CHEYENNE— The 65th Wyoming Legislature convened yesterday with much talk about a coming fiscal “storm” but little anticipation that lawmakers will batten down the hatches in the next month.
Lawmakers are painfully aware of the structural budgetary problems for a state facing a decline in its mainstay revenue generator, the energy industry. Signs of more trouble are on the horizon, but few observers expect lawmakers to shore up the state’s budget in any meaningful way this year.
Republican Gov. Mark Gordon first used the “coming storm” image in a November letter introducing his budget to the Joint Appropriations Committee.
He did not describe a storm in his state-of-the-state speech to lawmakers Monday, however. Instead, he said “Wyoming’s economy and the state is strong.” The wisdom of past state leaders to create savings accounts will buy the state time, he said.
“We have time, not a lot of time, but time to make thoughtful decisions,” he said.
Wyoming Supreme Court Chief Justice Michael K. Davis followed Gordon. Reflecting on cuts to the judicial system, the judge gave a starker assessment of the economy.
An already overworked judicial system’s load “may increase as families are under stress, unemployment and poverty increase and businesses fail,” Davis said.
For the first time in four years, the Legislature gathered in its traditional home Monday. A $300 million restoration of the Capitol was so recently completed that an internal letter warned lawmakers of expected technical glitches during the session.
“Things that work right now might stop working during the session,” the letter from the Speaker of the House and Senate President read. “Things will fail and warranty claims will need to be made.”
But a new building’s quirks rank low on the list of challenges facing the 90-member Legislature.
This year’s budget session is four days longer than previous ones due to a change legislative leadership made last year.
The Wyoming Constitution requires lawmakers to leave at the session’s end with a balanced budget. It’s likely lawmakers will tap into a large savings account to cover the deficit, continuing a pattern started following a revenue plunge in 2016, lawmakers interviewed by WyoFile said.
Meanwhile, the two chambers will debate internally and with each other over hundreds of bills as well as the state’s two-year budget. The Joint Appropriations Committee voted to approve the budget bill Friday.
Budgeters shaved off around more than $100 million in expenditures in their first draft. The bulk of those cuts came from information-technology programs. State budgets have been pared down for four consecutive years, beginning with a $250 million cut by Gov. Matt Mead in 2016.
There are indications the House and Senate will scrap over a number of high-dollar building projects, particularly asks from the University of Wyoming. Over the last few years such fights have led to dramatic late-night showdowns between the two chambers.
Every five years, the Legislature convenes a committee to examine what the state’s schools provide students, and determine what it costs. The Legislature will set the terms for the 2020 committee and lawmakers in the Senate see a new battleground for a years-long argument over whether to significantly curtail public education spending.
“It’ll be heavily debated,” Senate Vice President Ogden Driskill (R-Devils Tower) said.
Two lawmakers said they expected the Legislature in 2020 to “kick the can down the road” without conclusive action on an education funding deficit revenue estimators say could grow to between $150-200 million a year by 2022.
The savings account, called the Legislative Reserve Account and nicknamed the “rainy day fund,” has saved the state a lot of angst in a time of declining mineral revenues, Driskill said. “It’s been absolutely wonderful that we’ve been able to stabilize using these really big funds,” he said. Two concurrent factors are growing Wyoming’s budget deficit. First, public education in the state is expensive, and courts have limited lawmakers control over those expenses. Second, lawmakers have declined to rewrite the state’s tax codes to raise revenue from sectors other than the ailing energy industry.
There is little appetite for tax reform, and the debate over whether to cut education has pitted the House against the Senate in the last three sessions. Driskill anticipated much of the same this go-round.
“It’s gonna be another year of kick the can down the road,” he said. “I’m not going to look much at taxes in general until education comes to the table.”
But the rainy day fund’s longevity is threatened by continued depletion and slow replacement. Some worry that within five years, lawmakers will draw it down to a point where it’s no longer useful or sustainable.
“The road that we’ve been kicking the can down ends,” said Rep. Dan Zwonitzer (R-Cheyenne).
This will be Speaker of the House Steve Harshman’s fourth year rallying the politically more diverse House against a united Senate. He broke a state tradition by not stepping down from the speaker’s chair after one term.
Harshman (R-Casper) has blunted the impact of revenue decline by shifting revenue streams and drawing on investment earnings and savings accounts. He sees opportunities to continue that work this session, he said. But opposition to those moves, which critics say rob the state of future savings to cover current problems, is growing.
“I’m just trying to give ourselves a little time,” Harshman said in an interview Friday. “I know people are getting tired of it.”
Education’s next fight: Recalibration
The process to reset education costs is the legacy of a series of Wyoming Supreme Court cases in the 1990s that mandated the Legislature to provide an equal and high-quality education to school children around the state.
Every five years the Legislature hires outside consultants to review the cost of education in a process called recalibration. Consultants study what’s being offered to students, and how much it should cost. The Legislature is supposed to fund education to the amount determined in that study.
The Legislature last undertook its regularly scheduled recalibration in 2015. Then, as a debate over education funding began, lawmakers conducted an early recalibration in 2017. Lawmakers seeking cuts hoped the study would find cost savings. Instead, consultants found the Legislature was underfunding education by around $70 million a year, given what it was asking the school system to do. Lawmakers rejected the study.
The consultants have taken cost inflations into account and additions to what schools are providing, without looking at the foundations of what drives school funding costs, Driskill said. This year, he is hopeful the committee will embark on a deeper dive that might find savings, he said.
“We really need that ability for whoever does recalibration to look at the basket of goods [being offered],” he said, “not just do an inflation increase.” He predicts the House will resist that idea.
Comments by Harshman suggest that’s right. Recalibration is required by law, he said, and is already a comprehensive look at education. “I think those people who say [it’s not] have never been involved in it,” he said.
In his speech to lawmakers Monday, Gordon endorsed such an examination into the “basket of goods.” However, he couched it as needed modernization. The state’s education system “was crafted before Wyoming schools had access to the internet,” he said.
Another sentence in his speech, however, could be read as a nod towards cuts. “The valve on education funding is stuck open,” Gordon said, “and will require further consideration by this body as to whether that plumbing will hold up over time.”
Limited revenue options
The other side of the structural deficit — incoming revenues — may receive less debate depending on what bills get introduced.
The Legislature convenes with a limited number of bills to raise new revenue for the state. House Minority Floor Leader Cathy Connolly (D-Laramie) has a bill to impose a 4% personal and corporate income tax that would raise $115 million a year.
“It makes no sense to continue the way that we’re going now, so we have to talk about taxation,” Connolly said in a press conference Monday. “We prided ourselves on being low taxation but honestly we’ve just had a sector of the economy carry our needs.”
Given the anti-tax attitude of many in the House, Connolly’s bill is unlikely to gather anywhere near the two-thirds majority required for introduction during the budget session. House leadership has held back tax bills from introduction and debate in past sessions.
Advocates for tax reform and its fierce opponents will both watch one bill closely in the coming days. The Joint Revenue Committee voted this year to advance an income tax aimed at out-of-state large corporations like Walmart or franchise restaurant chains.
The bill would raise around $23 million a year, according to a fiscal estimate by the Legislative Service Office.
House Bill 64 – The National corporate tax recapture is an evolution of a bill that leaders of both chambers backed last session. The bill passed the House with 44 votes. It died when support in the Senate suddenly crumbled in the face of opposition from corporate lobbyists and conservative activists rallied by the Wyoming Republican Party.
Lawmakers gave mixed reviews about whether they think the new version can survive the two-thirds vote. If supporters lose five votes from last year, it will die.
Voters haven’t given a clear message to lawmakers on taxes, one House Revenue Committee member argued.
“There has not been a massive ground-swelling from the public sector that would indicate people have an appetite for this type of Legislation,” second-year lawmaker Rep. Cyrus Western (R-Sheridan) said. By the public sector, he said, he means people who collect a government paycheck. Lawmakers aren’t hearing from the “third grade teacher who takes the time to call their representative and says we need to talk about this,” Western said.
He doesn’t expect the corporate income tax bill to get the 40 votes it needs, he said.
Connolly is also bringing a bill to raise sales tax by one percent, to 5%. The bill would bring in $200 million a year and is cosponsored by both House and Senate Revenue Committee chairman, Connolly told reporters Monday. The bill is not yet available to the public.
‘It is a tortuous process’
Harshman welcomed disagreement with the Senate across the spectrum of issues. Friction was built into the system, he said.
“We shouldn’t agree, we should argue and fight,” Harshman said. “It is a tortuous process.”
All the sound and fury isn’t leading to progress on the state’s biggest issue, however, one legislative observer and former lobbyist said.
“It’s pretty amazing, and that’s being kind, that Gordon can write, ‘we’ve got a fiscal storm here already,’ but we’re not going to do anything about it,” said Larry Wolfe, a longtime lobbyist with Cheyenne law firm Holland & Hart who is now retired.
Like Zwonitzer, Wolfe said the state’s leaders are running out of time to head off a catastrophe. Oil and gas prices are always volatile and look poised to stay low, he said. Coal markets are in sustained decline.
“There’s this prayer that Wyoming has always had which is some force way beyond our control is going to come bail us out,” Wolfe said. “Nobody has any idea what that force is anymore.”
Legislative leaders acknowledge the challenge. Citing low natural gas prices, Harshman said the pending problem could be “worse than coal.”
Future lawmakers will be left holding the bag, Wolfe said. “When this really comes home it’s going to be a bloodbath,” he said. “When whoever is standing around in the Legislature and having to deal with hundreds of millions of dollars per year of deficits and no savings.”
Zwonitzer agreed. A true accounting for energy’s decline, when it comes, will be harsh, he said. “Every economic indicator for Wyoming is saying it’s going to get worse,” he said, “at the same time all the legislators I talk to don’t see a path forward this session.”