Governor's Remarks to the Western Coal Council

Thank you for allowing me to join you this morning to discuss the activity that, we believe, could bring a most significant economic impact to our State in the near term --- new coal development.

Opening new areas in Montana to the development of coal has been publicly debated for longer than 20 years. It is a debate that, on one hand, sees encouragement of development of this God-given resource for the benefit of those who live in this special part of our nation, as well as all Americans who believe we should do all we practically can to clean up the air we breathe.

On the other hand, concerns have been presented that involve values that are and always have been important to Montana.

Technology and a general agreement by industry that development must and can occur in conformity with expectations about good land stewardship allows us to live in a new time where we can enjoy the benefits of a vibrant economy and still preserve the values that we cherish as Montanans. These values rise from a shared reliance on a landscape that not only feeds our bodies but our souls as well.

Our interest in coal development is focused on the potentials it brings to Montanans. Foremost in our minds is the possibility that more Montanans will be able to work at jobs capable of supporting families in a place where they want to live.

We believe earnestly that there is nothing more noble than creating a job for someone that will allow them to lead self-sufficient lives and support their families.

In 1949, Montana enjoyed the highest income per capita in the nation.

Since that time, there has been a steady decline in the relative earnings generated by Montanans compared to people in the the rest of the states because of a movement away from jobs based on the extraction of our natural resources - timber and mining - and toward those in the service and trade sectors.

Our state now ranks 46th in personal income and 43rd in percent change in personal income, meaning we are not holding our own.

Montana’s population grew 10 percent per year since 1990 - greater than the national average of 7.6 percent. But, our median age is 36.5 years versus the national average of 34.6. That confirms something we all know, that we are not keeping our young people at home.

Expansion of our coal industry brings with it our best paying jobs. Our 1997 average weekly (non-ag) earnings were $352 compared to coal mining at $871. And the derivative effects of new mining jobs, the spinoffs, will bring further job possibilities to other Montana workers.

We fully understand that government does not create jobs. In fact, with the exception of our education system - we have seen positions in Montana State government decline over the last five years. We do rise - every day - to the challenges of helping create a business climate here in Montana - that will encourage the kind of risk taking and investment in commercial enterprises that will lead to new, good paying jobs.

Since we began our service to the people of Montana nearly five-and-a-half years ago, we have focused in partnership with public and private interests, on helping to create a statewide business climate that will encourage and nurture private sector investment. Although there is still much work to do, progress is substantial and evident.

• The deeply-troubled workers’ compensation system has been drastically reorganized, re-shaped and reformed. Deficits and unfunded liabilities are gone. And next week for the fourth year in a row premiums will be reduced again, an accumulative reduction of nearly 39 percent, which frees more money for new investments and job growth.
• Business equipment taxes have been reduced by 33 percent and our goal is to continue that process.
• Consolidated business reporting to the departments of Revenue and Labor are saving our businesses $13 million per year.
• We have designed and implemented likely the largest government reorganization in state history to boost efficiency and to streamline government.
• The Department of Commerce is in the process of completing a massive study to help design the business future of our state. I expect this study to produce significant legislation for next winter’s session of the Legislature.
• The Vision 2005 Task Force is well along in its design of a longrange program to help agriculture, our largest industry, add value--and jobs--to our farm harvests right here in Montana, instead of simply shipping everything out-of-state. ((e.g. Pasta Montana))

Our goals in the Executive Branch are to become more efficient, to do more with less; our office alone, for instance, now operates with about half the staff it had in 1977.

Additionally, we have been aggressively driving a number of programs to restore and to construct the infrastructure of Montana and its many communities. Strengthened bridges, safer roads, new water and sewer lines are not the exciting stuff you are likely to see every evening on the news.

But such expensive and complex projects must be in place if our widespread communities with their conscientious workers are going to be able to keep existing businesses and attract new investors to create new jobs for our young people.

In the next biennium’s budget, which we are in the process of designing right now, we will face the all-too-typical situation of paring down agency requests for funds requested to support expected services to meet our increasing but still insufficient revenues. It is a familiar scenario: unlimited needs and limited resources.

Just like in your own family, however, we will have to live within our means.

With a growing population, the demand for public services is increasing at a rate that will stretch our financial resources. So we must also focus attention on the revenue side of the income statement.

Unfortunately, most revenues for public functions come from taxes - not something enthusiastically embraced by anyone. There is a definition that the only good tax is a tax paid by someone else.

That reminds me of the time Yogi Berra was asked if he wanted his pizza cut into eight pieces or four pieces. He replied, “You better make it four. I don’t think I could eat eight.”

It is possible, as part of an overall approach to developing and diversifying our economy via the private sector, to increase revenues flowing to state and local governments by benefiting from the profits of new commercial activities.

Promoting such growth will bring needed jobs and new broadbased prosperity that will increase public revenues as well, much like the rising water level of a lake lifts all of the boats on it.

We believe that new coal development has a significant role to play in Montana’s future. Our abundant reserves of high BTU, lower sulfur coal are needed by the nation’s utility industry to help it compete in a deregulated market and to comply with new clean air standards.

The likelihood of new development is substantially enhanced because the rail transportation system needed to deliver these reserves to utilities has been permitted by the Surface Transportation Board.

Over the past few years we have carefully studied the market projections for Montana’s future coal production. Unquestionably, the potential for new development in Montana is real - if we act in time to meet the market.

We have also studied the ramifications of doing nothing to encourage new development. The results of inactivity are as depressing as the development case is exciting.

There are a number of converging forces that have come together to open a window of opportunity for Montana to prosper.

• The requirements of the Clean Air Act going into effect in 2000 and utility deregulation will drive demand for high BTU, low sulfur coal - the kind that is prevalent in the Powder River Basin - both north in Montana-- and South in Wyoming.
• There is also a permitted railroad from Miles City to Decker, joining the mainline of the Burlington Northern Santa Fe at each end and eliminating 180 miles of the current route moving north to the Great Lakes States.
• This railroad, when built, will provide the necessary transportation to move our super compliant reserves from the Ashland area to the utilities in the northern tier.
• The financial markets are favorable. Interest rates are as low as some of us can remember. And investment markets have abundant cash looking for a good return.

If we react promptly to the market window before us, Resource Data International projects that demand for Montana’s northern Powder River Basin super compliant coal could double by the year 2015.

That will be particularly significant, when compared to the situation we will face if we do not bring about new development. Without new development, Montana’s coal production will start a serious decline in the year 2003.

In 1996, coal development generated $53 million dollars in severance, gross proceeds, and resource indemnity taxes. Of this amount, about $18 million went into our coal severance tax trust fund. The interest from the Trust Fund is about $36 million per year. This interest flows directly to the State’s treasury and supports general government activities.

Another $18 million of severance taxes went directly to the general fund and to support programs like our county conservation districts, the international marketing program, acquisition of state parks, and the state library system.

In addition, we benefitted from royalty payments from mining of federal reserves. In 1996, this amounted to nearly $20 million, all which went to the State’s general fund.

In sum, the State received about $75 million in revenues from the activities of mining coal in 1996. Any portion of this amount would be difficult to replace, especially at a time when additional revenues are needed to support critical programs.

We believe, from the projections we have studied, that without development of new reserves, our current production will begin to decline beginning in 2003. As a consequence, of course, jobs and production taxes available to support public services will also fall.

By 2007, we estimate that gross proceeds, and resource indemnity taxes will fall $20 million from current levels. By 2015 the difference in collections at our current and potential production rates could be as great as $70 million per year.

There will also be similar positive or negative impacts on county and school taxing jurisdictions. Based on the value of the railroad alone, county revenues at current millage and assessed values will increase as follows:

Custer County:	$800,000
Rosebud County:	$183,000
Powder River County:	$151,000
Bighorn County:	$105,000

And local school district revenues, which are primarily supported by property taxes, will also benefit. At current mill levies, an additional $2.5 million would be available for local schools.

There has been some concern voiced that construction of the Tongue River Railroad will only encourage further development of Wyoming’s coal reserves.

And we should not forget that currently, about 5 million tons of Wyoming coal already moves north through Montana.

First, I think we all understand, if Montana is going to have a coal industry in the future, new reserves need to be developed and the most marketable coals are those that rate high in BTUs and low in sulfur.

We currently mine those coals in the Decker/Spring Creek area. But that resource is not infinite. So the future hinges on developing reserves with similar characteristics located in the Ashland area. Those reserves will not be developed unless rail transportation is available.

Second, construction and operation of the railroad, exclusive of new mine development brings significant benefits to Montana in terms of new tax revenues. And the two-year construction period - which will see the employment of 600 workers - will bring an economic boost to many of our families and communities in southeast Montana.

But most important is the fact that moving Wyoming coal north on the Tongue River Railroad is essential to its economic feasibility, because it will create the initial cash flows to amortize the cost of construction while Montana’s mining operations are coming on line.

Recent projections from Resource Data International estimate that initial tonnages available to the Tongue River Railroad will be in the range of 30 million tons. Of that amount, 5 to 10 million tons could originate from Montana.

But, by 2003, the amount moving north on the Tongue River Railroad could be 50 million tons and by 2004 market demand for Montana coals could account for 30-35 million tons of this total.

So while some argue that the Tongue River Railroad should not be built because it will only help our neighbor to the south, we believe the Wyoming factor is essential to the development of this critical transportation infrastructure which will provide the access to bring about new coal production in Montana.

Although we confront a number of serious issues daily ranging from bison management to managed mental health and prison construction, ultimately we have a transcendent responsibility to help create opportunities for people to work at work worth doing in a place they love. Our belief in the worth of helping another human being become self-sufficient and capable of supporting a family drives us every day.

Encouraging new coal production is one of the most effective ways for us to achieve that goal, while simultaneously providing the financial resources to help us provide for the public good of the people we work for.

Some opponents of the railroad and further mine development are sincerely concerned that both will cause irreparable damage to the landscape. I can understand that. I believe that with new technology and methods we now know how to undertake this type of development prudently.

Efforts to develop coal and transportation capacity in southeastern Montana has been going on for nearly 20 years. During that time, every issue of concern has been answered to the satisfaction of the courts and regulatory agencies. We now have the necessary regulatory framework in place to insure that development is compatible with the protection of the environment we share.

There is, frankly speaking, not a long list of economic opportunities for eastern Montana, especially ones that will have such a significant beneficial impact for the whole state. So I am encouraged and enthused by the prospects.

I believe that this is a development we should all embrace, encourage and welcome.

Finally, I want to thank you for your invitation and for your kind attention today. Good luck and God bless.

Former Governor Racicot's Page Speeches