This week the Joint Revenue Interim Committee is talking about a “local options tax,” “tourism tax,” and a long list of other “revenue enhancing bills.” It’s not the typical agenda for the reddest state in the nation where anything less than a total anti-tax stance usually disqualifies a hopeful candidate for legislative service.
In other words, when taxes are on the legislature’s agenda Wyoming is in trouble.
“We’ve got a tax system that won’t work for the state in the future,” University of Wyoming economist Robert Godby said.
Mineral extraction and export shoulders nearly two-thirds of the state’s revenue burden. Economists and even some anti-tax Wyoming lawmakers say that a declining role for Wyoming fossil fuels over the next two decades may force a significant restructuring of the state’s tax and revenue scheme.
But can Wyoming’s conservative politics allow for such adaptation? Is it politically viable in Wyoming to spread the tax burden beyond the mineral industry and onto other businesses and even residents?
Senate President Eli Bebout (R-Riverton) has vowed to block any tax increase until he’s satisfied the Legislature has made every cut possible. And several Wyoming GOP county chapters have passed resolutions in recent months joining the call for no new taxes.
“We’re set up to this thought process that we’ll tough it out until the next boom,” Rep. Mike Madden (R-Buffalo), co-chair of the JIRC said. “Well, people are saying there’s not going to be another boom. There’s got to be a change in attitude or we’re cycling downward.”
Doug Gerard is chairman of the Campbell County Republican Party. Gerard, speaking for himself and not the county party, said he believes Wyoming’s politics are flexible enough to do right for the state. But when it comes to discussing how to generate more revenue from new taxes or restructuring the state’s tax and revenue system, it’s much too early. The state has a long way to go in curbing spending first.
“When the rubber meets the road, we will do the right thing, whatever that might be,” Gerard said. “We want to see we’re at the bottom of the barrel, that we’ve scraped as far as we can, and then we will be flexible.”
People should not read into that cut-first sentiment that conservatives are not flexible, Gerard added. “It’s just that we’re demanding we get to the point that we have nothing else that we can do, and we have to change things. And we’re not there yet.”
Wyoming’s lopsided revenue problem
Because oil and gas drilling, uranium, trona and coal mining pay the bulk of Wyoming’s annual revenue, it allows Wyoming residents to enjoy a state tax burden that is among the nation’s lowest. A Wyoming household earning $75,000 annually pays, on average, 3.8 percent of income to the state — primarily through sales and property taxes — compared to the national average 10.3 percent.
The lopsided revenue scheme has made for a wild boom-and-bust way of life that Wyomingites seemed willing to tolerate for the past 50 years or more, so long as there’s another boom over the horizon. Some legislators even relish the opportunity to impose strict fiscal discipline in lean times, describing the state’s attitude during good economic times as “fat and happy.”
But when Wyoming’s fossil fuels lag for too long, and spending cuts to balance budget shortfalls dig deeply into public services, particularly education, lawmakers begin to reexamine the basic flaw of Wyoming’s tax and revenue structure — that it only pays dividends when energy production is full-throttle. For example, Wyoming’s Tax Reform 2000 effort took a serious look at reforming Wyoming’s tax structure after a long dry spell in the 1990s, only to be shelved when a boom in coal-bed methane gas swept through northeast Wyoming.
Today, after several years of deep budget cuts, Wyoming faces a possible $700 million budget shortfall over the next two years, including a $340 million shortfall for K-12 education.
This time coal, which has helped buoy Wyoming’s boom-and-bust low points for some 40 years, is projected to play a declining role in the state’s revenue future.
“The more we absorb the loss from minerals the worse our services are going to be,” Madden said. “We’ll have run-down roads, and people will start leaving. Well, that’s one way to solve the problem. We might end up with 60,000 students instead of 90,000.”
Casper business owner Steve Loftin is a Republican who has been active in local and statewide business groups. The 71 Construction owner says he’s wary of raising taxes to help backfill a budget shortfall. He believes people can become too dependent on the government through services that require continual tax increases. He supports the current spending cut approach to the state’s budget shortfall.
“I think they’re mostly just moving toward cutting what we don’t need, and then see what we really actually have to add,” Loftin said.
It’s been described as a “cut-and-cope” strategy. And it’s one that business owners like Loftin live by. This time last year, Loftin told his crew, especially the younger guys, not to go buy a new pickup heading into the winter season. He recognized that Wyoming was in the midst of an economic depression, and he didn’t anticipate being able to hire his full crew back in the spring.
Construction was slow in the company’s home base of Casper this past spring. When things are slow, you go to where the work is, Loftin said. That means sending your crews to places like Lusk where there was state work to rebuild erosion control for bridges, and to pour a new concrete lot for the state women’s prison.
“We leased instead of bought equipment, and we were just honest with our employees; ‘We might not be able to hire you back,’” Loftin said. “Quite a few borrowed against their 401ks.”
But work picked up through the summer, and 71 Construction eventually hired its full crew, which now consists of some younger workers.
“We’ve had good luck with some people from out of state,” Loftin said. “You hear the accents, and people are for the Green Bay Packers and the Tennessee Titans — some strange place that’s not Wyoming.”
But he also understands, like many of his fellow conservatives, that over-reliance on the minerals industry to carry the tax burden is a strategy that may not last forever in Wyoming. Loftin said the state should scrutinize tax subsidies, and even take a look at sales and use taxes for services. But, he added, “I think an income tax would be the wrong way to go.”
Politics or values?
If a new capital-rich industry were to move into Wyoming today it would cost the state more in services than it contributes in revenue. That’s because, under our current tax structure, only mineral extraction and export is set up to pay major dividends to the budget, UW economist Godby said. “It’s going to require some form of additional taxation on ourselves.”
It’s a dilemma that may come into sharper focus as Wyoming ENDOW — the state’s task force on economic development — explores challenges and opportunities to diversifying Wyoming’s economy beyond energy development.
Rep. Madden said the practical approach to attracting new businesses while still taxing them in a way that pays for the services they will require, is to reconsider property taxes, and sales use taxes. He says commercial property taxes could be increased modestly and still remain among the lowest in the nation.
“We don’t tax any other industries for the purpose of running government,” Madden said, adding that Wyoming’s property taxes are much lower than surrounding states. “That notion that taxes are important when it comes to business location has got to be dispelled.”
The premise that Wyoming’s low tax base is an irresistible lure to new businesses and industries hasn’t borne out, he said. What attracts businesses are a qualified labor pool and a good quality of life. Skilled workers tend to move to communities where they can afford good daycare, quality schools, and diverse recreation and cultural entertainment.
“I want to live in a Wyoming where we have thriving communities, my kids get quality education and my community can afford stormwater repair,” said Phoebe Stoner, executive director of the Equality State Policy Center, which represents labor unions and environmental groups. “We’re not talking about going from a used Ford Ranger to a Cadillac,” Stoner said. “We’re talking about basic things here. You have to invest in order to save money in the future, and we have to be careful so we’re not turning away business.”
The notion that Wyoming’s conservative politics present an insurmountable barrier to tax reform is a misconception, Stoner said. Wyomingites, no matter their political stripe, take great pride in their communities, and that’s why she’s confident calls for greater local government distribution of state revenue, and more local control over taxation, will gain support.
“In my mind, we are a state that really values the idea of small local government and local control,” Stoner said. “Our communities are different, and they are spread across the state. And they don’t want to have their hands tied, which I find to be ironic because we are very eager to point out when these things happen on the federal level.”
Stoner said Wyoming’s politically viable cut-and-cope strategy is dutifully responsive to the will of the electorate. But she asks whether it is visionary, or responsive for future generations.
“I wonder if we could look ahead and see the two different futures? One with us weathering the storm with no new taxes, and one making it as fair as possible, and non-regressive. What would those two futures look like?”
Today, voters in Campbell County will decide whether to approve a controversial quarter-cent excise tax to generate additional revenue for Gillette College and economic development. Gerard, the Campbell County Republican Party chairman who personally opposes any new taxes, said today’s vote may be a bellwether for the political viability for a larger statewide discussion on tax and revenue reform.
“If it passes, it will be a lot easier for other counties to raise their own taxes,” Gerard said.