INTERVIEW-Montana gov to pare budget as resource demand falls

Published: 18 Nov 2008 17:35:14 PST

SAN FRANCISCO, Nov 18 - Montana Gov. Brian Schweitzer aims to cut 2.5 percent from his state's budget as business in his state slows, unemployment rises and commodity prices slump.

The resource-rich Western state's financial condition may get worse as the credit crunch squeezes timber and mining in its western mountains and farmers and ranchers in its eastern plains, arguing against the state adding to its debt with more bond sales over the near term, the governor adds.

"We're not immune to the international economy," Schweitzer told Reuters in a telephone interview on Monday, noting prices for a slew of resources extracted and exported from his state are heading downhill.

Prices for copper, platinum, palladium and oil are down this year after big gains in recent years, hitting Montana's economy hard, Schweitzer said, adding that he plans to clamp down on the state's budget in response.

He also plans to hold off on debt sales for the time being.

"We're going to limit that, too," the second-term Democrat said of bond sales. "Now is the time as I've suggested to batten down the hatches."

"Cash is king so we're sitting on cash," Schweitzer added, noting he plans to keep a reserve of $250 million.

Schweitzer has reason to be cautious in crafting a plan for Montana's next two-year budget. Unemployment is trending up as demand for the state's resources, including wheat, cools.

Additionally, home building activity is weakening as demand for primary and second residences shrinks. Fewer people are putting down roots in Montana's Big Sky country because they can not raise money to relocate by selling property elsewhere.

"Now they're unable to sell their house in Boston, Austin or L.A.," Schweitzer said.

A DISAPPOINTING YEAR

Schweitzer said the woes crashing down on Montana reminds him of one of his grandfather's sayings about the difficulty of making a living in the state: "In Montana, there are three bad years for every good year."

This year is shaping up to be a disappointing one for Montana. Its unemployment rate in September was 4.6 percent, low compared to the national average but up from 3.2 percent a a year earlier.

Nonfarm payrolls continue to grow but at a slower rate than in previous years. Montana posted job growth of 3.1 percent in 2006 and 2.5 percent in 2007. Its job growth from the start of this year through September has been under 1 percent.

"We're kind of waiting on the national economy to recover," said Barb Wagner, a senior economist with the Montana Department of Labor and Industry.

A number of ambitious projects in Montana are on hold pending a rebound in credit markets, Schweitzer added, pointing to plans to develop alternative energy, including power generated from winds whipping across the state's expanses.

"It would be faster if we had functional credit markets," he said, referring to the pace of alternative energy projects.

Credit market turmoil is showing up across Montana in other ways as well. The owners of Montana's Yellowstone Club, for instance, recently filed for bankruptcy protection for the resort for the super-rich because they could not obtain loans to pay off debts.

Main Street also is feeling the pinch.

"It's getting tough to finance a three-quarter ton pick-up," Schweitzer said.