Monday, June 25, 2012

Workers' compensation costs -- another factor in slowing oil development in Montana's portion of the Bakken

It's Monday, and time for more musings on the Bakken and Montana's energy development.

If there is a lesson in North Dakota's oil development (besides that it is good to have the epicenter of a major oil play within the borders of one's state,) it is that there is no substitute for a long-term plan for promoting a business-friendly climate. If a state does that, it won't much matter what the particular opportunities that arise might be -- there will be a chance to be a player. As we have noted before, we have heard from Montanans who don't want grubby things like oil and coal development -- they want sexy stuff like Microsoft and dot-coms.

Which then suggests the question of why Microsoft and Amazon have been building and expanding operations in North Dakota rather Montana.

There are doubtless any number of reasons (closer access to large Midwestern population centers, perhaps.) But unquestionably North Dakota did, in the 1990s, set out to create a more business friendly climate.

Today we're going to look at just one factor -- workers' compensation costs. Those who were following the news during the last legislative session probably know that one of the big accomplishments of the GOP-controlled Montana legislature was to strike a deal with Gov. Schweitzer and the Democrats to lower workers' compensation costs.

Was there a real problem? Let's look at a beautiful table of data provided by the state of Oregon that examined (in 2010, prior to the Montana reforms) workers' compensation costs on a state-by-state basis. The Gazette piece linked to above generously referred to Montana's workers' compensation costs as being "among the most expensive in the country." As a glance at the Oregon data shows, this was being too kind. Montana had, at that time, the ignominy of being the most expensive in the country. Numero Uno. Absolute worst. Trial lawyer's delight.

To put it in perspective, the fifth worst in the country was California -- and Montana was a whopping 24% more expensive than the Golden State.

Which state was the least expensive in the country? Take a wild stab -- you know you want to...

North Dakota was number 51 -- less expensive than 49 states plus the District of Columbia. (What happened to the other 7 states, we don't exactly know.) Montana's workers' compensation costs were a staggering 233% higher than North Dakota's in 2010.

The deal that Republicans were able to extract from Gov. Schweitzer lowered costs to businesses by 20%. Which dropped Montana from 1st on the bad-boy list down to... wait for it... an effective tie for 4th with California! If our calculations are correct, we are now only 160% more expensive than North Dakota (and 48% more expensive than Wyoming.) Glad we straightened all of that out.

It is not necessary for Montana, we hasten to add, to try to be tied with North Dakota as the least expensive in the country. Being in the middle of the pack would be a good initial goal. That would mean an additional 23% cut in workers' compensation premium rates. When a state is playing catch-up, however, one has to do even better than average, meaning that further cuts beyond that 23% would be needed. To be fair, lawmakers predicted that the 2011 law would save 20% in the first year and perhaps 40% or more thereafter. The problem is that such predictions are often significantly off. The question, therefore, is what the legislature is prepared to do to make sure that reasonable targets are actually met.

Workers' compensation is just one factor involved in any company -- oil-related or not -- that is considering doing business in Montana, and we will be examining more of them as time goes by. It is a big one, however. Montana has a long ways to go in demonstrating that a desire for business development in Montana is genuine. Taking firm action to drop us comfortably below the median in workers' compensation costs would be one way of helping to lay the foundation.

There should no reason that this can't continue to be a bipartisan effort, as it was in the last legislative session, but we fear that pressures from Big Labor and Montana's trial lawyers will make that increasingly difficult. These sorts of reforms may require a Gov. Rick Hill working closely with a GOP legislature if we are to have any realistic chance of enacting them.

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