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House passes cigarette tax hike, a rare revenue-raising bill

House lawmakers narrowly passed a proposed cigarette tax increase of 30 cents a pack Wednesday, one of few successful efforts by the 64th Wyoming Legislature to find ways to diversify the state’s revenue base.

House Revenue Chairman Rep. Mike Madden (R, HD-40, Buffalo) sponsored the bill to raise the tax on a pack of cigarettes from 60 cents to 90 cent. Opponents cast the bill, HB151, as an attempt at “social engineering” of healthy behavior and a financial drain on residents at a time of economic hardship. The bill had failed final reading Tuesday on a 22-38 vote before a lawmaker resurrected it.

Rep. Albert Sommers (R, HD-20, Pinedale), a member of the House Appropriations Committee, resuscitated the bill by moving for reconsideration. Under House rules, a legislator on the prevailing side of a floor vote can call for a new vote. Sommers voted No on Tuesday and was in such a position.

The Joint Appropriations Committee had decided Monday that if the tax hike passed, the new revenue would be directed to the Title 25 program. Title 25 pays for the involuntary hospitalization of Wyoming’s mentally ill. That need was what drove Sommers to call for the reconsideration.

“I thought it was worth bringing it back, to shore up funding for Title 25,” he said. Upon reconsideration Wednesday, the bill passed 31 to 28. It now moves to the  Senate.

The Joint Appropriations Committee had estimated the cigarette tax increase would raise $6 million per biennium for the involuntary hospitalization program. That’s not nearly enough to cover the cost, according to Department of Health Director Tom Forslund. The Title 25 program costs have been running far higher than the $4 million budgeted for it. Forslund and Gov. Matt Mead have both asked the Legislature for $21 million in contingency funding to help pay for cost overruns. Thus far, there is no indication they’ll get that amount. Few revenue raising bills remain on the House docket.

Click here to read more about funding problems for Title 25

Madden advocates a balanced approach to the state’s fiscal problems. He said he wants to combine a moderate use of the state’s savings accounts with moderate budget cuts and a moderate increase in taxes.

The last point, increasing taxes, is not popular with his fellow lawmakers. House and Senate leadership have said they prefer to lean on savings accounts and budget cuts. All bills that raise revenue must start in the House, and most have failed, with the notable exception of a sales and use tax on internet vendors and now the cigarette tax.

House Revenue Committee Chairman Mike Madden listens to debate on the House Floor on Jan. 20. He proposes the state look at moderate tax hikes to offset Wyoming’s energy revenue decline. (Andrew Graham/WyoFile)

House Revenue Committee Chairman Mike Madden listens to debate on the House Floor on Jan. 20. He proposes the state look at moderate tax hikes to offset Wyoming’s energy revenue decline. (Andrew Graham/WyoFile)

Taxing specific industries like alcohol or tobacco to try to make up for the state’s big budget deficits is the Legislature “grasping at straws to fix a major problem,” said Buck McVeigh, executive director of the Wyoming Taxpayers Association. The state’s budget deficit is too large for such taxes to have an impact, he said. His group opposes the cigarette tax, and Wednesday he testified against an alcohol tax increase being sought by House Minority Floor Leader Rep. Cathy Connolly (D, HD-13, Laramie).

The state needs a more complete examination of the tax code, McVeigh said. That was his personal view, he said, and not that of the Wyoming Taxpayers Association.

He referenced the Tax Reform 2000 Committee, which was formed by the 1997 Legislature. The committee, made up of senators, representatives and officials appointed by the governor, examined the state’s revenue streams and tax structure for two years and recommended ways to move the state past the boom-and-bust cycle.

The recommendations included imposing a personal income tax, which McVeigh said was unpopular with legislative leadership and then Gov. Jim Geringer. Any effort to draw more businesses or people to the state won’t be beneficial without a real look at the tax code by the Legislature, including a discussion of an income tax, McVeigh said.

Counting on the rainy day fund

Meanwhile the House is moving to draw deeply from savings accounts like the Legislative Stabilization Reserve Account, commonly called the “rainy day fund.” Madden originally had hoped to protect the LSRA with legislation restricting lawmakers from using rainy day funds to address more than half of any program funding deficit.  

He’s since told the House Appropriations Committee to hold his bill to do so, HB105. Given all the pending bills he’s seen that draw on the rainy day fund, he said his own measure would be pointless.

“There’s really no use in them doing it [passing HB105] because they’re already violating it,” he said.  

The education omnibus funding bill, HB236, intends to draw on the rainy day fund, beginning with $26.6 million in FY2019. The drawdown for education funding would stop if the rainy day fund balance drops below $500 million. Matthew Willmarth, a Legislative Service Office attorney, forecasted the rainy day fund wouldn’t reach that point any time soon. Madden said he believes it could be gone in three years or fewer, however, given the pressures on it.

On Tuesday afternoon, the House debated a bill brought by Speaker of the House Steve Harshman (R, HD-37, Casper) that raised Madden’s hackles. Harshman’s measure, HB253, would take $25 million from the rainy day fund to make loans to small businesses at favorable rates, in hope of diversifying Wyoming’s economy. Of the $25 million, $5 million would be dedicated to loans for telecommunications projects.

Speaker of the House Rep. Steve Harshman (R, HD37, Casper)

Speaker of the House Steve Harshman (R, HD-37, Casper)

Madden argued vigorously against it. “There’s no reason we have to get into the banking business,” he said. “With our rainy day fund of all things.”

The state has been talking about diversifying the economy for a long time, Madden said, but continues to rely on the mineral industry for 70 percent of its revenue. Besides, he said, Wyoming has no tax structure to benefit from a diversified economy, with large tax breaks for industry and low property taxes.

Several lawmakers opposed using rainy day money to fund private enterprise while Wyoming citizens face reduced services from state budget cuts.

Harshman replied with an impassioned defense of diversification. The rainy day fund was created by past Legislatures for just this moment, Harshman said.

“What’s the big dream here?” he asked the House members. “What’s the plan? What are we going to do with Wyoming’s money?”

Harshman also expressed a frank acceptance of the state’s reliance on minerals. “Most of us in Wyoming are freeloaders,” he said. “That’s a fact.”

The state will have to take a good look at its finances and tax structure, he said. It can’t continue to do some of the things it’s done in the past, he said. As an example, he used the diversion of revenue to build expensive water projects that benefit a fairly small number of irrigators.

“But that’s a discussion for another day,” he said, and right now the state needs to rely on the rainy day fund to keep moving forward.

The bill — HB253 — passed handily in its first reading on the House floor on Tuesday. Upon the bill’s second reading Wednesday, however, Madden successfully amended it to tighten the requirements for applicants. Any project considered for funding would have to be analyzed by the state treasurer to evaluate both potential new revenue and potential costs for the state. Madden described the amendment as an attempt to protect the money in the rainy day fund from unwise spending.

“None of the people sitting in these chairs is going to be there when we pick up the pieces of wrecks on local and state government. and we don’t know if there’ll be [rainy day] funds to bail us out,” he said.

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Andrew Graham is reporting for WyoFile from Cheyenne, where he covers the legislature. Reach him at 443-848-8756 or at [email protected]

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