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The 2013 Legislative Docket

By:

Carl Graham, CEO, Montana Policy Institute

With the 2013 legislative session about to begin I thought it might be useful to highlight some of the important issues we could see coming out of Helena over the next few months. Montana is fairly unique in that we still enjoy a true citizen legislature and, regardless of what we may think of some them individually or even in their various groupings, our legislators represent one of the last bastions of true public service, giving much more than they get out of the of process. We should thank them for that, even the ones with whom we disagree.

So, what are they going to be talking about? Well, much of what you’re going to hear in the media between now and next April will be spectacular examples of superfluous issues because that’s what makes news. The hard work and hard issues will be left to the back pages because, well, they’re hard. They’re hard to explain, hard to understand, and hard to get people excited about. But some of these issues will drive future Montanans’ ability to live, work and play here, and they deserve more than passing references on opinion pages or superficial treatment under spectacular headlines.

So let’s look at a few of them.

State Employee Pay: Montana’s public employees are not overpaid. In fact too many of them are underpaid. But they do enjoy benefit packages and job security that our private sector workers can only dream of. This simply isn’t sustainable. At some point private sector workers will see their state employee neighbors’ immunity from the business cycle as grossly unfair, especially when they’re making sacrifices to foot the bill. This is a tinder box that will only burn hotter the longer we add fuel without significant reform, especially in the area of pensions.

Public Pensions: Montana’s pension systems are underfunded to the tune of nearly $4 billion by the state’s accounting, and by closer to $10 billion using real-world accounting standards that wouldn’t land a private sector employer in jail. The state understates this liability by assuming, for example, a 7.75% return on investment while actual returns over the latest ten year period were under 5%. Everyone’s goal is, or should be, to preserve the promises we’ve made to our pensioners. But that outcome becomes less and less likely the longer we wait to reform the system in ways that make it both sustainable and fair to Montanan’s taxpayers.

Labor Reform: It’s not likely we’ll see much in this area because a GOP-led legislature and union-backed governor aren’t likely to find common ground. But if we care about growing jobs, it would be irresponsible to not demand a debate about our labor environment in at least two areas: right to work and minimum wage. Some simple facts form the parameters. First, we are surrounded by right to work states, and they are all outperforming us economically and demographically. Second, right to work states on average have lower unemployment rates, but also lower wages than states that compel union membership and/or dues. With those simple facts as givens, the remaining arguments mostly revolve around cause and effect and “fairness” issues that are inherently political. So our political leaders should be arguing them. Next, Montana’s minimum wage is significantly higher than the federal level even though our per capita income is among the lowest in the nation. It also increases automatically even with high unemployment rates. Labor is like any other good in that if you raise its price people will buy less of it. We should have a debate over whether we would rather force people, especially the young and poorly educated, onto the public dole or allow them the dignity of earning a living through the increased job opportunities that would be available at even the federal minimum wage level.

Natural Resource Development: Economic development in Montana means responsible natural resource development. It’s what we have, and it’s sustainable because it’s unique to the state. If you want Montana oil or coal or gold or wheat or recreation, you have to pay Montanans to get them. That’s not true of portable industries that can easily relocate. So while we should welcome all industries, we should also be lowering barriers, especially those that come from Washington D.C., that restrict the responsible development of what we have here in abundance.

Education Reform: Montana’s schools are good but have seen static performance at higher per pupil costs for two decades. We’re good at teaching our kids on average, but nobody’s average. Each kid deserves to be taught in a way that maximizes his or her potential, and our current one-size-fits all system simply doesn’t allow us to optimize educational outcomes for each of our kids. We need to catch up to the true education innovators around the country by providing more delivery options that address the needs and aspirations of each student, and not just accept that they do Okay on average.

What Should Government Do vs. What Can Government Do? Finally, in times of abundance it’s easy to say government should do something because government can do something. Political philosophy aside, that simply doesn’t work when taxpayers are struggling to make ends meet and can’t afford an ever expanding state. Just because government can do something doesn’t mean that it should. Whether for fiscal or philosophical or moral reasons, we as citizens will be forced to take more responsibility for our actions, for our livelihoods, and for our happiness as the math catches up and current spending levels become unsustainable. The sooner our public servants in Helena acknowledge that fact and begin to grapple with its implications the easier their decisions will be, and the better our lives will be.

The Montana Economy: How Will Climate Change Legislation Impact Economic and Job Growth Study (2010)

BOTTOM LINE UP FRONT:

Montana has fared relatively better in the current recession compared to other states. If climate policy bills like Waxman/Markey (H.R. 2454) or Kerry/Boxer (S. 1733) are enacted, economic recovery from the current recession will be impeded as business and households face rising energy prices. In the longer term, Montana’s real GDP, employment, industrial output, state budget revenues and household income will fall relative to the baseline forecast. As state policymakers consider legislation to reduce U. S. GHG emissions, they need to consider that the cost of reducing emissions is likely to exert significant drag on the state’s economy.

 

Congress is now debating far-reaching energy legislation that would impose an aggressive “cap-and-trade” system on greenhouse gas emissions (GHG) and mandate high levels of energy efficiency and renewable energy.

o Cap-and-trade is a regulatory system for mandating increasingly lower emissions of GHG. Regulated entities must purchase emission allowances from the government for each ton of GHG emitted. Unused emission allowances can be bought or sold (“traded”) by any person.

o The U.S. House of Representatives’ bill, known as Waxman-Markey, and the Senate version, known as Kerry-Boxer, would cap GHGs beginning in 2012 and become increasingly aggressive, requiring as much as a 20 percent reduction of 2005 levels in 2020 and, finally, an 83 percent reduction in 2050.

o Energy efficiency provisions would impose “energy saving mandates” across all sectors of the economy.

o Renewable Portfolio Standards (RPS) proposed in the legislation would dictate that states generate 20 percent of their electricity from renewable sources by 2030.

 

Despite the current recession, Montana has seen employment gains that have fared the state better than the U.S. as a whole. However, if pending federal energy legislation is enacted, Montana will face a declining economy and increasing unemployment.

o Montana’s employment, gross state product, industrial output, state budget revenues and household income will fall.

o Employment: By 2030, as emission reduction targets tighten and the free allocation of permits and generous carbon offsets phase out, Montana would stand to lose between 4,964 and 6,761 jobs. The primary cause is lower industrial output due to higher energy prices, the high cost of complying with required emissions cuts and greater competition from overseas manufacturers with less stringent emissions requirements.

o Gross State Product: Higher energy prices, fewer jobs and loss of industrial output are estimated to reduce Montana’s GSP by as much as $900 million to $1.2 billion in 2030.

o Industrial Output: Montana is likely to experience a decrease in manufacturing output. Overall manufacturing output declines by 5.1 percent in the low-cost case and by 5.8 percent in the high-cost case. Two important energy-intensive sectors, nonmetallic mineral product manufacturing and primary metal manufacturing, would fall considerably, declining by up to 24 percent in 2030. Coal production would fall by 94 to 96 percent.

o State Budget Revenues: Since Montana typically receives about 10 cents of every dollar of income generated in the state, projected declines in GSP would result in a $49 to $65 million reduction in state tax revenues. Paired with higher energy prices, this will reduce state budget receipts and force Montana policymakers to make hard choices about how to fund basic services, such as law enforcement and schools.

o Household Income: Disposable income would fall by an average of $414 to $764 in 2030. Low-income families and the elderly, who spend a disproportionate amount of their income on energy, will be especially hurt.

Montana’s economy has benefited from growth in mining and related industries, enabling the state to fare better in the current economic climate. Mining, however, is particularly vulnerable to adverse impacts from federal climate change bills.

o The Montana economy actually grew in 2008—at a rate of 1.8 percent — compared to the U.S. economy, which only grew at a rate of 0.7 percent in 2008. Employment also grew in Montana at a rate of 1.7 percent in 2008.

o Montana’s real per capita GSP grew 25 percent in the last decade, five percent more than the national growth in that period.

o In the past 10 years, employment in Montana’s mining industry grew by 68.4 percent – that is nearly double the growth of the mining industry in the United States over the same time period.

o According to a study by commissioned by the National Mining Association, the mining industry contributed 16,220 jobs and $3 billion to the state’s economy in 2007.

o Montana is a substantial oil producing state and is responsible for nearly two percent of U.S. production. According to a 2009 study by PricewaterhouseCoopers, the oil and natural gas industry supported 34,210 jobs and contributed $3.3 billion to the Montana economy in 2007.

 

Multiple economic analyses show that these federal energy bills would increase the price of electricity, gasoline and natural gas. Consequently, economic productivity, employment and household income would decline.

o To meet the stringent emissions targets of Waxman-Markey, electric companies would have to substitute high-cost technologies for conventional generation, increasing prices for Montana families and businesses.

o Energy prices in Montana, a state which now depends on coal (the energy source most at risk under mandatory greenhouse gas emission caps) for 63 percent of electricity generation, would rise higher than many other states.

o By 2030 the price of gasoline would increase by as much as 27 percent, electricity up to 61 percent and natural gas up to 78 percent.

o Faced with skyrocketing energy costs, decreasing production and greater competition from overseas manufacturers without these pressures, Montana businesses will have no choice but to cut thousands of jobs.

o Montana’s 967 schools and universities and 65 hospitals will likely experience a 18.1 percent to 27.9 percent increase in energy expenditures by 2030. For government entities, costs for services, including public transportation and vehicle fleets, such as school buses, would also rise.

o Montana’s current relatively favorable electricity prices are an important factor in the state’s ability to keep business costs low and thus, attract new sources of employment.

 

At a time when margins are running thin on family budgets, the average Montana family will experience higher energy costs, leaving less income to be spent on other necessities.

o The average Montana family would see their home energy costs go up 61 percent by 2030.

o The ripple effect of higher energy prices would impose a financial hardship on Montana households with disposable income being reduced by $414 to $764 in 2030.

o Because they spend a greater share of their income on energy costs, low-income families, including elderly residents on fixed incomes, will suffer disproportionately from the effects of this legislation.

We all want a clean environment. Most of us live in Montana because we love our Big Sky and the beautiful land beneath it. But those shrill voices demanding that we trade our economic well being for a clean environment are trying to drive us into a false choice. Exporting our jobs to cheap overseas labor and our energy production to dirty overseas power plants will not help the environment or reduce greenhouse gases. There are alternatives to cap-and-trade, and a politician’s willingness to look at them can be a litmus test indicating whose interests he or she is really serving.

 

 

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 will result in the greatest common good. To find out more or for copies of the complete Cap-and-Trade 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 authors, the American Council for Capital Formation, and the Montana Policy Institute.

Copyright © 2010

The Montana Policy Institute

67 West Kagy Blvd., STE. B

Bozeman, MT 59715

406-219-0508

www.montanapolicy.org

 

Click here for full study.

Cap-and-Trade Would Cut Thousands of Montana Jobs

Bozeman, Mont. — If pending federal climate change legislation is enacted, Montana would stand to lose between 4,964 and 6,761 jobs by 2030, according to a study released today by the Montana Policy Institute (MPI) and the American Council for Capital Formation (ACCF).

The primary cause of job losses is lower industrial output due to higher energy prices, the high cost of complying with emissions cuts required by the legislation, and greater competition from overseas manufacturers. Among the hardest hit would be manufacturing jobs.

“As Congress considers far-reaching energy legislation that would impose an aggressive ‘cap-and-trade’ system, it’s important for us to examine what this means for Montana families and businesses,” said Carl Graham, president of the MPI. “It’s clear from these findings that the impact would be devastating for our economy – slashing jobs and reversing all the progress we’ve made, especially in the development of our state’s natural resources.”

The economic impact of this legislation on Montana is not isolated to jobs.

• By 2030, the average Montana family can expect the price of electricity to increase by up to 61 percent, gasoline 27 percent and natural gas 78 percent. Low income families and the elderly, who spend a disproportionate amount of their income on energy, will be especially hurt. Disposable income in Montana would fall by $414 to $764 in 2030.

• Under this legislation, Montana would experience a sharp decrease in manufacturing output, especially in nonmetallic mineral product manufacturing and primary metal manufacturing, important sectors for the Montana economy. The higher energy prices, fewer jobs and loss of industrial output under this legislation are estimated to reduce Montana’s gross state product (GSP) by as much as $900 million to $1.2 billion in 2030.

• State tax revenues would be reduced by as much as $65 million by 2030, forcing Montana policymakers to make hard choices about how to fund basic services, such as law enforcement, hospitals and schools.

Despite the current recession, recent employment figures demonstrate a promising trend. In the past ten years, employment in the Montana mining industry has grown 68.4 percent. In 2008, while the U.S. unemployment rate rose, Montana’s employment grew at a rate of 1.7 percent, and our state’s economy grew at a rate of 1.8 percent. If pending energy legislation were enacted, this continued growth would be impossible.

“Previous research about the impacts of this legislation on the national level found significant loss to gross domestic product. Montana, a state whose economy is tied to manufacturing and energy development, is particularly vulnerable to adverse impacts from this federal energy legislation,” said Margo Thorning, Ph.D., senior vice president and chief economist of the ACCF, who recently testified on Capitol Hill. “If pending federal energy legislation is enacted, the Montana economy will significantly decline and thousands of jobs will be lost.”

About the Study

The ACCF and the National Association of Manufacturers (NAM) recently conducted a macroeconomic study examining the impacts of this legislation on the U.S. economy. This study is a deeper examination of those initial findings specific to Montana. This analysis was undertaken using a version of the National Energy Modeling System (NEMS), the same tool used by the United States Energy Information Administration for its energy forecasting and policy analysis.

The study authors also explored both high- and low-cost scenarios to account for a wide range of assumptions regarding the likely cost and availability of new technologies, energy efficiency and renewable electricity standards, and domestic and international offsets.

This research examines the impact of H.R. 2454, known as Waxman-Markey, on Montana’s economy. Because the Senate version, (S. 1733) known as Kerry-Boxer, requires further emissions reductions, the economic impacts addressed in this research would be higher if that legislation were enacted.

This study is a joint project of the Montana Policy Institute (MPI) and the American Council for Capital Formation (ACCF).

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ACCF is a Washington, D.C.-based group which provides sound research to U.S. and international policymakers, the media and public. ACCF advocates for economic, regulatory and environmental policies that promote capital formation, economic growth and a higher standard of living for all.

The Montana Policy Institute is a nonpartisan policy research organization that equips Montana citizens and decision makers to better evaluate state public policy options from the perspective of free markets, limited government, individual rights and individual responsibility. To find out more visit us on the web at www.montanapolicy.org.

Contact:

Carl Graham

President

Montana Policy Institute

Phone : (406) 219-0508 Montana Policy Institute

67 W Kagy Blvd Ste. B

Bozeman, MT 59715

info@montanapolicy.org

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