Lawmakers could divert mineral revenue earmarked for deposit in the Permanent Mineral Trust Fund and instead use the money to fund state government during the current budget crunch.
The Joint Appropriations Committee will consider a draft bill in December changing Wyoming’s mineral revenue distribution to send more of the income directly into immediate spending and less into savings in the state’s massive trust fund.
Despite contracting budgets in recent years, the state’s Permanent Mineral Trust Fund has continued to grow. The PMTF, which holds more than $7 billion, is one of the 100 largest sovereign wealth funds in the world. The Wyoming Constitution bars spending the trust fund’s deposits, but its investment income and interest earnings help fund state government.
The draft bill briefly discussed by the Joint Appropriations Committee on Friday would permanently divert some severance tax money away from the PMTF and into the state’s general fund for immediate spending. Lawmakers used a temporary diversion in 2016 to shore up budgets. Discussion on making the shift permanent was tabled, but the bill will be considered when the committee begins two weeks of budget talks in December.
On Friday, committee members received an update on the state’s fiscal deficit — which Legislative Service Office staff estimated at $770 million over the coming two-years. That number includes both general government funding and K-12 public education.
Throughout the last eight months, public discussion and media attention have focused on disputes between raising taxes or cutting budgets. But Friday’s discussion centered on a third, less-discussed set of solutions — rearranging existing revenue streams. The idea underpins the draft bill on severance distribution, but it’s not without detractors. Such changes involve risk, some elected officials say.
Mineral tax streams
Wyoming collects a 6 percent severance tax on minerals. As an energy state, it’s a significant bulk of the revenue. Of those 6 percentage points, Wyoming’s Constitution mandates that 1.5 percentage points feed the PMTF. What’s left is split into various accounts — with the lion’s share going to the state’s general fund, according to the Legislative Service Office.
Starting in 2005, the Legislature decided to take an additional 1 percentage point of the severance tax off the top for deposit into the PMTF, to further accelerate the fund’s growth.
In 2016, as the state’s mineral revenues plummeted and money for state services ran short, the Legislature voted to end the extra diversion to the trust fund and instead use that money for state operations. On Friday, LSO staff estimated that amount at $89 million a year.
The draft bill to be reconsidered in December would make that change permanent. Lawmakers who support it say the state needs to focus on surviving an energy downturn, not on growing its trust fund.
“For the foreseeable future we’re gonna need this money,” said Senate Appropriations Committee Chairman Bruce Burns (R-Sheridan).
“Should we get into another boom in the future, that would be great, then those future legislators can then vote to move that money … back to the permanent mineral trust fund,” he said.
Despite the immediate fiscal troubles, some lawmakers on the Joint Appropriations Committee worry taking the extra one percent severance money away from the PMTF could make the fund lose ground to inflation. While the PMTF can’t be spent, if it’s body doesn’t grow fast enough it can lose value.
“I’m opposed to this bill,” said Rep. Sue Wilson (R-Cheyenne). “I think we have an obligation to future generations to have this available to them and to not say ‘we don’t want to cut our own benefits but we are happy for you to cut yours.’”
State Treasurer Mark Gordon expressed concern about inflation in interviews with WyoFile in January. The downturn in mineral revenues affects the amount of money placed in the PMTF each year as well, he said. In fiscal year 2016, the constitutionally mandated 1.5 percent came to $100 million less than it did in 2012. If the fund’s growth slows too much, inflation rates could catch up with it and hurt its investment potency, he said.
Such fiscal prudence with a $7 billion trust fund can seem excessive to some, particularly after the Legislature cut $230,000 to a program for low income mothers during the 2017 general session. However, in Wyoming’s fiscally conservative legislature any move to divert away from savings raises eyebrows.
Agencies would get used to the extra money from the 1 percent, making it difficult to take it away from them, said Sen. Ogden Driskill (R-Devils Tower). The extra 1 percent would “disappear forever into government,” he said.
But fiscal prudence could go both ways, said Rep. Albert Sommers, the House chairman of the Select Committee on School Finance Recalibration. One immediate need, he said, is to maintain schools, whose upkeep and construction have been funded by bonus payments on new coal mine leases. Those bonuses have dried up and there is little indication of their return in any significant amount. Various lawmakers have said that without funding maintenance, the money spent on new schools will go to waste as they degrade.
“If we do nothing else we need to put roofs on schools,” Sommers said.“We have to face up to this at some point.”
Shifting revenue streams away from savings accounts could pay for that maintenance without raising new taxes, he said.
While tabled Friday, the draft bill ensures this third element — existing revenue streams — will be part of the discussion about tax hikes and budget cuts.
Update: At a Select Committee on School Facilities meeting Monday, Speaker of the House Steve Harshman and Rep. Tom Walters, who is also an Appropriations Committee member, brought a bill to divert the 1 percent severance tax towards school construction and maintenance, according to a report in the Casper Star-Tribune. -Ed.