And the beat goes on! At least the Wyoming cycle of boom and bust goes on and with it the recurring pains when mineral revenues tank. It’s an old story. And, today, it’s a painful story because the “boom” seems to be disappearing from the “boom-bust” cycle. As University of Wyoming visiting lecturer, Trevor Houser, partner at the research firm Rhodium Group, pointed out recently, this time “it’s different.” The coal market may be in permanent decline and with it the revenues Wyoming has so thoroughly depended upon all these years to support state services and education. To illustrate the mood, it got downright rough lately in Cheyenne when the management council, in a contentious session, changed language for consultants looking into the school funding model. Members of the interim education committee claimed overreach. And, tempers flared. As one wag noted, “It’s hard to be a happy camper when the well’s running dry.”
This week’s forum addresses the troubling challenge of funding education during a bust cycle. I’ve invited a former state senator, a current one, and a high school teacher, to address the issue. Here, State Sen. R. Ray Peterson, longtime legislator from Big Horn County, chairman of the Senate Revenue Committee, and member of the Select Education Finance and Recalibration Committee, forwards the case for budgetary belt tightening across the board but particularly in education while outlining measures for added revenue streams that might help stabilize things.
At bottom is the dilemma of how Wyoming meets its constitutional obligation to provide quality education equally for all its citizens in the face of an unprecedented $400 million shortfall in revenues needed to accomplish that end. Nothing is more distasteful than talk of raising taxes, but we probably won’t be able to cut ourselves out of this dilemma either. So, what’s your thinking? In the words of Bob Dylan “the times, they are a changing” and we need citizen participation in this discussion as never before. We’ll look forward to your comments — Pete Simpson.
The 2017 legislative session brought a few challenges, but none larger than the projected shortfall of nearly $400 million to our K-12 educational funding model. These funds are used by the school districts for salaries as well as all other operational costs. We will also have challenges in funding for major maintenance for all school buildings, and for new school construction. The coal lease bonus money, which we used for new school construction, is all but gone and so a new funding source will need to be tapped for meeting those construction needs. Overall, the shortage is therefore over $500 million or nearly a tenth of our total biennial budget.
Yet education funding is only a portion of the challenge. All state-funded agencies have undergone reductions of their budgets. During the 2017 general legislative session, efforts were made to reduce our state government workforce, as well as to implement a hiring freeze for most of the state agencies. The budget of the Department of Health alone was reduced by over $90 million. K-12 education is the largest portion of the state’s budget — nearly 25 percent — followed by the Department of Health — nearly 20 percent — and so education remains the Legislature’s priority.
That is also evidenced by the reductions to education as compared to other state agency budgets: the education budget was reduced this last session by 3 percent as compared to other state agencies that took between 8-12 percent reductions. The Legislature knows that further reductions are needed but wanted to see if some of the shortfall could be made up with the possibility of a rebounding minerals market over the next few months.
That leads me to the next challenge, Wyoming’s current tax structure: 70 percent of all tax revenues comes from the mineral industries in the form of severance and ad valorem taxes, while only 30 percent comes from the other citizens in the form of sales tax and property taxes. The 70/30 split and our dependency on our mineral industry is the cause of our boom-bust cycles that play havoc with our state and local government budgets. Another challenge we face in Wyoming is the fact that we are the least populated state in the Union — a population of approximately 580,000. Any effort to spread out an increase in taxes over such a small population, without devastating effects, is challenging to say the least.
Our Revenue Committee Assignments
The Revenue Committee was assigned by the Legislative Management Council to look at a number of revenue options and report to the Select Education Finance and School Recalibration Committee no later than Friday, November 10, 2017. With this assignment, we were asked to generate proposals to include generating additional revenues, or diversion of existing revenue streams, in the amounts of $100 million, $200 million, and $300 million to help offset the projected shortfall to education for school operations, school facilities, and major maintenance, as well as shortfall to other state government operations.
The Revenue Committee will look at different taxing proposals including a Gross receipts tax and a review of other taxes such as the lodging tax, tobacco and alcohol tax, sales tax, and property tax, as well as a review of fees and exemptions. Other assignments included an evaluation of local government revenue options, uncollected revenue owed to the state and enforcement mechanisms, and reviewing the statute of limitations on excise taxes. Basically our task is to leave no stone unturned as we study the taxing structure of Wyoming. The Management Council gave the Revenue Committee five additional days of committee time to get through these assignments.
Our Past Efforts
To have a clear understanding of our current situation, it would benefit all involved or wanting to discuss the issue, to review a few of the past efforts of the Wyoming State Legislature during the years of surplus revenue and what efforts were made to secure more solid ground on which to deal with our budget challenges. This is the question of what was done with excess surplus revenue during the boom years. As has been stated, “This is not our first rodeo.” Knowing full well that a bust would come, the Legislature made efforts to secure a more stable budgeting and expenditure process by funding rainy day accounts that could be used during the bust years.
Almost $2.8 billion had been saved in different accounts in preparation for tougher times. As of now, those accounts stand at around $1.8 billion. The legislature has been using the rainy day accounts for the past three years in trying to balance the budget, and will continue to tap the rainy day account until all those savings are spent. Another effort to supplement our budget without raising taxes was to structure the investment portfolio for our savings in a manner designed to generate interest revenue that could be used in downturn years. 2016 brought a $600 million dollar downturn in revenues; the interest returns on the portfolio in 2015 were enough to cover that initial downturn. This past year the performance was not as good and so the interest revenue was not there to bail us out in 2017 as it did the year before.
In the surplus years, the Hathaway Scholarship Fund was created to help families meet college expenses and promote higher education in our state. Again, this was done without raising taxes. Other surpluses were used to build new schools, fund education, and maintain schools without raising taxes. Finally, large amounts of surplus revenue were shared with towns and counties for local infrastructure needs before revenue tightened. Again, this was accomplished with no additional taxes being assessed. These efforts and many others were all done with the thought in mind of preparing for the next downturn.
What Do We Do?
As revenues increased, naturally so did budgets and now that revenues have decreased I feel that budgets must decrease as well. These reductions certainly include education expenditures. These budgets grew over time, just as the other budgets did. Schools will need to reduce the amount of money we spend per student while maintaining our quality in education: this will be their challenge. We need to remember that we have many citizens on fixed incomes and businesses that will be seriously affected by higher taxes. To try to justify our current education expenditures while asking our seniors and businesses to pay more in taxes is beyond me.
These budgets seem to be out of control, as some of our school districts have awarded raises to teachers and staff this year. I don’t think the reality or seriousness of our situation has set in yet. People in many educational positions are making more than our governor. Consolidation must be considered, both in physical facilities where possible and in administration costs. More employee participation in health insurance and retirement would be in line. Capping school employee salaries should be considered.
Activities and days away from school should be reviewed and reduced. The funding model will certainly be reviewed. School districts’ cash reserves should be reviewed. Local bonding capacities and use of local revenues will be looked at. We will need to slow down new school construction projects to a more sustainable level under current revenue levels. Overall, reductions to budgets must be made to allow us to create budgets that are sustainable over time. We must continue the reductions, as well as continually review government expenditures to ensure that we are efficient with our government services and education dollars.
As we talk about diversifying our economy and tax base in Wyoming, we need to get serious about another problem we have. As 50 percent of our lands are controlled by our federal government — that limits our efforts to diversify and expand. We need to address the concern of 50 percent of our land mass being controlled by other people and special interests outside of our state.
Finally, I would hope that Wyoming finally gets serious about addressing the concern of the 70/30 split, and wean ourselves away from the volatile nature of the mineral resources and markets. We have to become too dependent on these industries and need to step up and provide a more consistent revenue stream for our state. If this needs to be done in a stepped-up approach or phased-in model, then let’s get to it. I’m hopeful that our Revenue Committee will be proposing such efforts.
- We’ll need to make even more reductions and cuts to our budgets in both state agencies and education.
- We’ll need to continually review expenditures and revenue to maintain sustainable budgets.
- We’ll need to grow our economy and tax base by keeping more Wyoming dollars in Wyoming while continuing economic development.
- We’ll need to increase taxes, fees, remove additional exemptions and promote a more consistent tax revenue stream.
Sen. R. Ray Peterson is a Republican from Cowley representing Senate District 19 in Big Horn and Park counties — Ed.