Observers have long dreaded the arrival of an economic perfect storm in Wyoming, but not even the most pessimistic of the bunch imagined the epic collapse that a recent Legislative Service Office memo says is in store for the state.
Its “optimistic” scenario shows a loss of $556 million through the 2021-22 biennium. On the other end of the scale, where no one in state government wants to stare, the “pessimistic” forecast is a $2.8 billion deficit.
House Revenue Committee Chairman Dan Zwonitzer (R-Cheyenne) told WyoFile reporter Andrew Graham, who broke the story about the memo, that the catastrophic fiscal predictions represent “a full-blown Armageddon to Wyoming’s budget.”
That’s not hyperbole; it’s a stark but rational analysis of where the state stands today.
The coronavirus pandemic, a tanking stock market and a foreign oil war are primarily to blame, and LSO’s wide range of predicted outcomes is understandable. No one knows exactly when the worst will be over, or what happens after that.
Wyoming officials have recognized the underlying economic vulnerability for years: the state’s complete dependence on the minerals industry for revenues to operate state government. However, they chose to ignore it and refused to pursue alternative revenue sources or fix a broken healthcare system, deciding instead to spend part of the “rainy day fund” to buy a few years until fossil fuels made a comeback.
Anyone taking even a cursory look at what’s been happening in other states knows that strategy is doomed. The fight against climate change has seen the rest of the country move rapidly to renewable resources for several years. Demand for coal is sinking fast and abundant natural gas supplies have caused prices to crater.
Oil was the last of fossil fuels’ three-legged stool still standing, but the price war between Saudi Arabia and Russia has put an end to that, too. Even without that hit, though, oil wasn’t going to save Wyoming’s day.
The COVID-19 outbreak has greatly deepened the pain for a state economy that was already hurting.
The challenge for Gov. Mark Gordon and the Legislature is to dig Wyoming out of this huge hole by implementing reasonable taxes, strengthening the state’s renewable energy industry and making solid economic diversification choices. If that wasn’t difficult enough, they also need to be careful not to ruin an above-par educational system or balance the budget on the backs of the poor.
I think with the right mix of revenue-generating actions and a lot of luck, particularly with its investments, the state can probably survive a $556 million shortfall. It’s whittled away at the nearly $1 billion structural deficit we had two years ago and gotten it into the $300 million ballpark today. Much of that reduction, though, was the result of spending savings that won’t be replenished and delaying a batch of capital construction projects.
The LSO’s intermediate prediction of a $1.7 billion deficit would be extremely difficult to overcome, though doing so over many lean years is at least plausible. But $2.8 billion? That’s hopeless. Frankly, I don’t want to even think about it getting that bad. All Wyoming residents would have to deal with the economic wreckage.
Passage of the $2.2 trillion federal CARES Act means Wyoming will get $1.25 billion in coronavirus relief, and that’s welcome news. But the state won’t know how it’s allowed to spend the money until the Treasury Department announces its guidelines. Congress appropriated the funds to allow states to deal with the pandemic, not fill holes in its budget or pay for normal operating expenses.
In its preliminary planning for a one-day special session in the next few weeks, the Legislative Management Council on Thursday kicked around a few ideas Gordon proposed. One involves removal of hazardous waste at the Wyoming Resource Center in Lander and a construction project at the State Hospital in Evanston.
While the governor hasn’t called for a moratorium on evictions that would help the working poor better cope with the coronavirus crisis, he did ask lawmakers to consider ways to help both tenants and landlords during its special session. If it’s allowed, that would be a good use of federal relief funds.
Last week Gordon announced a state-government hiring freeze and ordered departments to identify possible budget reductions. But cuts alone will only make a modicum of difference to Wyoming’s plight. Discussion of tax hikes and new taxes during a longer special session in June or July will be critical to the state’s chances of economically surviving the pandemic, including any new surges of the disease.
In February, the House wouldn’t even consider a new version of a proposed corporate income tax that it had approved a year before. The Senate Corporations, Elections and Political Subdivisions Committee killed the initial measure in 2019.
The latest bill, sponsored by the Joint Revenue Committee, would have imposed a 7% income tax on corporations with at least 100 shareholders that operate in Wyoming. These are all based out of state, since no qualifying corporations exist in Wyoming.
The reluctance of legislators to tax profits that huge corporations just ship out of state was mind-boggling. Now, approving the tax at an even higher rate to generate more revenue should be a no-brainer.
Despite pledges against raising taxes, many Republican lawmakers will be under pressure to hold their noses and consider increasing the 4% state sales tax. However, they should resist, because this is the worst time to pass a regressive tax that will hit low-income residents who have lost their jobs the hardest.
But it is precisely the time for the Legislature to finally approve a state individual income tax — which has never even been seriously considered in Wyoming since it was rejected several times in the 1930s. Lawmakers during the Great Depression voted instead for a “temporary” emergency state sales tax that never went away.
Unlike a sales tax, an income tax would target the state’s wealthiest citizens, requiring them to pay their fair share to help finance state government. While not even collecting a dime from residents making less than $50,000 a year, the measure could generate up to $300 million per year.
This is hardly a new idea. In 1998, the Tax Reform 2000 Commission, created by the Legislature to deal with sinking mineral tax revenues, made passage of both corporate and individual state income taxes its top priority.
The state avoided finally having to bite that bullet when another mineral industry boom hit at just the right time to make the issue moot. That’s not going to happen again.
Finally, it’s imperative that the state’s response to the pandemic include Medicaid expansion, which the Legislature has flatly rejected since 2013. Republicans ignored vast support for expansion by doctors, hospitals, the insurance industry, the business community, clergy, social services representatives and even then Gov. Matt Mead.
After thousands have lost their jobs in the past month due to COVID-19-related business closures, many more residents will now qualify for an expanded Medicaid program. They need health insurance after it was stripped from them through no fault of their own.
Throwing away nearly $1 billion in federal funds during the past seven years amounts to legislative malpractice by phony fiscal conservatives. If they continue bowing to the GOP right wing and don’t expand Medicaid during a summer special session, voters in November must replace them with new lawmakers who will.
Legislative leaders are now staring straight into the economic abyss they helped dig. They should only have one more chance to get things right.