Wyoming is facing fiscal challenges today that are totally foreign to what it has witnessed for at least the last 12 years and perhaps even longer. We have enjoyed, for a decade or more, a generally favorable environment for coal, natural gas and crude oil — until the events of last year. Any dips that occurred in one of these top three minerals was masked by relative health in one or two of the others. Rarely have we ever seen all three tank at the same time.
Economic experts in the energy markets are increasingly suggesting a structural change within and between these industries that point to the possibility of a ‘new normal’ when it comes to reliance on mineral markets. This renders as unsustainable a Wyoming fiscal and tax structure that has relied on about 70 percent of the state and local revenue coming directly or indirectly from minerals.
The Governor and Legislature have taken wise and prudent measures to cut budgets in departments that depend largely upon general funds — carefully excluding schools. A brief description of the chronology of these cuts are as follows. Once the October report of the state’s Consensus Revenue Estimating Group was submitted to the Governor, he made appropriate cuts from the standard and exception budgets that were financed by general funds.
A second CREG report in January concluded that the October report was too optimistic, requiring further cuts by the Legislature coupled by using some funds from the “rainy day account” (the Legislative Reserve Stabilization Account). A third CREG report in late spring 2016 concluded that the January CREG report was again too rosy, causing the Governor to make another $248 cut in general fund budgets. Just at the end of August, the Governor announced that even more cuts will have to be made to finish the FY17-18 Biennium.
We haven’t even started talking about schools
All of this doesn’t even consider the future condition of the school foundation program, the funding mechanism for Wyoming’s schools.
In sum, the total cuts called for over this entire process have roughly involved a reduction of general fund biennium spending from a little over $3.5 billion to a little over $2.5 billion in an eight-month window of time.
We cannot cut ourselves into fiscal prosperity.
The question is, if this is the new normal, is it logical that we still maintain the fiscal imbalance where one industry supplies 70 percent of the funding for the cost of services for 100 percent of the populace?
The Joint Revenue Committee has a responsibility to react in a learned, judicious fashion and perhaps begin rethinking our tax structure along with monitoring spending patterns that have developed over the past decade or so. Much of the latter has been dealt with since we are now down to or below FY ’03-’04 spending in inflation-adjusted terms.
The first thing wisely requested by the Management Council was that the Revenue Committee look at tax exemptions. Tax exemptions have developed over the years purportedly to provide economic incentives to certain industries and businesses. From an economic perspective they are really tax appropriations. That is, exemptions work the same way as taxing an industry and subsequently appropriating the money necessary to pay the industry back an amount equal to the original tax.
Related to this is the possibility of broadening the sales tax to include services that would result in our excise tax system looking more like those of surrounding states. These possibilities do not require changing the sales and use tax rate. Better yet, action in these two arenas alone would close, by far, the majority of our structural fiscal deficit.
Other logical areas to consider involve taxes that do not automatically rise with inflation such as cigarette taxes. Taxes on these items are levied on a per-pack basis. The taxes on cigarettes have not been changed in 10 or 15 years. Yet prices have gone up for the product itself. A similar argument can be made for taxes on alcohol, fuel and a variety of other commodities.
Finally, the Revenue Committee will review the refined results of a study that suggests that the wind resource in Wyoming is taxed less than other electric power resources such as oil and natural gas. It is important to assure our citizens that the state of Wyoming is not picking favorites when it comes to energy resources.
Many of these revenue issues as well as others will be debated by upcoming Revenue Committee meetings. An income tax, on the other hand, is one in which I have perceived no interest among committee members nor among constituents for that matter. Such a tax would mean an entire new tax structure with new administrative personnel when a broadened sales tax might gather nearly the same amount of revenue without the added expense. Nonetheless, serious discussions will occur at the Joint Revenue Committee meeting to be held in Buffalo on Sept. 22 and 23.
(Read former Sen. John Hines’s Pete Simpson Forum piece on this revenue topic.)
Republican Rep. Michael Madden of Buffalo is chairman of the Revenue Committee of the Wyoming House of Representatives, where all tax legislation must originate. As such, he is also co-chairman of the Legislature’s Joint Revenue Committee. He holds a PhD in Economics from Iowa State University and has served in the Wyoming House since 2007. As chairman of the House Revenue Committee he has sponsored and managed legislation dealing with fuel taxes, property taxation, revenue volatility and funding for local governments — Ed.