By John Seiler | For Watchdog.org
HELENA — Eastern Montana is enjoying an oil boom that’s lifting the state economy. The liquid gold is filling state coffers with real gold.
But the problem with booms is they turn into busts, as the recent national real-estate boom and bust showed. That’s especially true of commodity booms. Texas boomed in the 1970s, with Cadillac Eldorados sporting longhorn hood ornaments and bumper stickers reading, “Let the Yankees Freeze in the Dark.” The crash hit hard 1981, when oil prices leveled off and parts of Houston looked like ghost towns.
Texas then decided to make a priority of diversifying its economy with a pro-business attitude of low taxes and reasonable regulations. No wonder it created 40 percent of new jobs in America from 2009 to 2011, and not just in the energy industry.
For Montana, The Associated Press news service just reported, “BILLINGS, Mont. — Oil drilling and high prices for crops and livestock are boosting the economy in rural eastern Montana while urban areas to the west are lagging, University of Montana economists reported Tuesday.
“The state’s overall rebound from the Great Recession has been helped by an improving job market, investment in energy development, and strong income growth, according to the mid-year economic outlook from the university’s Bureau of Business and Economic Research.
“However, the rebound in worker earnings has been slower than previously forecast, and economic indicators point to a sharp disparity between the eastern and western regions of the state.”
Indeed, the western region may be a more accurate reading of the real state of the Montana economy on the day the energy gusher stops. Montana’s overall unemployment rate in June was 6.3 percent. That was almost 2 percentage points below the U.S. rate of 8.2 percent in June. In July, the national number was 8.3 percent.
Warnings for the state also come from the 5th edition of “Rich States, Poor States,” a study by the American Legislative Exchange Council comparing all 50 states. It looked at 15 factors, such as tax rates, regulatory burden, debt ratio and the number of public employees.
Commendably, Montana ranked third in economic growth, below Wyoming and Texas. But that was because of the energy boom.
Not so commendably, Montana ranked 36th in overall economic outlook. That’s down from its ranking of 30th in 2009. So the state is regressing. Basically, that’s the rank you live with if you’re not in the energy business.
The worst areas, ranking 50th of the states, were average worker compensation costs, which are $3.33 per $100 of payroll. And Montana also is not a right-to-work state, meaning workers cannot opt out of joining a union, if collective bargaining is voted in.
The state also ranked 43rd on the state liability system survey for “tort litigation treatment, judicial impartiality.” It was 38th in the ratio of public employees, at 589.9 per 10,000 population. Put another way, that’s six public employees per 100 Montanans, including children. And it was 36th in property tax burden, which is $37.73 per $1,000 of personal income.
On the positive side, Montana still has no sales or state inheritance taxes. Taxes have been cut recently. And debt service as a share of tax revenue was 6.7 percent, 10th best among the states.
Montana’s rank of 36th on the ALEC survey is right around that of sickly California, ranked 38th, with an unemployment rate 10.7 percent.
In sum, Montana is like Gen. George Armstrong Custer riding into battle, assuming all will go well. But will the eventual stalling of the oil boom be its Sitting Bull?