Despite Montana's current economic prosperity, it becomes increasingly evident that adjoining states are poised to seize the large, industrial-scale projects that stimulate huge capital investment, generate high-paying jobs, and create a predictable tax base for state and local governments.
Two University of Montana business professors, Jack Morton and Michael Harrington, analyzed Montana's business and legal climate and contrasted it to adjoining states, and the results, published in the spring 2006 issue of the Montana Business Quarterly, were telling.
Montana's workers' compensation premiums, for example, were ranked eighth highest in the nation, while Idaho ranked 34th and North Dakota was the lowest in the country. The report says, "Respondents expressed fear that our relatively high workers' compensation rates will encourage existing businesses to leave and discourage other businesses from moving to Montana."
The report also cites Montana's wrongful discharge environment as the most onerous in the country. Courts are granted the discretion of reviewing whether an employer had "good cause" in terminating an employee, placing a unique burden on Montana businesses that does not encumber businesses in other states. It is a trial lawyer's dream come true, but it is a deterrent to corporate investment.
Constitutional protection for the environment creates a double layer of review in Montana, according to Morton and Harrington, resulting in slower approval for new projects. The report states: "There is the significant likelihood that any major project will have to wait while the Montana Supreme Court determines whether the statutory and regulatory requirements themselves meet the standards of the Montana Constitution. A business faced with a relocation decision may be inclined to avoid the few states, including Montana, which provide that double layer of review."
The Morton and Harrington report evoked a salvo of criticism from those who would like us to believe Montana's business climate is rosy. But the report was vindicated by John Connors, who was quoted in the April 2 Great Falls Tribune. Connors, a Miles City native, was the chief financial officer at Microsoft and is now partner in a Bellevue, Wash., venture capital firm. That means he makes decisions on where to invest business capital and from where to stay away.
Connors said: "In relation to the Dakotas and Wyoming, Montana is very, very far behind in terms of energy development. Right now, Montana is pretty darn unpredictable. The tax situation is high. The environmental hurdles are legendary."
Let's put money where the mouths are. Last month, MidAmerican Energy Holdings, part of Warren Buffett's Berkshire Hathaway empire, announced it purchased 8,500 acres in Johnson County, Wyo., and plans to launch a number of energy projects, including a possible "super-critical" pulverized coal-fired power plant and coal gasification process. These are multibillion-dollar — that's billion with a "b" as in BIG — construction projects.
Good business climate
David Sokol, CEO of MidAmerican, was quoted in the Casper Star-Tribune crediting Wyoming Gov. Dave Freudenthal as being "very, very effective in both making Wyoming a good place to do business with any of its natural resources, and holding people to a higher standard in environmental protection. That's a good environment to do business in."
Contrast Sokol's comments with Montana's situation. Environmental groups are using Montana's onerous procedural laws and constitution to block a proposed power plant in Great Falls. Final permit approval ultimately falls to the Board of Environmental Review, made up, in part, of people with known ties to the very environmental group challenging the permit.
The Board of Environmental Review is reviewing proposed rules for mercury emissions that are significantly more stringent than federal standards and that power plants may not even be able to comply with. If it requires a few more years and a few million more dollars to build a plant in Montana than it does Wyoming, it doesn't take a venture capital wizard to figure out where the money will flow — and where the jobs and tax base will end up.
This next legislative session will determine whether Montana is a contender or a pretender. Meanwhile, investors all over the world are watching every move Buffett makes, hoping to cash in on his uncanny insights. And right now, the smart money in energy development is clearly looking to Wyoming.
Cary Hegreberg is executive director of the Montana Contractors' Association. His e-mail is email@example.com.