Great idea, and it’s put almost $2 billion into Wyoming’s coffers.
But closer analysis of the fund — known officially as the Legislative Stabilization Reserve Account — reveals that Wyoming forgot to include a few important things. Specifically, how much money should be put into the account each year to adequately cover any hits the state takes to its remarkably volatile energy-driven revenue stream.
It’s great to save money, but what value does it actually have if nobody can agree on when and how it can be spent? Meeting two days in Buffalo last week, the Joint Interim Revenue Committee examined the two top priorities as outlined by the Legislative Management Council:
— Devise a savings target for the rainy day fund, and mechanisms guiding when and how to spend from the fund.
— Recommend a method to revise the way the state distributes state sales and use tax collections to Wyoming’s 99 cities and towns and 23 counties.
Both of these issues are expected to dominate discussions during next year’s legislative session because they are so vital to the future of the state and its people. Wyoming’s local governments need a more consistent, sustainable source of revenue, and lawmakers need to determine how to use the approximately $2 billion they have socked away for emergencies.
In several ways, Wyoming is fortunate it must deal with both issues. The fact state government is now able to directly distribute tax money to city, town and county governments helps local entities better budget to provide essential services and plan future projects. Having a well-stocked rainy day fund means the state doesn’t have to raid other accounts whenever tax revenue fails to meet expectations.
But the state’s formula for direct distribution of sales tax collections has led to huge differences in the amount of revenue given to local governments, since it uses population figures and actual sales tax collections. Smaller cities, towns and counties find it tough to survive, even though the state has “hardship” money available for the bottom 20 percent of Wyoming communities.
Meanwhile, state residents should be glad legislators are saving large sums of money instead of spending it like drunken sailors, as some states’ solons do. But Wyoming lacks an agreed-upon savings goal and the mechanisms for how to determine what triggers when and how its rainy day funds can be spent.
The Republican legislative leadership maintains the state should have at least $3.5 billion in the the rainy day fund, the amount necessary to fully fund state government for a biennium. However, GOP Gov. Matt Mead and Democrats generally believe that it has been raining hard enough in recent years for the state to begin spending at least a portion of its emergency funds to fix crumbling infrastructure, including highways that have deteriorated as federal funds have dried up.
The state contracted the Pew Charitable Trusts to study the rainy day issue and recommend guidelines to use the rainy day fund. During its presentation to the Revenue Committee last Friday, Pew officials pointed out that Wyoming is second only to Alaska — another state primarily dependent on minerals revenues — in the volatility of year-to-year revenue.
The Revenue Committee — the hardest-working panel in the Legislature, in my opinion — listened as Pew officials reported about how Wyoming needs to follow a savings model developed by Minnesota. That state uses a thorough examination of all of its revenue streams to set a savings target that is based upon a slew of factors that would make a layman’s head spin, but are apparently easy for economists to interpret.
While there will be natural partisan divides in developing an agreement on the rainy day fund strategies, it will likely be easier to reach some kind of compromise than if (and how) Wyoming should revise its direct-distribution formula for local government appropriations. Distribution formulas can be much more controversial.
“Every time you tinker with the formula, you’ve got some counties that will win and some that will lose,” said Rep. Mike Madden (R-Buffalo), Revenue Committee co-chairman. He outlined four potential changes for the panel to consider at a future meeting. Madden said the proposals are examples of “power equalization,” an attempt to help smaller, poorer cities, towns and counties receive supplemental funding to meet their needs.
The best example of power equalization, according to Madden, is the public school system. The state was ordered by the Wyoming Supreme Court to devise a funding system that gives each student equal access to the educational “basket” of goods and services, no matter the size or wealth of the district in which they live.
“We’re not talking about anything nearly that extreme,” Madden said after some committee members — perhaps jokingly — compared the school funding system to “socialism.”
The fact remains, though, that the current distribution system to local governments already produces winners and losers. Officials of the Wyoming Association of Municipalities noted there are many towns and cities in the state that do not have enough retail business to rack up sales tax collections, for example. There’s also large variation in population among Wyoming communities, making population-based calculations problematic. The largest county, Laramie, has 91,881 residents; the smallest, Niobrara County, has 2,484.
Even with weighted averages meant to help smaller counties, in 2013 sales and use tax distribution per capita ranged from $153 in Albany County to $1,207 in Sublette County.
Sundance Mayor Paul Brooks explained the problem, which came into play when new businesses and more construction came to his city. The growth meant Sundance missed qualifying for the state’s “hardship” funding by a single dollar.
“All of a sudden we’ve got all this building going on, and we lost $160,000 in funding,” Brooks said.
With more than 1,000 residents, his city will be able to survive economically, the mayor said. But with proposed reductions, smaller communities with fixed costs and state-mandated services to offer will probably be in jeopardy.
“You’re going to see some towns with 500 people have to close down,” Brooks predicted.
Since adopting the direct distribution system in 2004, the state has provided local governments a total of $715.7 million, according to Dean Temte, the state’s senior fiscal analyst.
Still, Saundra Meyer, a Wyoming Association of Municipalities board member and former state legislator, said there have been some serious shortfalls to local revenues. In 2007, when the Legislature exempted groceries from the state’s sales tax, local governments lost $45.6 million per year.
“(The Legislature) had a provision to make up the sales tax money, but they only did it once,” said Meyer, a member of the Evanston City Council. Many communities have never recovered, she added.
The state’s fiscal picture appears bleak for the immediate future, at least in terms of revenue. Temte said current oil prices are approximately $10 per barrel less than the price projected by the state last January. Natural gas prices are roughly $1/mcf less than the state forecast.
“These two differences alone would result in a decrease in General Fund/Budget Reserve Account revenues in excess of $360 million in fiscal years 2016-18,” the analyst’s report to the Revenue Committee noted. (Read WyoFile’s coverage of the potential revenue decline.)
Madden, Revenue Committee co-chairman Sen. Ray Peterson (R-Cowley) and the rest of the committee members have their work cut out for them before the budget session begins. It’s amazing to consider the Legislature created the rainy day fund without spelling out how much it was supposed to contain and rules for its use.
But the public can take some comfort in the fact that the legislative leadership has the Revenue Committee working on solutions to myriad problems. For Wyoming, it’s better late than never.
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