Public spending boosts hospitals

Medicare payments to hospitals in Montana constitute 34 percent of net revenue to those facilities, people at a recent economic forum in Kalispell were told.

The forum is an annual presentation of the Bureau of Business and Economic Research at the University of Montana.

Gregg Davis, director of health care and research at the University of Montana, said hospitals in rural areas are especially dependent on Medicare as a funding source, due to their older populations and lower private insured rates.

Davis addressed health-care issues while other speakers discussed the housing market, agriculture, manufacturing and the forest products industry.

Eighty-five percent of Americans who qualify for Medicare assistance do so solely on the basis of age, Davis said. The other 15 percent qualify based on a disability.

People generally qualify at age 65.

The U.S. Department of Health and Human Services spends $3 billion a year in Montana, Davis said. Medicare spending creates 21,000 jobs in the state. Those jobs equate to 43 percent of the jobs at Montana hospitals and 12 percent of nursing and resident care services jobs being funded by Medicare revenues.

“If you throw in Medicaid spending, the two pay for 52,000 jobs in Montana,” he said, which is equal to 11 percent of the jobs in the state.

Those numbers “show the importance of public spending” in the state, Davis said.

People who work in health care in Montana are paid an average wage of $52,000 a year, compared to the average annual pay of $33,000 for all other Montana workers.

Every year, $6 billion is spent in Montana on personal health care, Davis said. Most of that is spent at hospitals.

Snapshots of other economic sectors also were provided at the forum.

Housing

Montana’s housing prospects mirror those of the United States for 2011, according to Scott Rickard, an economist at Montana State University-Billings.

No appreciable improvement is expected this year.

He doesn’t expect more than a 1 to 2 percent improvement in prices statewide this year.

But there will be an increase in the number of people who want to buy, and sellers will remain interested in the market, Rickard said.

There will be fewer speculative buyers and fewer buyers who qualify for loans.

House hunters need to have their ducks in a row, he said. Without a credit score of at least 700 and a 20 percent down payment, it won’t be easy to buy.

Rickard said that means in the Flathead, where the average house sells for $260,000, a buyer needs a $50,000 down payment and another $10,000 or so for closing costs. That buyer needs a household income of at least $60,000 a year and should expect a monthly mortgage payment of $1,300 to $1,400.

Less than 40 percent of Flathead County households have that level of household income, Rickard said.

Fewer banks are willing to lend money to home buyers today, and the significant changes expected in Freddie Mac and Fannie Mae lending programs will add to the “supply mismatch” that exists between the number of qualified buyers and the number of houses for sale, he said.

The sales price of all homes sold in Montana in the third quarter of 2010 dropped by just 3 percent compared to the same quarter the year before, an encouraging amount, according to Rickard. Declines had been larger for a couple of years.

Last year, there were 21,000 home sales in Montana, a 25 percent drop from the prior year.

Montana, along with several neighboring states, is experiencing lower foreclosure levels than some states. In November 2010, the month Rickard used for comparison, there were 2,578 houses in Montana listed in foreclosure, representing one out of every 1,642 units.

Flathead County’s 559 homes in foreclosure that month represented 22 percent of the state’s total.

Half of the country’s foreclosures occurred in five states: California, Arizona, Florida, Michigan and Texas, he said.

Many factors are at play in the decline of house sales and prices, including the likely increase in interest rates, continued high unemployment rates, equity losses for homeowners and the number of foreclosed units entering the market.

No one predicts that construction of new houses will pick up much in 2011, but Rickard said it’s possible that some new construction of multi-family units might occur. “This is a double-edged sword since it represents backers betting upon renting, not ownership.”

Forest products

The forest products industry in the United States improved a bit in 2010 compared to 2009, which was described as a “dreadful” year by Todd Morgan, director of forest industry research for the business bureau.

Lumber consumption stayed at historically low levels last year, but soft wood exports increased by more than 50 percent, he said. Housing starts in the country rebounded to about 600,000 in 2010, up from 554,000 units in 2009, the lowest in six decades.

The January 2010 closure of the Smurfit-Stone container plant in Frenchtown resulted in the loss of the state’s largest single forest products employer and the biggest user of wood fiber in the state.

A bright spot for the forest product industry was the $70 million in federal stimulus money spent on forest road and trail restoration projects, forest health projects and to reduce hazardous forest fuels.

Most Montana forest industry companies reported increased sales and production last year.

The 321 million board feet of timber harvested last year in Montana was the second-lowest harvest on record since 1945. The lowest harvest was in 2009, which was 12 percent lower than 2010.

National forecasts call for a modest uptick in the U.S. economy this year, including an increase in housing starts that would benefit the timber industry. Continued foreign demand for lumber also could benefit the state’s forest industry, he said. Much of that demand is coming from China and both Oregon and Washington likely will benefit more than Montana from China’s purchases.

The forest products industry “is undergoing major changes,” Morgan said. “Forests will become more expensive to manage. The industry is not out of the woods.”

Nontimber manufacturing firms in Montana employ 20,900 people, Morgan said. That includes people who work at coal mines, oil refineries, machinery and equipment manufacturing, printing plants, high-tech and in food and beverage manufacturing.

The biggest concerns of managers and owners of those companies are health insurance costs and workers’ compensation costs, Morgan said.

Agriculture

Agriculture is an industry that affects people in all 56 Montana counties, Montana State University agricultural specialist George Haynes said.

“We can’t say that about all things,” he said.

The 2010 Flathead cherry crop was better than normal, which helped boost the state’s agriculture receipts, Haynes said. There hasn’t been much growth in agricultural cash receipts since the late 1990s, he said, but Flathead County’s ag receipts have grown in that time and run counter to some trends.

Besides cherries, the Flathead area accounts for part of the state’s hay production, Haynes said. Three percent of the state’s total crop production occurs in the Flathead. Other commercial crops grown locally include wheat and potatoes.

Based on early weather forecasts for this growing season, Haynes and other ag experts expect 2011 to be a “good year.”

Reporter Shelley Ridenour may be reached at 758-4439 or by e-mail at sridenour@dailyinterlake.com.