Now that Gov. Brian Schweitzer's budget has been out for a few weeks, the analysis by the Legislature's Fiscal Division, individual legislators and affected parties is starting to paint a different picture than the one presented by the governor. One item that has attracted a growing amount of attention is Schweitzer's plan to roll $18.5 million from the Treasure State Endowment Program (TSEP) into the general fund where it can be spent for any purposes of state government. Only problem is, that money was never intended to go to the general fund and Schweitzer's move to create the illusion of a balanced budget is simply stealing the treasure from the Treasure State Endowment.
To understand the TSEP one needs to understand the Coal Tax Trust Fund, which was established by the Montana Constitution way back in 1972. Section 5 of Article IX, under Environment and Natural Resources, requires that "the legislature shall dedicate not less than one-fourth of the coal severance tax to a trust fund, the interest and income from which may be appropriated. The principal of the trust shall forever remain inviolate unless appropriated by vote of three-fourths of the members of each house. After December 31, 1979, at least fifty percent of the severance tax shall be dedicated to the trust fund."
The reasoning of those who drafted the constitution was, once again, far-sighted and based in Montana's real-world experience with large resource extraction industries—primarily The Anaconda Company. With a giant rush to massively expand Montana's coal production back then, the drafters knew that unless they put something away—and made it almost impossible to get at—that there would be nothing left for the future but a hole where the coal used to be.
The requirement of a three-fourths vote of each house of the legislature has served well as the guardian of the trust, despite efforts to "bust the trust" that have rolled through legislatures almost since its inception. Those efforts, which have been primarily launched by Republicans, include a litany of reasons including, "It's a rainy day fund and it's raining," "The future is now," and similar lines that basically say, "Let the future fend for itself." But in spite of numerous close calls, the corpus of the trust remains intact and serves as the state's financial backbone...hundreds of millions of dollars to ensure whatever bonds the state may issue will likely be repaid.
Back in 1991, Rep. Hal Harper, D-Helena, then Speaker of the House, sponsored the bill that established the Treasure State Endowment. The logic was fairly straightforward: Local governments across the state were facing serious problems from aging infrastructure and were seeking financial assistance from somewhere other than raising property taxes. The TSEP, while not ripping off the principal of the Coal Tax Trust, diverted some of the incoming revenues to a "trust within a trust" and dedicated the interest earned on the new trust to helping local governments deal with expensive infrastructure repair and replacement without loading new tax burdens on residents.
Over the years the principal of the TSEP trust has grown, producing the $18.5 million in interest that Schweitzer wants to divert to the general fund in 2011. The governor has rather disingenuously declared that people have "earmark fatigue" as his reason for diverting those funds, but earmarks have nothing to do with it. The way the program works, as Harper, his former chief policy advisor could have told him, is that local governments submit grant applications to TSEP, they are competitively ranked on a variety of criteria by the Department of Commerce, which administers the program, and the grants are then formalized and appropriated by the Legislature. No particular legislator can simply walk in and say, "Hey, I need some money for my district." No application means no chance of funding. So the governor's characterization of the program as "earmarks" is simply incorrect.
Ripping off the TSEP funds to create the illusion of a balanced budget is bad fiscal policy on a number of levels. First, all the local governments that invested time, money and energy in developing their grant applications, doing the engineering required and going through the ranking process will have poured their taxpayer's money down the drain. No TSEP funds to distribute means no grants for anyone, no matter how pressing the need or viable the projects.
Second, it sets a very bad precedent that future governors, or even Schweitzer in his next budget, can "rob Peter to pay Paul" instead of creating a truly balanced budget. Using one-time funds for ongoing operations of government has long been understood to be fiscally unsustainable and Schweitzer's budget does exactly that. The Montana Constitution requires a balanced state budget, but that generally means matching expenses to revenue, not fiscal sleight-of-hand with dedicated funding sources.
Finally, moving those funds, which are set aside by law for specific purposes of society, may be the "camel's nose under the tent" and lead to a rash of similar attempts in the future. Schweitzer has already proposed moving natural resource damage funds, which are intended to remediate past resource extraction, into the general fund to balance his budget. The obvious question is, "If those funds are gone, where will we get the money to fix the damages of the past?"
What actually occurs with this kind of hocus-pocus budgeting is that years of carefully crafted legislation is rendered useless and, ultimately, societal costs are simply shifted from the state to the backs of local taxpayers. It is not sustainable, it is not balanced, and it is not in the best long-term interest of the state and its citizens.
Interestingly, the last Democratic governor to try such a move was Ted Schwinden. In 1985 he targeted the interest from the Resource Indemnity Trust Fund for general government spending rather than cleaning up resource extraction pollution. Luckily, he failed. We can only hope that Schweitzer's attempt meets a similar fate.
Helena's George Ochenski rattles the cage of the political establishment as a political analyst for the Independent. Contact Ochenski at email@example.com.