Gubernatorial candidates talk diversification, not taxes

The six candidates vying to be the Republican nominee for governor jousted last week over economic diversification but largely stayed away from tax reform.

Meanwhile Democratic gubernatorial candidate Mary Throne tried turning conservative messaging against the Republican candidates. She called it “fiscally irresponsible” for them to ignore the tax structure if Wyoming is ever to escape the highs and subsequent withdrawals of its energy industry dependence.

At candidate forums in Lander on Saturday and Cheyenne on Monday, Republicans were quick to tout the potentials of specific industries and celebrate company success stories.

Sheridan businessman Bill Dahlin pushed for the state to engage in an emerging industrial hemp industry, which he says could be Wyoming’s next cash crop. Jackson investor Foster Friess spoke twice about Electrichlor LLC, a Laramie company that produces a device in demand from the shipping industry. Both Friess and Cheyenne attorney Harriet Hageman suggested building a glass factory near Wyoming’s trona deposits to add value to trona mining in the state. Sam Galeotos, chairman of a technology services company, leaned toward courting technology businesses while acknowledging that Wyoming lacks the skilled workforce the high-tech industry looks for.

But when asked how the candidates would make new businesses pay for themselves, given an imbalanced state tax code that collects significant revenues only from the minerals industries, they acknowledged the problem but leaned away from tax changes as a fix.

A recent study conducted for the Legislature’s Joint Revenue Committee by economic forecasting firm REMI describes a Wyoming tax code ill-suited to capitalize on new economic activity. The report has pushed political leaders to grapple with a chicken vs. egg economic question: Which comes first, diversifying Wyoming’s tax code or its economy?

The quandary is tricky for gubernatorial candidates who want to talk about their ideas for economic diversification but are loath to discuss new taxes. Most chose instead, this week, to focus on spending cuts or argue for forms of diversification they said would avoid the paradox outlined in the REMI study.

Cuts

Hageman called the study an “eye opener” and told WyoFile it indicated the state should lean into the mineral industry, not back away from it. Instead of looking for industries outside that sector, Wyoming should continue efforts to develop new coal products and other alternative uses for minerals — thus boosting the work that fills state coffers.

“In terms of diversifying our economy what I’ve been talking about is industries that are symbiotic with our current industries,” she said. The glass factory for trona was another example of that strategy.

Cutting state budgets will solve the state’s deficit, Hageman said, dismissing tax reform. “I do not believe we need to look at the revenue side of this,” she said.

The state needs to reduce the emphasis on new businesses being a tax revenue generator to begin with, Hageman said. Voters shouldn’t consider economic growth solely to boost revenues, she said.

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Instead, Hageman sees opportunities for sizable reductions of government. The state should reevaluate what services need to be provided by government, and consider if some could be contracted to private industry.

Her views on cutting spending not raising taxes have been reinforced on the campaign trail, she said. “I assure you that the vast majority of people I talk to think that we need to cut spending.”

If Wyoming wants to attract businesses, it should be wary of even debating tax reform, she argues on her website. “Any discussion of raising taxes creates uncertainty in the business community, hinders our ability to attract new industries, and stifles job growth,” it states.

Dr. Taylor Haynes, a perennial candidate for governor who calls himself a strict constitutionalist, has signed a pledge against any new or increased taxes. The pledge is circulated by conservative blogger Sven Larson, a former employee of the Wyoming Liberty Group.

“I love all this talk about we got to create jobs,” Haynes said in Cheyenne. “Let’s be careful. When a politician creates jobs those are government jobs, that’s a tax burden.” Wyoming’s growth will come when it cuts taxes and regulations and strips government down to solely those functions prescribed by its constitution, he said.

“When we start throwing money at projects we’re picking a winner and causing somebody else to be a loser. That’s not my style.”

Hemp

Dahlin told forum attendees that hemp is a crop on the verge of explosion as it gradually becomes separated from marijuana and decriminalized under federal law. The potential uses for hemp are multitudinous, Dahlin said. He twice told the audiences that his father had worn combat boots made of hemp during World War II.

In an interview, Dahlin, who has business in the railroad and coal industries, said he does not believe coal will come roaring back anytime soon. He blamed coal’s decline on market competition from natural gas and renewables, not regulations, as Wyoming politicians often do. “No one regulation will change that,” he said.

By developing a thriving hemp export industry, Wyoming could increase the logistics business in the state, like the railroad industry he came up in, Dahlin said. Hemp could feed livestock. Manufacturing facilities could crop up to turn the hemp into the wealth of products it can be used for, food included. “The thing just keeps snowballing,” Dahlin said.

Because the state already has an agricultural tax bracket, Dahlin said, the new hemp industry would pay for the development it brings.

Though the REMI study did not specifically profile agriculture, it did offer a model of what would happen if 100 new jobs were created in Wyoming’s related food manufacturing industry — the meat processing cited by both Friess and Dahlin. The state’s expenditures on new residents would outstrip tax revenue from the 100 jobs within ten years, the study found.

Dahlin has also signed Larson’s no-tax pledge.

But, Dahlin said, that didn’t mean he was opposed to giving local governments more options to tax themselves. Dahlin would like to abolish the Wyoming Business Council, which he said has failed to achieve a goal it set 20 years ago — diversify the state’s economy — and end ENDOW. Instead, he’d consider taking their budgets and giving them to municipalities to pursue their own local diversification efforts, he said.

“I signed the [no tax] pledge because I don’t think taxes and increasing taxes are necessary,” Dahlin said. Still, if the legislature brought him a tax proposal, that didn’t mean he would veto it outright, he said.  “I’d have to know specifically why they were doing it and what the benefits were. I’m not going to be sticking my head in the sand and say this is totally impossible because I signed this pledge.”

Beef

Friess also pushed for Wyoming to avoid negative budget impacts by expanding its existing industries. “Wyoming beef could be like Omaha steaks,” he said in Lander. “We could brand that and sell it without having to bring in a lot of additional infrastructure to cost us more money than what we bring in. I would consider that a very good way to go about the diversification process.”

In emailed responses to questions, Friess said what the state needs is better management of booms and busts. “We must work hard to build and encourage our minerals industry,” he wrote. “It is core …. The issue instead is to budget for when revenues are low and put money into [the] rainy day fund when we are in boom times.”

In the past, he said, the state has spent too heavily during booms, “not expecting the depth of decline we have experienced particularly in the coal sector.”

Asked if he would consider broadening Wyoming’s tax structure, Friess wrote “no,” and specifically advocated against an income tax. “An income tax would be a disaster,” he wrote, and cause Wyoming to lose competitiveness with other income-tax-free states — there are eight. “Let’s see if we can discipline our spending so it conforms with our revenue stream,” he wrote.

State Treasurer Mark Gordon told forum attendees the costs associated with economic diversification come most principally from an influx of new students into schools. Building a big facility in any one community in response to a large influx of workers has a big impact, he said. To avoid this, Wyoming should spread diversification out, he said.

The REMI study grew out of discussions between his office and members of the Revenue Committee, Gordon said in an interview. “The fruits of that study were valuable,” he said.  

Community-level growth won’t hurt state coffers as much as targeting single businesses to move to the state. “Small businesses won’t burden the system like the large companies will,” he said. Like other candidates, he also said it would be more advantageous to develop value-added businesses for the industries Wyoming already taxes.

“I’m absolutely about economic diversification,” Gordon said, but “I don’t think we need to raise taxes. I think there are other ways. We can reorganize government.”

Gordon has not signed a no-tax pledge. He acknowledged the question will arise if Wyoming chooses to grow beyond the minerals industry.

“If we are truly committed to diversifying into other sectors that will not augment our mineral industry,” he said, “then we’re going to have to talk about what that tax structure means.”

Galeotos, who touts his reputation as a successful executive in the technology sector, introduced himself at the Cheyenne forum as focused on creating “jobs outside of our core industries that we’ve historically had.”

The head of Green House Data, he convened a roundtable of business leaders to come up with solutions for Wyoming’s economic woes and find how to attract companies, he said at the forum. “We need workers,” according to the roundtable, he said. “We need to be connected physically through air service and electronically through broadband.”

His own company would create 100 jobs this year, Galeotos said, and might struggle to fill them with Wyoming workers.

But, Galeotos did not say how those jobs, or the workers he hoped to bring in, would avoid falling into the trap described by the REMI study.

Galeotos has not signed a no-tax pledge, but Larson’s blog contains an alleged statement from the Galeotos campaign on the matter.“I believe Wyoming’s problems can and must be solved without tax increases,” the statement said. “To the extent we ‘grow revenue’ that must be done by growing the economy.”

WyoFile reached out to Galeotos’ campaign but was unable to connect with the candidate.

“Fiscally irresponsible”

Throne — who was included in the Cheyenne event hosted by the Greater Cheyenne Chamber of Commerce, but not the Lander event hosted by the Republican Women of Fremont County — criticized her Republican competitors’ ideas as stale.

“All of these pie-in-the-sky dreams that you’ve heard here this morning about ‘live within our means but improve broadband and attract people…’” she said, “you can’t do that when 70 percent of your revenue is coming from three sources that all face serious economic challenges.” Throne was referring to oil, gas and coal.

She then tried to give the Republicans a lesson in conservatism.

“It’s fundamentally conservative to talk about how you’re going to do what you’re obligated to do as a state,” Throne said. “But pretending that we can go down this same old road is fiscally irresponsible.”

Throne did not offer any specific ideas for new taxes at the forum and when the candidates were asked to stand if they support an income tax, she remained seated with all the others.

“I support more of a process than a quick fix,” Throne told WyoFile in a phone interview Wednesday. One place Throne suggested she’d look as governor was at the assessment ratios of property taxes, she said. Wyoming has one of the lowest industrial property tax rates in the nation. “Even if we go up a little bit we’ll still be close to the bottom,” she said, echoing comments made by House Revenue Committee Chairman Mike Madden. Madden believes adjusting sales and property taxes could resolve Wyoming’s revenue imbalance to make diversification sustainable, he told WyoFile last week.

Though the Legislature has almost flatly refused to consider tax increases in recent years, Throne, who was House Minority Floor Leader before losing her 2016 reelection bid, said a governor who was serious about tax reform could move the needle. “What you can’t ever do as a single legislator you can do as governor,” she said. “And that’s get out into every corner of the state and hold town halls. The governor has sort of the bully pulpit to make the case.”

By and large, the Republicans preferred to focus on how they might reduce state spending. The need for Wyoming to “live within its means” was cited repeatedly.

Friess said he would scrutinize the state’s budget line-by-line. “I’m going to look at every item and decide: Is it necessary, or is it nice?” he said in Lander. He repeated the sentiment in Cheyenne. “We have a lot of things in the budget that are nice,” he said there.

Gordon, who attended the Lander forum but was testifying before a legislative committee when the candidates met in Cheyenne, said the state should look to trim spending on capital expenditures and hold school boards more accountable for their budgets.  While Friess talked about “necessary” or “nice,” Gordon used “needs versus wants” in his written response to the Cheyenne forum questions.

Wyoming’s state budget is written every two years by the Legislature, as it was this last February and March. The governor submits a proposed budget to the Joint Appropriations Committee. The committee then questions agency heads on the items in their budget, often going line-by-line. The budget is then amended, debated and passed by the full Legislature.

Hageman criticized that process. “There are only a handful of people who potentially truly understand the budget and the budgeting process is very discouraging,” she said. “There’s a reason that Wyoming has grown to be the largest government,” she said.

According to Governing Magazine Wyoming has the highest rate of state and local full time government employees per 10,000 residents, and the third highest rate of state employees per 10,000 residents based on 2014 data. Opponents of further spending cuts argue the ratios are a function of Wyoming’s small population and rural nature.

Correction: This story has been corrected to properly label Sam Galeotos’ role with Green House Data. He is the chairman of the Green House board of directors, not the company’s CEO. It has also been corrected to note that Green House is a technology services company, not a data storage company as originally reported. -Ed.