Cigarette money

Before calling the state Legislature into a special session, which kicked off with hearings on Monday, Gov. Steve Bullock presented a three-part proposal to fix the state budget.

There’s a lot of good stuff in the governor’s plan, which includes a mix of cuts to state departments, temporary tax increases and transfers from other funds. However, one of the ways the governor is proposing to plug the $227 million budget hole is with a misguided and misnamed “fee” on some of the largest accounts managed by the state’s workers’ compensation insurer, the Montana State Fund.

This would be a mistake for several reasons, and legislators ought to look for additional revenue elsewhere – such as a $1.50-per-pack tax increase on cigarettes.

The idea of charging a management fee of 3 percent on State Fund accounts of more than $1 billion completely misses the point of the quasi-government, quasi-private entity and worse, jeopardizes its mission of providing reliable long-term coverage at stable rates to Montana businesses.

The Montana State Fund provides 60 percent of the workers’ compensation insurance in the state, insuring some 25,000 policyholders. Unlike private insurance companies, the State Fund is obligated to cover even the smallest, most high-risk businesses. And by every industry measure, it has done a great job.

The Board of Investments has managed the fund’s assets wisely, growing accounts while returning record dividends to policyholders. This year, a new record of $40 million in dividends was distributed to nearly 23,000 policyholders that demonstrated continued workplace safety or significant improvement.

Of course, as the fund has grown more successful, it has become a bigger target for lawmakers who see only a large pot of cash ripe for raiding. The governor’s proposal is only the latest attempt, this time disguised as a “management fee.”

The new fee would scrape nearly $30 million from the fund’s accounts into the state’s general fund over the biennium. However, state law currently mandates that all money paid to the State Fund be used solely to pay for State Fund operations and obligations, and cannot be transferred for other uses. Legislators would have to agree to change that law if they go with the governor’s idea.

They shouldn’t. As State Fund President Laurence Hubbard pointed out last week, the money managed by the State Fund really belongs to its policyholders. They are the “ultimate owners of the assets,” as Hubbard explained, and the 3 percent fee would basically act as a tax on them.

In other words, taxpayers didn’t fund that equity – premium payers did. And while the state of Montana is also insured by Montana State Fund, it also receives dividends just like any other ratepayer. It is not automatically entitled to a larger share just because it needs more money.

Further, the fund’s equity is anything but “surplus”; it’s actuarially determined to be the specific amount needed to keep the fund itself stable not just for the next two years, but for the next 20. Insurance obligations, after all, last for decades – not a biennium.

Meanwhile, the American Cancer Society Cancer Action Network, American Heart Association/American Stroke Association and American Lung Association in Montana are among those calling for legislators to pass a permanent tax increase of $1.50 on each pack of cigarettes sold in the state. They have the research to show that such increases significantly reduce the use of tobacco products, giving smokers a tangible reason to kick the habit, preventing new smokers from taking up the habit in the first place and saving millions in health care costs.

The cigarette tax increase would generate roughly $44 million in new revenue for Montana – each year – and it would build on an existing tax under existing legislative authority, unlike the faulty State Fund “management fee” proposal. Legislators should look to it as a responsible source of revenue instead.

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