A Science for Everyone, Community

The Shadow Economy

There are some confusing terms about the economy.  Household production fits in with the things that you do for yourself that makes life a bit better.  “Underground economy” and “shadow economy” refer to transactions that could be considered black market.  Some things – drugs, prostitution, stolen merchandise – are in the underground economy practically by definition.  Other items can be either in the regular economy or in the shadow economy.”

“Italy also has a sizable underground economy, which by some estimates accounts for as much as 17% of GDP. These activities are most common within the agriculture, construction, and service sectors.”  This gives us the idea that it isn’t just an illegal immigrant involved.  The underground economy can include otherwise respectable citizens.”


Household production isn’t mentioned in the analysis – but here, in northwest Montana, a single product provides an example – firewood.  It benefits me to report the money that comes in from firewood sales.  It helps me qualify as a farm, and make deducting expenses and depreciation possible.  As household production, it probably cuts down the cost of heat by $700 – $1000 each winter.  For others, it’s an underground economy, advertised on facebook, unreported to the government.  The definition and source follows:

Investopedia puts the underground economy at 11 or 12% of the gross domestic product in the US. California’s Attorney General has an “Underground Economy Unit” and lists restaurants, janitorial work, the garment industry, retail, construction and car washes as the industries most impacted by wage theft. I don’t know – I recall talking about the US underground economy with a grad student.  With a student visa, he wasn’t allowed to work in the US – yet he had held a job somewhere in the southern US, in a business owned or managed by an Indian national, who sent the paycheck to his father in yet another country.  I think the term “wage theft” in that case would be accurate if you only looked at US records – and I doubt if it was reported to the IRS.

The Institute of Economic Affairs uses the term “shadow economy” and describes: “The main drivers of the shadow economy are (in order): tax and social security burdens, tax morale, the quality of state institutions and labour market regulation. A reduction in the tax burden is therefore likely to lead to a reduction in the size of the shadow economy. Indeed, a virtuous circle can 
be created of lower tax rates, less shadow work, higher tax morale, a higher tax take and the opportunity for lower rates. Of course, a vicious circle in the other direction can also be created.”

They go on to describe Denmark, where about half the population hires “shadow” workers.  Much of the “shadow economy” they describe is labor from people who have a regular job, performing a non-deductible service for other private parties.  The “shadow economy” is as much, or more, a place for our neighbors as for illegal migrants.

“In Canada, Schneider (2005) found similar reactions of people facing an increase in indirect taxes (VAT, GST). After the introduction of the GST in 1991 in Canada, in the midst of a recession, the individuals, suffering economic hardship because of the recession, turned to the informal economy, which led to a substantial loss in tax revenue. Unfortunately, once shadow economy habit is developed, it is unlikely that it will be abandoned merely because economic growth resumes (Schneider, 2005). The People who engage in shadow economic activities may not return to the formal sector, even in the long run. This fact makes it even more difficult for policymakers to carry out major reforms because they may not gain a lot from the reforms.”


Nearly 6 years ago, California passed legislation allowing legal marijuana sales – yet somewhere around 85% of the marijuana sold in California today is still in the “traditional” market – that’s right.  Despite having laws and a system that allows for legalized sales, the illegal market provides 5 times as much marijuana to users than the legal market. 


Beginning the Mathematics of Secession

It takes no complex research to learn which part of the county pays the most taxes.  The total market value and taxable values are available here and the webpage is fairly easy to use.  We may have to resort to the 2010 Census to find numbers that would allow us to calculate the tax burden on a per capita basis – but the data are never perfect for the potential secessionist.

High School District 13 – Lincoln County High School – pretty well covers the north county (excepting the Yaak-Sylvanite area that is part of Troy’s High School District 1.  Libby’s High School District covers the area that rules the county.

Libby K-12$1,167,764,91515,285,09536.73%
HS-1 (Troy)$561,686,8887,578,22218.21%
HS-13 (Eureka)$1,324,462,34618,742,34645.05%
Libby K-12$744,585,24613,613,72938.44%
HS-1 (Troy)$354,443,7457,059,40419.93%
HS-13 (Eureka)$705,406,09014,743,43441.63%

Extrapolating a line from 2 points isn’t the most accurate way to project a trend line.  It does give a quick trend-line . . . and from this data, it looks like HS-13’s taxable value percentage is growing at almost half a percentage each year.  Somewhere around 2031, the north end of the county will be over half the county’s tax base.

One way of looking at the situation is joy that we aren’t receiving all the government our taxes support.  In general, our Libbyan bureaucrats don’t spend a lot of time in the north end of the county.  On the other hand, the population in the north end isn’t growing quickly enough that we’ll be able to outvote them in my projected lifespan. 

Perhaps it is time to get serious on the idea of county 57. 


Trego School -Why have a building reserve fund?

As we wrote about earlier this year, the school board had decided to use a permissive levy to establish a building reserve fund. One of the requirements of the permissive levy is that “The projects must be listed and the priority for projects are listed on the Facility Condition Report under their deficiency categories. Those need addressed first.”

Not a fan of permissive levies? The school board election is coming up in May.

To find out what that means, we have to go to the Facility Condition Report. Back in 2008 the state of Montana arranged for every k12 building in the state to be inspected and its condition reported on. While these reports are theoretically public information, and publicly available, chasing down anything the government did over a decade ago is a bit of a challenge. A few government agencies and several emails later, I obtained copies of the original reports.

Looking at the 2008 report makes the need for a building reserve fund obvious. The school building proper has a deficiency ratio of 30.1%. The statewide report considered buildings with deficiency ratios greater than 20% to be in poor condition, and those greater than 50% to be in such bad shape that replacement might actually be preferable to repair.

The classrooms on the right side of the school entrance were originally portable classrooms and rest atop a “walkout” basement.

While some of the items in the report are minor- things that need paint or other simple repairs, not everything is that straight forward. The report describes the stair treads/risers as 100% deficient, stating that “Stair flight is settling or the under-structure physically failing”. On the same page, another description remarked that “Floor strength integrity of portable structures is questionable”. Trego School was constructed in response to the large flood of people associated with the tunnel, and included several portable classrooms, two of which remain in use today.

The roof system also included a 100% deficiency rating; “Condition observed: History of leaks; seams separating, punctured, or lifting at edges”. The estimated cost to repair, back in 2008? $29,365.

The school board will be meeting Wednesday, March 10th, at 4PM. The meeting can be attended long-distance. The Agenda (available in the post office) includes the building reserve. Those interested in attending can do so via the Gotomeeting App.

Want to see the school facilities condition inventory for yourself? I’d be happy to share what I received from the state- otherwise, Richard Knatterud (rknatterud@mt.gov) of the department of commerce was the person who provided me with copies.


Taxes at Trego School

School taxation is not a simple subject.  Part of the school taxes go to Helena, and are returned, not dollar for dollar, but apportioned according to school enrollment.  Another part of taxes are assessed and go from the county revenues into the school accounts.  Each portion has minimum and maximum levels.  It isn’t hard math, but it is a challenge to keep things straight. 

At Trego, the board needs to begin funding a building reserve fund.  That means adding a permissive levy to raise $5,232.32 – about 2.71 mills.  The state allows us a “District Major Maintenance Amount” with a maximum of $16,500 – and to get to that maximum, we have to levy $5,232.32 – 2.71 mills.  The school was built over 50 years ago, and more maintenance planning and effort is becoming necessary.  Folks give some simple explanations – “that will be about three dollars on a 100,000 assessment” which are simplified, easy to understand, and wrong.

Where to find information:

  • MT Revenue instructs us on how to calculate taxes from mills – not a particularly challenging math exercise, but worth using so you can understand how each additional levy affects your tax bill.  As we look at the numbers, we’ll see that, in Trego, where nearly half the taxable value is “Centrally Assessed” we need a bit more understanding.
  • MT Office of Public Instruction provides spreadsheets of the budget files for each school district in the state.  They’re in pdf format, but provide a lot of information – and are only slightly confusing.
  • State Information Technologies Services Division provides information that shows how each district is valued – for example, as you look at the tables below, you will notice that Market Value and Taxable value vary significantly. 

If you contrast Trego, District 53, with Fortine, District 14, you will note that Fortine shows a market value of  $119,644,515 while Trego shows $114,462,957.  Still, the taxable value leans in the opposite direction: Fortine 1,5436,104 vs Trego at 1,931,429.  The difference is in the category shown as “Centrally Assessed.”  Taxable value of Centrally Assessed” property is about 3% of market value, while taxable value of “Real Property” is slightly over 1% of market value. 

Since centrally assessed property in the Trego School District will primarily be railroad property, and since it represents a significant proportion of the total taxable value ($932,774/$1,931,429 = 48.3%) taxpayers in Trego School District can thank the railroad for taking a significant portion of the tax burden.

Lincoln County

Property TypeMarket ValueTaxable Value
Special Mobile$1,312,670$19,573
Manufactured Homes$19,167,600$227,521
Personal Property$14,516,888$205,961
Real Property$2,492,594,586$30,032,762
Centrally Assessed$215,533,424$7,005,541
Net & Gross ProceedsNA$0
Newly TaxableNA$1,091,497
TIF IncrementNA$172,806

Fortine Elementary District 14

Property ValueMarket ValueTaxable Value
Special Mobile$0$0
Manufactured Homes$754,480$8,520
Personal Property$159,180$2,388
Real Property$112,774,816$1,355,638
Centrally Assessed$5,956,039$179,558
Net & Gross ProceedsNA$0
Newly TaxableNA$45,931
TIF IncrementNA$0

Eureka Elementary, District 13

Property TypeMarket ValueTaxable Value
Special Mobile$8,349$180
Manufactured Homes$6,301,850$80,096
Personal Property$3,794,072$60,203
Real Property$890,148,736$11,267,169
Centrally Assessed $66,745,926$2,156,949
Net & Gross ProceedsNA$0
Newly TaxableNA$374,513
TIF IncrementNA$172,806

Trego Elementary School District 53

Property ValueMarket ValueTaxable Value
Special Mobile$0$0
Manufactured Homes$965,850$12,244
Personal Property$424,664$6,371
Real Property$83,469,474$980,040
Centrally Assessed$29,602,969$932,774
Net & Gross ProceedsNa$0
Newly TaxableNA$159,108
TIF IncrementNA$0

Trego School Enrollment Grows- Also, Taxes

The last school board meeting had the announcement of 3 more students this semester. That’s an increase from 23 students to 26, or a 13% increase in enrollment since Fall. School enrollment remains something to be watched closely, given the previous trend.

Trego school’s enrollment graph from previous article

The increased enrollment fit with reading the Budget Amendment Resolution

the trustees have determined that an amendment to the state elementary fund budget in the amount of $25,584.05 is necessary . . . for the purpose of properly maintaining and supporting the district due to an increase in enrollment that was beyond what could reasonably have been anticipated at the time of the adoption of the budget for the current school fiscal year; and the anticipated source of financing the budget amendment expenditures shall be additional state assistance through direct state aid.”

The second financial decision was to direct the clerk to establish a permissive levy for a building reserve fund.  The basis for the building reserve fund shared with the board members was:

Permissive levy in Sub Fund 613 which includes:

1. State Major Maintenance Aid (SMMA)
SMMA amount is $15,000 + $100xprior year ANB (22) = $17,200

2. Permissive Levy which can’t exceed 10.000 mills per fiscal year (a mill is 1/1000 of taxable value (TV/1000) Taxable valuation for the district in 2021 is $1,932,429. 1,932,429/1000 = $1931 mill x 10 = $19,310
Tax impact on property: levied mills x property’s taxable value/1000
Districts must first levy 10 mills and then can budget non-levy revenues or legal transfers (some restrictions apply)  Need to look into if we can transfer from a non budgeted fund (15) to building reserve.

3. The projects must be listed and the priority for projects are listed on the Facility Condition Report under their deficiency categories. Those need addressed first. “

A few translations: The state is willing to give aid that can be used for maintenance. The amount will be $15,000 plus the prior year’s enrollment (22) multiplied by $100. Thus, $15,000 + $2,200 = $17,200 that can be expected from the state.

Permissive levy- this is a levy that does not require a vote by the public. In this instance, MCA 20-9-502 allows a school board to impose no more than a 10 mill level per fiscal year to go towards the building reserve. The school expects to get $19,310 out of this.

What this actually means for your taxes? School district 53’s market value is assessed at $114,462,957. The taxable property value is set at $1,932,429 – a little less than 2% of the market value. Consequently, the math is 10 x taxable value/1000 – if your taxable value is $1000, the additional tax will be $10, if your taxable value is $10,000, the additional tax will be $100, and so on.

Lastly, anything they use that money for has to be on the Facility Condition Inventory and has to be addressed in order of priority. The Facility Condition Inventory comes via state inspection, so what to fix and in what order isn’t determined by anyone local. The most current Facility Condition Inventory that was available is dated 1/24/2008 – so it appears to be high time to look at getting some maintenance done.

Community, Demography

Do you get all the Government you pay for?

Lincoln County offers opportunities to extract data in ways the folks who run things haven’t planned.  For example, we have three county commissioners, elected at large, and representing the areas roughly in the county’s three high school districts.

Census data can be extracted by school district – so we know the population of each high school district.  We’re still using the 2010 Census, but should be able to update soon.  Likewise, on a state website, we can find the 2020 market value and taxable value for each high school district. Since the taxable value relates directly to county taxation, it isn’t hard to make a chart showing how much residents of each school district pay for county government.

PopulationMarket ValueTaxable ValueTaxable Value/ person
Troy3,583$ 509,934,526$ 6,912,824$1,940.17

Intriguing – Troy residents provide taxes to Lincoln County at about the same rate as the county average.  North County folks provide about 43% more taxes per capita than the county average, and Libby folks per capita county taxes is approximately 28% lower than the county average.

The area represented by the Lincoln County High School district has 31.8% of the county’s population, and provides 45.5% of the tax dollars that fund county government.  Libby, where most of the county government occurs, has 50% of the county’s population, and provides 36.1% of the taxes that fund county government.

I guess it’s a question suitable for debate – is it better to receive more government than you pay for, or is it better not to receive as much government as you pay for?

When Lincoln County was created, it made sense – virtually all of the county drained into the Kootenai River, and the county was connected by river, rail and road.  With Libby Dam and Lake Koocanusa, the county was split in two.  On the other hand, the numbers suggest that secession might be a fiscally responsible alternative.

More by this Author:

If LCHS District were a County

After the article on searching Lincoln County data, the question came in: “What if North Lincoln County was its own county?”  The answer is available, but it takes the sort of personality that enjoys digging through data.  Here’s a few facts that would describe the thought experiment that would be county 57. County 57, sharing boundaries with the Lincoln County High School District, would rank 31st in population…

Searching Lincoln County Data

There’s a long-term question of whether North Lincoln County gets fairly treated in county services.  Back when the county was created in 1909, it made sense – everything drained into the Kootenai (except for Stryker, and driving 93 toward Kalispell makes it easy to see how that mistake was made.)  Sixty years later, Libby Dam removed the towns along the Kootenai that were the middle of the county. …

Laws, Ordinances & Regulations

How Long do Gift Cards Last?

Buying gift cards has some appeal, as a way to help out local businesses. Buy it now- giving the business some much needed cash, redeem later when business is better. What about using an existing gift certificate?

Does putting off redeeming a gift card actually benefit the business? It depends on the state, and how long you want to put off using the gift card.

When a gift card is purchased, the business gains cash and marks an IOU down on its ledgers, more or less. For a business, Cash is good, and an IOU that’s never redeemed would seem like a good thing.

This is where the government comes in. If a gift card sits around long enough, unused, it starts to run afoul of unclaimed property laws. Many states require that unclaimed property be transferred to the state, a process known as escheatment. This isn’t, as it happens, an issue for the chap with the gift card sitting under a pile of papers. It’s an issue for the business.

Businesses keep track of gift cards sold, and redeemed. In some states, the profit from an unredeemed gift card must be given to the state, so the business doesn’t profit from the sale. Instead of the customer getting value back, the customer has essentially made a donation to the state government, which the business has been required to keep track of for a while.

What about in Montana? In Montana, gift cards don’t expire. That doesn’t mean the state government doesn’t get involved though- after three years, it’s abandoned property, and the state would like the funds. Not all the funds- depending on the type of gift card, the state of Montana may only want 60% of the value. And for businesses that don’t make very much from gift cards (less than $200,000 in the past year), the gift card won’t be considered abandoned.

So- in short, even in Montana, whether putting off using a gift card for more than three years is a benefit to the business depends on how many gift cards the business sells. For your small town business, putting off using a gift card probably won’t leave them writing a larger check for their state taxes.

Community, Demography

Beer Taxes North and South

I listened to a comment from north of the line about how cheap beer is south of the 49th parallel.  So I decided to investigate – and a lot of the difference is alcohol prices is the governmental controls.  Taxes do make a difference in what we drink – particularly when we look at alcoholic beverages. 

A 2018 report titled “Beer Taxes – A Canadian – U.S. Comparison” makes the research easy.  “Beer taxes in Canada are higher in both absolute value and when calculated as a percentage of selling price with an average government beer tax percentage of 47% (of retail price) in Canadian provinces versus an average government tax percentage of 17% in U.S. states.”  Working the math is an exercise in keeping your units straight.    In Canadian dollars, a case of beer is $2.09 taxes in Montana, and $17.32 in British Columbia.  

Montana taxes beer at 14 cents/gallon, Wyoming at just 2 cents/gallon, and Tennessee at $1.29/gallon. It’s a little harder to calculate the Federal taxes on beer:  $3.50 per barrel on the first 60,000 barrels for domestic brewers producing fewer than 2 million barrels annually; or $16 per barrel on the first 6 million barrels for all other brewers and all beer importers; and $18 per barrel rate for barrelage over 6 million. Wikipedia assures me that there are 31 gallons in a barrel of beer.  So we’re looking at 72 cents on the gallon of a big producer’s beer going for taxes in Montana, while craft beers from small brewers are a little more than a dime per gallon. 

Essentially, every time you buy a beer north of the line, you buy a beer for the government.  South of the line, every time you buy a six-pack, you buy one for the government.

Next week – taxation of hard liquor differences.