Montana is next to last in analysis of state taxation

HELENA (AP) - Only California ranks lower than Montana in a USA Today analysis of how well states raise taxes and spend the money.

Montana and Mississippi tied for 48th place in the report. Utah topped the list, followed by Delaware and Georgia, which tied for second.

The newspaper's analysis concludes the financial problems besetting the states are more the result of their own poor money management than impacts from the national economy.

The study also concluded that the growth of spending by states during the boom years is harming some states today.

The chief kinds of spending increases from 1997 to 2002 among the states were for education, health care for the poor, and property tax relief in which states reimbursed local governments for the lost revenue.

Utah, the financially healthiest state, didn't enact large tax cuts during the economic boom, USA Today said. Montana enacted some tax cuts during the period, most notably reducing the property tax on business equipment from 6 percent to 3 percent in 1999.

The study said governors manage spending better if they have the line-item veto power that allows them to reject individual programs in a bill and can cut budgets without legislative approval if state revenues lag behind projected collections. Montana gives its governor both powers.

States show more fiscal restraint when the same party doesn't control the Legislature and governor's office, the report concluded. Republicans have held the Montana governor's office since 1989 and controlled both the House and Senate since 1995.

Here is where Montana rated in the three categories in the USA Today analysis:

Spending restraint. Montana received one star out of a maximum of four stars. The study found Montana's growth in spending from 1997 through 2002, adjusted for inflation and population growth, to be 7.8 percent a year. States got four stars if spending growth was less than 1 percent annually during the period, three stars for up to 2 percent, two stars for as much as 4 percent, and one star if it was more than 4 percent annually.

The period under review covered the last four years of administration of former Gov. Marc Racicot and the first two years of the administration of Gov. Judy Martz.

Bond ratings. The analysis examined the bond ratings by Moody's, Standard & Poor's and Fitch Ratings that look at the ability of states to repay debt and look at a state's economy, how well a state Legislature had managed state finances, and the soundness of state pension funds. The lower the bond rating, the more it costs a state in higher interest rates to borrow money.

USA Today averaged the agencies' ratings for long-term general obligation bonds or similar debt. Montana got only one star.

Tax system. USA Today used a tax analysis published earlier this year by Governing magazine that ranked states by adequacy of revenue, fairness to taxpayers and management quality. Montana received two of four stars.