Montana Pig Tales

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

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

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

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

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

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

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

By Curt Nichols, MPI Fellow

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

Executive Summary

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

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

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

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

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

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

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

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

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

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

MPI Policy Note: Budgeting For ResultsA Fiscal Roadmap For Montana

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

 BOTTOM LINE UP FRONT:

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

There is a structural deficit in the state budget.

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

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

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

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

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

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

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

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

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

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

 

Copyright © 2012

 

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

 

2010 Pork Report

2010 analysis of big government and big spending in Montana. 2012 Pork Report to be presented at the Montana Policy Institute’s 3rd Biennial Legislative Forum, November 16-17, 2012 in Helena.

 

 

 

 

 

 

 

 

 

 

2010 Pork Report

Budgeting for Results: A Fiscal Roadmap for Montana Study (2010)

Budgeting for Results: A Fiscal Roadmap for Montana Policy Note (2010)

For Full Study: Budgeting_for Results_Full_Study 2010

Montana Taxpayer Bill of Rights (2008)

The following links examine how Montana would benefit from a more effective tax and expenditure limit. MPI is advocating policies that would: 1) limit the growth in state spending to the growth of population plus inflation, 2) ensure surplus revenue above this amount is invested in emergency and budget stabilization funds or returned to taxpayers, and 3) require voter approval for tax increases or any weakening of the amendment’s limits.

MT Taxpayer Bill of Rights 2008 MPI Policy Note

For Full TABOR Study: Montana TABOR Full Study 2008