Some day — and it won’t be long — Wyoming legislators will look back at the 2020 budget session and regret their decision not to pursue new revenue measures to fund state government.
It’s not as if the Legislature has been ignorant of the budget crisis that’s loomed for several years. The coal industry, which has paid billions in mineral severance taxes and kept Wyoming residents’ tax burden artificially low for decades, is in a tailspin — and economic analysts don’t believe it can recover.
Yet, year after year, lawmakers refuse to even consider new taxes, let alone pass them. A corporate income tax failed to make it out of a Senate committee in 2019, and this year the House refused to even hold a vote for the introduction of a revised, significantly improved version of the tax.
The Joint Revenue Committee’s conservative estimate was that House Bill 64 – National corporate profit recapture would have raised about $45 million per year for public schools.
With the state staring at nearly a $300 million education budget deficit for the 2021-22 biennium — a shortfall that is expected to double in the following two years — Wyoming lawmakers can’t afford to cavalierly pass up revenue opportunities.
Unlike the 2019 bill, which was aimed at retail stores, restaurants and hotels, HB 64 would have made all corporations with 100 or more shareholders pay a 7% tax that would otherwise go directly to their out-of-state headquarters. No Wyoming-based corporations would have had to pay the tax because none meet the shareholder threshold.
Opponents’ claims that the tax would have led to increased prices at national corporations like Wal-Mart are baseless. Giant companies use national pricing models. The corporation’s shareholders aren’t going to charge more for TVs, tires or T-shirts because Wyoming decided to get smart and finally keep a relatively small amount of profits made here instead of letting them funnel to Arkansas.
The 2019 proposal had the support of Republican legislative leaders in both the House and Senate. Normally, that bill with that kind of backing would have been greased and signed into law.
So why isn’t an even better bill worthy of the five minutes it would have taken for the House to hold an introductory vote this session? Gee, could it have something to do with the Wyoming Republican Party’s outrageous demand of its legislative members to kill every tax bill on arrival?
In 2005, when the energy sector was booming, key lawmakers wisely preached the need for the state to save more money. They created the Legislative Stabilization Reserve Account — better known as the “rainy day fund.” It grew to $1.8 billion by 2015. The Legislature’s annual response since the outset of the coal industry’s decline has been to raid the account.
You might say: Well what’s wrong with that? It’s raining, isn’t it?
Yes, it definitely is, but the state can’t afford to spend down its reserves at a record rate. State economic forecasters told the Joint Appropriations Committee earlier this month that the fund could drop as low as $630 million by the 2023-24 biennium.
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That’s a two-thirds reduction in the account in only five years. Obviously, the state can’t keep draining the well at that rate without replenishing it.
Some veteran legislators get it. Sen. Cale Case (R-Lander), chairman of the Senate Revenue Committee, said Friday the Legislature is burning through the fund at “an astounding rate [while] at the same time, we have failed to do anything this session to raise revenues.”
Sen. Charlie Scott (R-Casper) agreed that “we had some opportunities we should have taken but didn’t.” Instead, the Legislature decided it would simply “borrow” $225 million from the LSRA to fund public schools for the next two years.
It’s no way to run a state, but unfortunately, it’s become the new norm. It’s not sustainable, no matter how firmly Gov. Mark Gordon declared in his state-of-the-state address that coal won’t die.
Gordon and the Legislature will keep throwing state money into lawsuits aimed at gaining access to unlikely Pacific coast coal export terminals, and at new technology to develop cleaner coal. Even if the latter succeeds, the harsh reality is that the nation’s coal-fired power plants are being phased out and replaced by natural gas, wind and solar energy.
“Wyoming will not recklessly abandon our most abundant and reliable energy source just because it is unpopular with some people,” the governor said.
What is truly reckless is not restructuring the state’s tax system. The only tax Gordon said he would consider signing this year is a statewide lodging tax, and that has little chance of passing the same Senate that killed it a year ago.
Natural gas, which helped make up some of state’s tax revenue when coal production began to decline, won’t save Wyoming’s fortunes now because the cheap fossil fuel is so abundant throughout the nation.
Wyoming officials have been preaching about the need to diversify the state’s economy for at least as long as I’ve been covering the Legislature — more than four decades. It’s been mostly lip service. Almost everyone in power who issued these declarations has ultimately been content to live with the booms and busts borne out of the nearly total dependence on fossil fuels. They were confident that the end was nowhere in sight.
Yet here we are, 20 years into the new century, and Wyoming is ill-prepared to transition to another way to survive. Eventually wind and solar will replace fossil fuels, and some communities will turn the corner. But how many will thrive?
Renewable resources won’t generate the large tax revenues that fossil fuels did, and the state’s sparse population means it will continue to lack a well-trained workforce that can attract other industries. The exodus of several generations of young Wyomingites to other states to find well-paying jobs — the much-lamented “brain drain” — shows no signs of abating.
The energy sector pays roughly 60% of all tax revenues the state collects. We’re out of options to replace the $500 million a year that the state is losing from taxes on coal alone.
Wyoming’s best chance to reverse its sinking economic fortunes is for the Legislature to finally find the courage to stand up to the state Republican Party’s leadership. For the good of the state and all its residents, it’s time to raise taxes.
I get it: Lawmakers want to keep their jobs. Politicians who buck the party line aren’t welcome in a lot of places. Neither are pundits who tell people what they don’t want to hear.
But when will the Legislature and our elected state officials realize that no matter how much the state has historically depended on coal, market forces are now aligned against the industry?
Does hell have to freeze over first?
If it does, at least its denizens down below will know where to find a reliable source of heat — fairly cheap, too. Pretty cold comfort, though, if you ask me.
Thanks for the sobering assessment of where the state is headed fiscally.
Excellent take. I consider myself a libertarian and oppose new taxes in general, but when we have the opportunity to tax out-of-state entities to help stabilize our economy, I think you have to enact those measures.
As you mentioned, our legislature is not moving quick enough to assist in stabilizing Wyoming’s economy. The corporate tax, and I-80 toll “tax” would greatly benefit the citizens of Wyoming without impacting really anything. The toll would be passed on to customers in Utah, Nevada, California and states to the East, since something around 90% of the traffic on I-80 doesn’t originate or end in Wyoming. I know we get a lot of federal dollars for the interstate system, but Wyoming tax dollars should not be spent on I-80 just to support transit for neighboring states.
I understand we have a lot of people reliant on coal jobs, but it’s not just a commodity that “is unpopular with some people.” It’s dying worldwide and is not a viable energy source as we move forward. What will Wyoming do if Sanders is elected in November and essentially puts the final nail in the coffin for coal and severely hampers oil and gas production? These are the scenarios we should be preparing for!
Our government continues to think backwards in regards to coal and other industries (ranching). We need to prepare for a world without coal, and stop giving handouts to the ranching industry (depredation, $100 MM dams, etc). We need to embrace tourism, recreation, hemp, and god-forbid legal marijuana. These are the things that will help our State move forward, and shouldn’t go against any true small-government Republican ideals (although those are few and far between anymore).