Schweitzer’s Budget Director Disputes State Debt Assessment

By Beacon Staff

A national news organization examining the states most likely to go bankrupt ranks Montana 11th, an assessment starkly at odds with the increasingly optimistic budget picture painted by Gov. Brian Schweitzer.

The Daily Beast, a news and opinion website merging with Newsweek magazine, recently published its list of states with the “deepest debt – and it isn’t who you think.” <a href="http://www.thedailybeast.com/galleries/1740/1/" title="According to the Beast, Montana’s budget is in worse shape than states with widely publicized problem”>According to the Beast, Montana’s budget is in worse shape than states with widely publicized problems, like California, Arizona and New York.

Upon examining the basis for Montana’s poor ranking on the list, however, David Ewer, Schweitzer’s budget director, blasted the Beast’s analysis.

“What I’m seeing here is grossly simplistic and it’s very misleading,” Ewer said. “I can’t take this seriously.”

Montana’s real budget pinch, facing an $80 million shortfall in 2012, is accurately reflected in the story. But its methodology is based on a ratio of debt to gross domestic product, with a high ratio indicating big debt problems. According to the Beast, Montana’s 2009 debt was $4.8 billion, with a GDP of $40 billion, putting its debt-to-GDP ratio at 13.25 percent. Ewer said the GDP figure was roughly accurate, but was shocked that the story asserts Montana has $4.8 billion in debt.

“Our general obligation debt is nowhere near that,” Ewer said. “Clearly, the authors are making no distinctions that there are all different kinds of debt.”

“Debt-to-GDP, that makes no sense to me,” he added. “What has that got to do with anything, as far as the state’s GDP?”

Though the story doesn’t make clear how it assesses a state’s debt, Ewer speculated that the only way it could come up with a number so high is by attributing every kind of bond issued through the state, to the state government of Montana: from student loans to bonds financing a new stadium at Montana State University. The crucial difference, according to Ewer, is that taxpayers aren’t obligated to pay off such bonds, so including them as a measure of Montana’s debt misleads.

“A student loan debt is not the same as a general obligation bond,” Ewer said. “That’s not going to factor into any kind of shortfall on state resources.”

He consulted Montana’s Comprehensive Annual Financial Report, which put the state’s general obligation bond debt at $169 million as of June 30. It also had $176 million in special revenue bonds, which have specific sources of revenue, like user fees, behind them. Other bonds, like $876 million in housing authority outstanding debt for a first-time homebuyers’ incentive program, are another example of bonds on Montana’s books for which there is no recourse to the state.

“What is Montana really, directly on the hook for?” Ewer said. “It’s 4 percent of what they’re talking about.”

“Nobody called me up and asked me about a methodology on this, because I would offer them a primer on debt,” Ewer added.

Another factor the Beast story weighed in its tally was the states’ unfunded pension liabilities, putting Montana at $1.5 billion, and its “Unfunded Health Care and Other Liabilities” at $632 million. Ewer said the pension number is accurate, but takes issue with the second number, which attempts to put a value on the state’s obligation to health care costs for state employees, including retirees, as is required by the Government Accounting Standards Board.

“I’ve seen others use this number as if it was a real deal,” Ewer said. “It’s not a true contingent liability, but we have to show it.”

Ewer also pointed out that he is mentioned in the story as calling for public employee pay freezes, while the governor’s budget currently calls for public employee raises.

“They ripped it off some comment I made 10 months ago,” Ewer said. “This is not exactly in real time, is it?”

He went on to say his office has increased its revenue outlook for Montana, that the state currently has, “$376 million, in cash, in the bank today,” and that its bond ratings, “have never been higher.” Many of the states ranked on the Beast list as having some of the worst debt, he said, hold the highest possible credit ratings from agencies like Moody’s and Standard & Poor’s.

The Beast assessment of Montana’s fiscal health differs from other analyses of how it fares when stacked up against the rest of the nation. According to a Jan. 21 report by the Center on Budget and Policy Priorities, which is cited by The New York Times, Montana’s $80 million shortfall, as a percent of its 2011 budget, is the third smallest in the nation, among the 44 state governments facing shortfalls next year.

Ewer confessed to being unfamiliar with The Daily Beast, and doesn’t know whether it’s a left- or right-leaning news source, but he disagrees with its assessment of Montana’s fiscal health: “Left or right, they don’t know much about public finance.”

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