tax-deductible to the extent allowable by law.Contributors to MPI will be supporting the only free market think tank in Montana, dedicated solely to providing policy solutions that promote the liberty, prosperity, and quality of life for all Montanans.Send a donation by mailing a check to:

Montana Policy Institute67 W. Kagy Blvd, Ste. BBozeman, MT 59715

Or go to www.montanapolicy.org and contribute online using our secure online contribution form. It’s safe and only takes minutes to complete.Or, contact MPI at: [email protected] or call (406) 219-0508.

The Montana Policy InstituteThe Montana Policy Institute is a nonprofit, nonpartisan research institute dedicated to the principles of individual liberty, the free market and limited government. MPI is a free market think tank focused on Montana issues and Montana solutions. It is a tax exempt 501(c)(3) nonprofit corporation that provides information and ideas to Montana citizens and policymakers. MPI’s goal is to become the premier resource for free market, individual freedom educational and informational products.

other Works by MPI When visiting www.montanapolicy.org, be sure to check out OpenGovMT.org. It features a government transparency website that includes a public employee salary explorer and transparency in Montana Schools. MPI had to go to court to get the state to release public employee salary information. MPI has also produced studies on how minimum wage increases impact teen employment, Montana’s business friendly cities study, urban transit, global warming, Bill of Rights, property rights forum, cap and trade and government budget.Reading this report is not complete until you check out the “Pigliography” posted at www.montanapolicy.org. It lists more than 100 studies and other resources used to produce “Pig Tales: Wasted Treasure in the Treasure State.” Also, we offer tools to help you become a citizen journalist. It’s free – and just a mouse click away. A special thanks to Brian O’Leary for his help with this report.

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