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.
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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.
Another typical liberal rant, increase taxes, spend more, no facts, no consequences, just spend more.
While this state is facing a revenue issue and reliance on minerals has to go away, the State also needs to face the fact it has a spending problem. An until the people of this State and State Leaders look at ALL aspects of state spending and state revenues we will be stuck in this perpetual cycle – a hard look, not just the popular look. And any new taxes have to be spread across the board, not just on the backs of so called wealthy every time the coffers run short. Government is much more accountable when all have skin in the game, not just the few.
Take a look at School spending, mandated by the State Constitution. We spend the 2nd highest amount per student in the US and our performance is middle of the pack. We have 48 school districts in a State of 575,000, we have a bloated administrative structure. I believe people in this state would be happy supporting the state’s education system if it was performing at the highest levels consistent with the spending per capita. We need to take a hard look at our spending and the effectiveness of our spending. It’s not popular, but popular does not get the hard work done.
Look hard at the cost to create and administer a new government agency to impose an income tax. And do not forget to include the cost imposed on business and individuals to pay those taxes. The State of Wyoming does not have a good reputation with the ease of administrating taxes. If you want a good example, take a look at the cluster with the Department of Workforce Services and the new computer system the Department rolled out last summer. Significant operational issues, costs and burdens imposed on employers with no recourse – even today the Department is issuing notices in error putting the burden on employers to resolve. .
So while it’s popular to throw out tax the rich, spare the poor, it’s all the GOP’s fault, Democrats are here to save us, allowing government to run amok ultimately will take us all down as there will not be any taxpayers left. Does not matter which party you belong too.
Cale Case and Eli Bebout will not run for re-election as they bail out of a train wreck they helped create?
Another interesting dynamic will be natural gas and oil as the fracking industries thirst for capital to keep the merry go round whirling has dried up. I wonder if we as a country will keep fracking going to use the American Oil for a different future or will we keep it going for another blow out? I think we know the answer. However, with fracking gone, Wyoming has access to cheaper natural gas reserves?
Socialism is prevalent in Wyoming but it is a perverted form that the GOP loves, take from the many and give to the few. Lather, rinse and repeat.
We need a new vision of the future and it should look to work with nature and support people, not industries.
Dear God please send us just ONE MORE energy boom and I promise we (they) won’t piss it away this time!
Once again Kerry hits the nail squarely on the head. The budget shortfalls of Wyoming are primarily due to the reluctance of the Republican legislators to diversify the tax structures of the state. The pandemic is exposing all the weaknesses of our lopsided rule in the legislature. If this emergency session turns into a punt, pass, and kick contest, the republicans need to sit out a few years.
I have an idea. Let’s buy a patch of desert land, bailing out a debt ridden oil company. The State can be in the oil and gas business! Better yet, buy a bankrupt coal mine and start capturing carbon. Using the rainy day fund will put us out of our misery once and for all. We don’t need no stinking renewable energy.