Jan | Feb 2014




‘We’ve Got to Create Jobs’

By Mary Branham
Montana Gov. Brian Schweitzer, the 2011 president of The Council of State Governments, is in a unique position. His state is one of two in surplus, but even he sees challenges for his state in the coming years.
 
Many state policymakers will be looking at taxes, and in Montana, some legislators have talked about replacing the income tax with a sales tax. As a governor what do you see as a solution?
“Montana is one of four states that doesn’t have a sales tax and we like it that way. For anybody in the legislature that proposes a sales tax, I’ve got one message for them: ‘That dog ain’t gonna hunt in Montana.’ I don’t think it’s been within the last few decades that any new state has proposed and passed a sales tax. So we’re not going to do that in Montana. I’m in a unique position in Montana. I have proposed a budget to the legislature that actually decreases taxes. Some of largest tax decreases in the history of the state. I’m nearly eliminating the business equipment tax, which is a big part of our taxation system. I would eliminate the business equipment tax for 98.6 percent of all of the businesses in Montana and lower the property taxes that homeowners pay.”
How can you afford to do that?
“We can afford to do that in Montana because during the good years, of 2005, ’06 and ’07, when states, let’s face it, were awash in cash, other states were committing this tsunami of tax dollars into ongoing programs. We didn’t do that in Montana. We considered it one-time money. And so we used one-time money for one-time sorts of issues. I sent $400 to every homeowner in Montana. We said to the legislature, ‘we’re not going to allow you to bond anything. If we’re going to build then we’ll pay cash on the barrelhead because we have the money.’ And I demanded the largest ending fund balances in the history of the state. So the recession arrived, people wondered how it is that Montana is one of two states that are still in the black. Well it’s because we put the money in the bank with anticipation that it wouldn’t always be good times and so we’ve been drawing down on our savings account.
“So this budget I have just proposed includes the largest tax cuts in history, increasing funding for education and for health care and ending with one of the largest ending-fund balances in the history of the state. So tax cuts, maintaining services and still keeping money in the bank and it’s because we put money in the bank during the good times.
“The recession came to Montana. We have 7½ percent unemployment, which is not like the national average, but still, for Montana it’s high unemployment. And the government of Montana continues to run because we ran the state in much the same way as those of us who are children and grandchildren of the homesteaders in Montana, you know that not every year is a good year. The rain doesn’t come every year. The prices aren’t high every year and so when you have good years, you keep a little grain in the bin and that’s what we did in the state of Montana.”
Is the economy slowly coming back?
“Absolutely. The last five months, while our bean counters that operate in the basement of the capitol, they have models for determining what our revenues are likely to be in the future. They’re predicting, and have been predicting, something like a 2.75 percent increase in revenues, but for the last five months it’s been more like 11 and 12 percent. So they’ve been wrong before. In fact, they’re always wrong.
“The revenue forecasters by their very definition are going to be wrong. There’s no way they can hit the mark and legislators and governors need to recognize that. When you see a revenue projection that’s two, three and four years out, here’s one thing you know absolutely for sure: They are wrong. They are completely wrong. The reason I know that is because all you have to do is mark those predictions in time over the course of the last seven years and follow that two years later and you’ll find out that they’re wildly wrong. They’re wrong by hundreds of millions of dollars and my advice to legislators and governors all over America would be just hold them accountable. It’s like the weatherman. If you remembered exactly what it is they said the weather is going to be tomorrow by the time you got to tomorrow, we’d hang the weatherman.
“These revenue forecasters, not because they’re bad people, it’s just their models are always looking in the rearview mirror and they’re not considering things that are in the future. I think that all over this country—and that’s what Global Insight tells us, that’s what Moody tells us—the revenues are rebounding at a much faster rate than the models would predict.”
What do you see as the biggest challenge for your state and for the region?
“Continue to attract jobs. I think that any governor, any state legislator, they need to focus on what is really important. We are coming out of the Great Recession and the biggest concern that people have in Montana—and I can bet you it’s California and New York as well—is jobs. Even if they’ve got a job, they’re worried about keeping their job. Even if they’ve got a job, they’re worried about their kids’ jobs. If you’re a parent of kids who are graduating from college right now, I don’t need to tell you, your kid doesn’t have a job and they’re living in your basement. So we’ve got to get this country going again. We’ve got to create jobs, and higher paying jobs with benefits.”
One big development opportunity in the West is wind energy and other renewables? What are you doing in Montana with regard to those industries?
“When I was elected governor in 2005, Montana was producing less than 1 megawatt of electricity with wind power. My gosh, I think Rhode Island was producing more electricity from wind power than Montana. Rhode Island is not even a decent size ranch in Montana. We passed the renewable portfolio standard in 2005 and that said effectively that the regulated utilities in Montana must have 15 percent of their electricity portfolio as renewable by 2015. And literally within month, hundreds of millions of dollars began to be invested in Montana.
“Today we have 376 megawatts of electricity from wind power and by the end of next year, it will be 600 megawatts. More than a billion dollars has been invested in Montana’s economy building wind energy infrastructure. We are currently building the largest, longest merchant transmission line in the last 30 years in the western United States, runs from Great Falls Montana to Left Bridge Alberta and it will be to contain 600 megawatts of wind farm either pumping it into the Canadian grid, east and west, or pumping it into the American grid.
“So Montana, according to Harvard University, is second only to Texas in our capacity to produce electricity from wind. And, of course, I think Harvard’s got it wrong, because we all know if you took the baloney out of Texas, they’re smaller than Delaware.”
In your proposed biennial budget, you increased education spending. Why is that important?
“This is a competitive world. And Montana is no longer just competing with Indiana, we’re competing with India. Montana is no longer just competing with Colorado, we’re competing with China. For the emerging jobs we have in this country, we need good roads, we need good rail and we need good human infrastructure. Politicians talk about change. They’re always talking about change. Politicians don’t change the world. Engineers and innovation change the world. The reason the United States has been the pre-eminent power for the last 100 years in the world is because we’ve led in innovation. We’ve been the people who’ve said how come? Why not? What if? We’ve had those engineers and innovators who’ve been the marvel of the modern world. And if we lose that edge, if those third graders aren’t ahead of the third-graders in China, those engineers 25 years from now will not be ahead of the engineers in China. And if we lose our competitive innovative advantage, we will not be the first country in the world again.”
“So we’ll invest in education in Montana no matter what the economy is. We’ll pull back every place else but we’re going to continue to invest. I want young scientists—my wife and I are both scientists, and we hand out trading cards to third and fourth graders with energy facts of Montana. We’re going to propose that if you graduate from a Montana high school and go to a Montana college, all of your science and math classes are free, because we want parents of fourth-graders to say to them around the breakfast table how cool science is because if that parent knows that college can be free if they’re scientists, then they’ll be scientists, not lawyers. And I want the bumper sticker to say, ‘Montana is for engineers,’ the same way that Virginia says that ‘Virginia is for lovers.’ They can have the lovers, we’ll take the engineers.”
One big budget challenge states are facing is pensions. What’s the pension situation in Montana, and how are you addressing it?
“Since I was elected governor, I’ve put more one-time money in our pension fund, I was going to say than any other governor in history, but no one’s even come close. I have put more than $200 million in one-time money into our pension funds. We’ve changed the law that passed in 2001 that markedly decreased the contribution that the employee makes and was supposed to increase their payout, which was crazy. It made our system unsustainable. We got rid of that law. We put one-time money into our pension fund. We’re in better shape than many states but we still have problems. And markets go up and markets go down. We’ve now had 10 years of effectively a down market. We’ll catch up. But In the meantime I believe for new hires in Montana and other states, we’ve got to fundamentally change the compensation system so that it is long-term sustainable. Some have said we need to go away from the defined benefit plan but I’m not sure about that. But we may have to go to a system that the individual pays a little higher as a match to the state.”
Montana is rural state. What are some special challenges you face as a rural state?
“New York, Pennsylvania, and Ohio would all fit inside of Montana and we would still have room for two or three of those states in the Northeast that I haven’t committed to memory. We’re a big state with 950,000 people. Our challenge is Montana is distance, but our opportunity in Montana is distance.
“While we have some 500 school districts, some of which are one-room schoolhouses with half a dozen kids in it, we are now leading the entire nation in the digital divide because we are now piping classes from our universities into our classrooms all over Montana and we get dual credit. As most states, we have minimum requirements for graduation from high school for X number of classes of math and X of science and social studies and all the rest of it. But if you are a sophomore or junior or senior in high school and you are underchallenged, we now have the opportunity that you can be taking a university class as a sophomore in high school and beyond and that class will qualify for one of the course requirements for graduation from high school and you are already getting university credits. So we are now having Montana kids graduate from Montana high schools that are well into their freshman year at university. Decreases the cost of their university education, increases the challenge so that every … My goal in Montana is that every child can be challenged on their God-given talent, not by the constraints of classroom environment or the skills of that individual teacher. Some teachers have been challenged by this. They say, ‘my gosh this means that we’re going to be put out of business. We no longer need a teacher.’ No, no, no. We’re not suggesting that. What we’re suggesting is that in every classroom there’s a bell-shaped curve of the most talented and the least talented and the teacher by definition is forced to teach at the middle of that bell-shaped curve, leaving some of the students behind and not challenging some of the students on the other side.
“By piping some of the most talented teachers in the state and maybe all over the world into that classroom is a tool not unlike a PowerPoint or textbooks for that teacher so that they can challenge some of the most talented students and they can help some students that have some extra struggles.”
What have you done with broadband and how have you done it?
“I conducted a study because I’ve been hearing from some of the universities and some of the high schools that, ‘Oh the challenge we have is we don’t have enough bandwidth to stream these classes from the universities into our classrooms in our rural areas.’ What I found was that it wasn’t true. What I found is that we have bandwidth that gets to almost every school in Montana and it’s wide enough to deliver streaming video but then once it gets inside the school is where the problem is. In many cases, it’s that the school didn’t have a technologist there that fully understood what they needed to do to pipe that bandwidth throughout the classrooms. That it actually came to the front door of the school and then the inadequacy was in their own school. So we’re fixing that and I think a lot of America will find that same thing, that we do have those capabilities.”
What’s the biggest challenge you see in implementing health care reform?
“I know that there are significant challenges with the health care bill as proposed. Just to give a couple of examples. In 2014, every entity in every state, that have a certain number of employees is going to be required to maintain a health insurance program for them. We have more than 10,000 state employees, over half of them make less than $50,000. Currently, Montana allows people to be on Medicaid up to 50 percent of federal poverty. The new health care bill mandates that we take people up to 133 (percent). If you have a state employee with a spouse and a couple, three children, then the wages they are currently earning would qualify them for Medicaid so in 2014, I won’t be governor, but I would advise the next governor if it’s status quo that they could save the state of Montana $100 million by doing the following transaction: For all of those employees that would qualify on an income basis for Medicaid under the new health care law, I would pay the $2,000 fine, kick them over to Medicaid and the federal government would pay 95 percent of the cost of their health care. Montana’s Medicaid system actually is a better insurance policy than our state employees have currently now. Lower co-pays, more services, and so unless the federal government changes this health care bill they’re proposing, I can promise you, I would advise the state of Montana, pay the $2,000 fine, save some where around  $5,000 per employee, bank that money. Well, of course that’s not sustainable and that’s not what their intention was, but we as states we have to be reactive to what the federal government does. They deal the cards and then we play them as necessary, and the cards they’re dealt us are not great cards. In 2017, they’re saying to us this 95 percent match we’ve proposed for the first few years, goes away, we go back to the 65/35 or the 60/40, which in Montana, is one of two states in surplus, and without major change, it will bankrupt Montana, so you can imagine what it does to Arizona, California and Illinois.
“It cannot and it will not work the way it stands.”
You were a star of the 2008 Democratic National Convention. How has that helped your state?
“I think to some regard some of these CEOs of multi-national companies will take my calls, so when I call them and say Hey I’d like to stop in and visit, they say ah I heard of you before and they remind themselves that that was the guy that had that great speech and it gets me in the door. Once I’m in the door, I can start selling them on one of the most educated and motivated work forces on the planet with communities that are extraordinary. That Montana is still the greatest place on the planet to start and grow a business, to raise a family and to build a community. Those are the attributes that we have in Montana beyond our wealth of natural resources. The only supply of platinum and palladium in the western hemisphere. The best wind resources, 30 percent of the coal in America, 10 percent of the coal on the planet. Oil. Gas. Copper and gold. And the most extraordinary wild places and wildlife left on the planet. That gets me in the door to pitch them to bring a portion of their business plan to Montana. So whatever it takes to get them in the door, we’ll take it.
And have you been able to attract business?
“Absolutely, in fact. We continue to grow businesses in Montana. I do have some advice for other governors around the country: When they hear that I’m getting off an airplane in their state, they should have me arrested because I’m there to steal jobs from them and bring them back to Montana.”