Education fix would cut school year, trim salaries

House leaders announced a comprehensive proposal late Monday that includes sharp cuts in spending and a boost from the rainy day fund to deal with the education funding deficit.

The 55-page omnibus education bill would cut the length of the school year by five days, freeze spending on special education and transportation, trim salaries of top school district administrators, and cut funding for instructional facilitators in half.

It would maintain the School Foundation Program account balance at $100 million by taking savings from the rainy day fund. It also would divert a portion of severance tax revenues, projected at $89.1 million in FY2019, to the general fund. The bill would move an equal amount from the general fund to schools. Other funds would be shifted to shore up the schools, according to a summary of the bill.

The proposed legislation would raise Wyoming’s state sales tax to 4.5 percent when the state’s rainy day savings account drops below $500 million — an unlikely prospect in the next three years.

“We don’t project the LSRA to go below $500 million at this point,” Matthew Willmarth, a Legislative Service Office attorney, told the House Education Committee Monday night.

A summary of the bill put together by the Legislative Service Office is uploaded below:

The announcement of the education bill is the latest development in a discussion of the state’s budget problems that is dominating the Legislature’s general session.

House Revenue Committee Chairman Mike Madden has been among the legislators at the center of the budget discussion. He wants to couple cuts in spending with moderate tax hikes to extend the life of state savings accounts.

Monday’s proposal demonstrates that other legislators in the House leadership want to dip deeper into savings before asking state residents to pay more in taxes.

In his state of the state speech Jan. 11, Gov. Matt Mead said he already had made spending cuts to balance the general fund budget. He believes the state should use savings, but he has refused to put any tax hikes on the table. And he has called for creating a “super committee” to resolve the deficits in education.

Speaker of the House Steve Harshman filed a bill on Monday that calls for the creation of a “joint select committee on education funding” that would consist of 12 lawmakers. He said the bill intends to carry efforts to solve the education funding deficit forward if the omnibus bill fails. Under the bill’s current language, Harshman would select the committee members.  

The “T word”

Madden may be swimming against the tide in a state where residents pay some of the lowest taxes in the nation — and often dismiss the idea of paying more.

Though it’s her first term in the Wyoming House of Representatives, Rep. Jamie Flitner (R, HD-26, Greybull) knew exactly how to start when she stood on the House floor to speak about a bill to collect taxes on out-of-state motorboats. “Before anybody strokes out over the ‘T word,’” she said, “this is an existing tax.”

With the exception of the generally popular internet sales tax, the “T word” hasn’t come up much on the House floor. The House spent much of last Wednesday and Thursday debating how Wyoming would approach a constitutional convention to balance the federal budget. The representatives still had not yet begun discussing the details of balancing the state’s budget by the end of the second week.

Tax discussions are inevitable as lawmakers confront the education funding deficit. Both individual legislators and committees have filed a variety of tax bills at this point. Most deal with relatively small increases in revenue to the state, compared to the budget deficits ahead.

Another part of the revenue picture is a watershed of existing revenue streams that flow into various accounts, trusts and funds. Some streams are earmarked, like the $151.7 million in mineral revenue that has built up  since 2005 in an account devoted to dam construction. Others feed into the general fund, which pays the budgets of state agencies, or the school foundation program, or highway funds.

To educate lawmakers, the Legislative Services Office put together a document called the Budget Fiscal Data Book, which uses flowcharts to map the state’s revenue streams. The 2017 version can be found here.

A portion of mineral severance taxes flow into Wyoming’s Permanent Mineral Trust Fund. Holding more than $7 billion dollars in 2016, it’s one of the 100 largest “sovereign wealth funds” in the world.

The state’s finances sound well taken care of; however, as every lawmaker knows, 70 percent of Wyoming’s revenue watershed depends on mineral taxes. With mineral production and oil and gas prices down, streams are dwindling. It falls to the Legislature to evaluate its priorities and decide whether revenue that went to one program or savings account during the boom should be diverted to another during the bust.

The Legislature made its first change in revenue flow priorities during 2016’s budget session. It took a stream of severance tax revenues that had been adding to the Permanent Mineral Trust Fund and diverted it into a separate account.

The corpus of the PMTF can’t be touched. The Wyoming Constitution mandates that the state can spend only earnings from the fund. In 2005, the Legislature started adding more money to it than the Constitution demanded. After last year’s decision, that revenue now can be used to fund other state operations.

The question will be whether those revenues go into the School Foundation Program account, or whether they will be needed in the general fund, said Chairman Mike Madden, (R, HD-40, Buffalo). Either way, he wants the Legislature to ensure the change can be cancelled if the state’s revenue picture turns around.

“That way it doesn’t have the notion of permanence,” Madden said. In the omnibus bill, the severance tax would go into the general fund, and then be transferred to education funding for fiscal years 2019-2022.

Revenue from the investments made with the PMTF go into the general fund, as well as the Legislative Stabilization Reserve Account, also known as “the rainy day fund.” It now holds $1.7 billion.

While the rainy day fund is a savings account, there are few rules to govern its use, a point made by Gov. Mead during his state of the state address when he called on the Legislature to use it.

“It is raining,” he said.

Also during the 2016 budget session, legislators took roughly $220 million from the rainy day fund to make up for a shortfall in the general fund. Even with that cash infusion, the general fund still faces a $156 million deficit for the current biennium. Meanwhile, education funding will begin running at a $400 million deficit in the next biennium if lawmakers don’t come up with a fix.

Madden wants to put restrictions on how the Legislature uses the “rainy day fund.” By doing so, he thinks he can force a conversation about revenue and keep a young Legislature from spending the state’s savings in anticipation of a coal, oil and gas revival.

He introduced a measure that allows the Legislature to use the savings account to cover only half of a budget shortfall — restricting its use to address both the general-fund and education-funding deficits. Lawmakers also couldn’t take more than a quarter of the rainy day fund’s total under Madden’s measure, House Joint Resolution 6.

Seeing 20 freshmen lawmakers in the House of Representatives drove him to write the bill, Madden said. He fears shortsighted thinking that would treat the savings as a bridge until mineral revenue comes back up, as opposed to making politically difficult choices on taxes.

“You know if they just take the notion that ‘let’s just spend her all now so I don’t have to go on record ever voting for any tax increase’ … that scares me,” he said.

“I think moderation is important,” Madden said. He wants the Legislature to combine a moderate use of the savings with a moderate reduction in spending and a moderate increase in taxes. Thus far, “moderate” seems a good term to describe the tax increases on the table.

Meanwhile, Madden’s effort to encourage a moderate use of savings might run into opposition, and not just from young lawmakers.

Tax bills face ticking clock

The last day for introduction of a bill in the Senate is tomorrow, Jan. 25. Lawmakers in the House have until Monday, Jan. 30. Legislation must be cleared by a committee by the end of day Feb. 2 or it dies.

A review of the proposals to increase taxes or apply new ones thus far shows the potential to raise between $6.78 million and $88 million in new revenue.

Two efforts come from Madden himself, including a bill to raise property taxes on residential and industrial properties. Currently, residential and commercial properties are taxed on 9.5 and 11.5 percent of their total value, respectively. Mineral properties, meanwhile, are taxed on 100 percent of their total value. Madden would raise the taxable value of residential and commercial properties to 11.5 and 13.5 percent respectively. The Legislative Service Office estimates the change could bring in $76.6 million in revenue.

Madden thinks there’s room to talk about property taxes.

“We have the absolute lowest taxes in the United States for property taxes, and even if we raised them 15 percent, we’re still the absolute lowest,” Madden said. “So to me it’s nonsensical to pitch a fit about it when all you have to do is go contact your cousin in South Dakota and ask them what they’re paying.”

Madden said Friday he won’t bring the property tax bill up in his committee until he sees what revenue measures are included in the omnibus education bill.

But Madden’s property tax bill might be unpopular with legislative leadership. 

The omnibus education bill won’t include a property tax increase, House Education Committee Chairman David Northrup (R, HD-50, Powell) said. He thinks raising property taxes hurts energy workers and Wyoming families who are feeling the brunt of the slump.

He would prefer to raise revenue by adding a half cent increase to the statewide sales tax, raising it from 4 percent to 4.5 percent. Northrup’s idea is included in the omnibus education funding bill legislators announced Monday evening.  The bill will impose the sales tax hike if the state draws the rainy day account down to $500 million. The expected annual revenues of about $76.1 million will go directly to the School Foundation Program.

The House Education Committee voted to sponsor the education bill. The Senate Education Committee will cosponsor it, Northrup said.

Madden is against raising the sales tax. Doing so, he said, will hurt Wyoming businesses that already face a competitive disadvantage with internet vendors and neighboring Montana, which has no sales tax.

On Friday, Harshman said protecting the LSRA, via Madden’s bill, and using savings to solve the education funding deficit are compatible. However, depending on how fast it occurs, drawing the account down to $500 million would conflict with Madden’s bill. His proposed rules allow the Legislature to spend no more than one quarter of the $1.7 billion left in the LSRA in any one session.

Collision with the industry lobby

Past revenue committees have been known for their reticence to even consider taxes. Madden lives in Buffalo, where the previous revenue committee convened for two days in late September. They rejected tax increases on tobacco and wind power. The committee also cut five of nine industries from a bill that would have ended certain tax exemptions. Those ideas died after a series of lobbyists testified that taxes would make each industry less likely to do business in the state.

What was left of that bill was killed unanimously by the committee. It had become, said Rep. Mark Kinner (R, HD-29, Sheridan), “a shadow of its former self.”

Madden had begun the September meeting by reminding committee members that they wouldn’t have to vote for the tax increases once they reached the full Legislature; however, he argued that the revenue crunch obligated the committee to put forth ideas, according to the Casper Star-Tribune.

That meeting taught him that instead of taking on lobbyists in an attempt to repeal existing sales tax exemptions, his committee should look into previously untaxed areas, Madden said.

The new House Revenue Committee has some financial expertise on hand. Madden is an economist, with a Ph.D. in economics and statistics from Iowa State University. Rep. Kinner is a retired banker, as is freshman Rep. Dan Furphy (R, HD-14, Laramie). Rep. Jerry Obermueller (R, HD-56, Casper), also a freshman, is a retired CPA.

Madden said he’s already seen an increased willingness among the new members to move tax increases forward for consideration by the full House. But whether they can get through a floor debate remains to be seen. There is little political willpower for raising taxes, Madden said.

If the House chooses to avoid increasing taxes, and recognizes that cuts alone won’t solve the deficits, it must turn to the state’s savings accounts as Harshman and Northrup have suggested. Harshman has called taxes “a last resort,” and Northrup has said it’s too unpopular a route to take when solving the education funding crisis.

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“We saved during the good times and now during the lean times people expect us to use that for stabilization, for what it says,” Harshman said.

Harshman said that he doesn’t think they’ll draw down the LSRA too fast, and estimated that it could last five to 10 years.

Madden worries that if the LSRA is spent without rules, it could be gone in two to three.

“I would not want to run through piggy banks until they’re all empty and then say, ‘Well I guess now we better raise taxes,’” he said.

Tax hikes filed thus far:

***This table does not include all revenue raising bills. House members have until Jan. 30 to introduce bills