Legislators maintain spending reform can fix state budget

CASPER — Two years after one of the largest drawdowns in spending in state history, Wyoming’s lawmakers are once again prepping to tighten the belt.

Operating under its smallest budget in nearly two decades for 2019-20, Wyoming has quickly had to try to do more with less for years now, working with hundreds of millions of dollars less in funding than this time a decade ago.

But four months away from the date of Gov. Mark Gordon’s spending proposal for the 2021-22 biennium, Wyoming’s budget still faces a future in the red.

In the years since those cuts, Wyoming has been sitting idle at a fiscal crossroads, torn over the direction it can take toward a fiscally stable future in the long-term.

The most mainstream school of thought has lied with changing the state’s revenue structure, introducing new revenue streams — in many cases, new taxes — to move the state’s finances away from budgets and services completely reliant on Wyoming’s extractive industry. Then you can cut spending, either by levying flat percentage-based reductions, implementing government efficiency measures or by denying new spending requests. Lawmakers could also potentially choose to access the state’s $1.8 billion in savings — a viable option to balance the budget in the short term but also one that can’t be relied upon forever.

In a meeting of the Legislature’s Joint Committee on Revenue in Cheyenne last week, state lawmakers considered a number of revenue-generating proposals deemed to have the most realistic chances of passage in the 2020 budget session, a slate which included several new taxes such as a corporate income tax.

However desperate times seem, the prospect of new taxes continues to maintain its historic unpopularity here. And conservative ideas to save the state money — without raising taxes — have been gaining in visibility.

In a memo to state agencies last month, Gordon urged department heads to find a means of streamlining operations to cut costs. And last week in Cheyenne, his government efficiency commission released a list of 18 efficiency measures to try to reduce spending across state government in other ways, potentially netting the state more than $60 million in savings over the 2021-22 biennium.

Lawmakers like Casper Republican Rep. Chuck Gray, meanwhile, are continuing their push for fiscally prudent spending reforms while conservative organizations like the Wyoming Liberty Group — which have long advocated for increased privatization of state services — have ramped up calls for an overarching reform of all of state government.

All of these suggestions, hinted Senate Appropriations Committee chairman Eli Bebout, R-Riverton, could be seen as the result of the Legislature’s failures of the past three years in broadening the state’s revenue streams.

“I’ve said we need to broaden for three years,” Bebout said. “I’ve tried, it didn’t work, so now we need to look at the other options that are out there.”

A consistent grievance by Wyoming’s conservatives has been the growth of government experienced during the state’s “boom” times — what they see as an unneeded expansion of bureaucracy when times are good.

This, critics maintain, has led to an environment where the state becomes accustomed to big government — a common critique for the sizable bureaucracy needed to maintain services for the second-most scattered population in the United States. According to a 2018 analysis by USA Today, state and local government spending per capita in Wyoming is the second-highest in the nation, largely because of the state’s small and widely dispersed population.

Some believe it doesn’t have to be that way. In the bad times, Gray said, lawmakers will push to maintain those high-cost services any way they can — even if doing so means new taxes.

“In boom periods, which are accompanied with large surpluses, there have typically been large increases in discretionary spending,” Gray wrote in an email. “This rise in spending discourages enough funds from being saved for the bust periods.”

“Then, during bust periods, when there are large deficits, harmful, dangerous and unnecessary tax increases are proposed. During this period, the instability of reserves to help fund the School Foundation Program Account hurts our state’s education system.”

During the 2019 General Session, Gray attempted to address the problem with his Wyoming Budget Stabilization Act, which sets a cap on year-to-year spending growth on all expenditures except those involving school funding and Medicaid — a solution Gray said could force state government to manage boom periods more responsibly.

While spending reforms can be a tax-free solution to balancing the budget, Wyoming’s finances still have something far bigger to worry about: a ceaseless future of diminishing returns from the fossil fuels that have propped up Wyoming’s budgets for decades.

In the past several months, coal bankruptcies in the state’s Powder River Basin have put the state on its heels, meaning lowered revenues and unpaid taxes. According to sources in the Wyoming Department of Revenue, capital gains and oil revenues outlined in an upcoming report from the state’s Consensus Revenue Estimating Group are expected to be significantly higher than initially projected, largely wiping out any potential losses from unpaid coal taxes in the short term — news that could create some optimism for lawmakers ahead of preliminary conversations on the budget this November.

In the long term, however, state revenues have not recovered to pre-recession levels and, according to state officials, they are not anticipated to regain that ground anytime soon. Some, like Sen. Cale Case, R-Lander, have suggested that in the long term, oil could potentially suffer a similar fate as coal or, at the very least, lose additional ground to renewables. That makes any efforts that don’t involve broadening the state’s tax structure akin to a “race to the bottom,” he said, which will be accentuated by additional cuts to services and no real opportunities to increase revenues.

Though bills like Gray’s could help manage spending during the boom times, what happens when the booms no longer have the impact they once had?

Part of the issue can be explained through the lens of the state’s rapidly aging population. With no cap on Medicaid spending, Wyoming’s declining revenues in the coming years will increasingly be committed to paying the state’s share of Medicaid, potentially meaning cuts have to be made elsewhere to make up for that shortfall.

For the plan to be successful, minerals essentially need to remain stable. Gray believes that can happen and has fought for measures to boost prospects for coal by (among other things) sponsoring legislation authorizing Wyoming to sue states who refuse to allow its export through their ports, like Washington.

“I do believe mineral revenues will increase and even return to similar levels,” Gray wrote. “But our state government needs to defend our mineral industry against radical environmentalists. That is another issue that I’ve been working on.”

But coal, industry experts say, is in a structural decline, with the ramifications for Wyoming potentially massive.

According to the estimates state budget director Don Richards provided to the Joint Appropriations Committee last week, the closure of mines producing 35 million tons of coal annually — roughly the amount produced by the Belle Ayr and Eagle Butte mines in Campbell County before their owner declared bankruptcy — would result in an estimated annual loss of $20 million in severance taxes, $20 million in federal mineral royalties and $10 million in K-12 education-related ad valorem taxes, a total loss of $50 million in revenues every year.

And it’s all downhill from here. At a meeting of the Joint Revenue Committee in Cheyenne last week, University of Wyoming economist Robert Godby told lawmakers that the state could expect at least a 25 percent decline in coal production by 2025.

Meanwhile, some in state government fear there could be similar warning signs for state exports like oil and natural gas. The city of Berkeley, California, for example, passed a resolution last week banning natural gas in all new low-rise home construction while communities across the country have passed resolutions committing their governments to the pursuit of renewable energy benchmarks.

“You can see a movement to get away from fossil fuels altogether,” Bebout said. “And boy, that’s going to hit Wyoming pretty hard.”

“Do we need less government? Probably so,” he added. “But the flip side of all this is the broadening of our tax base is getting defeated by our legislature. So I get it — the Legislature is not in the mood for any new taxes. So the only option is to look at these efficiencies and reductions that are responsible, and to live within our revenue streams.”

With the diminishing returns of the future now driving the state’s budget conversations, many see broadening the state’s tax base as an imperative. Others see it as an opportunity to revisit the fundamental functions of state government.

“(Cuts) are only part of the solution,” Bebout said. “I’ve said before, we can’t cut our way into solving this problem, nor can we just raise the revenues. It’s got to be part of a mix.”

Leading up to November, lawmakers will consider a diverse slate of solutions to reconfigure state government. Internally, agencies have been asked to identify their own cost-saving measures and administratively, Bebout suggested lawmakers could revisit consolidating the state’s boards and commissions and merging some agencies, similar to what is being pursued with the merging of the Wyoming Infrastructure Authority and the Wyoming Pipeline Authority into a unified Energy Authority.

The most conservative voices in the state believe Wyoming can go further, encompassing reforms like the increased privatization of schools and healthcare, reformed funding models for the Department of Transportation and others.

“The issue about how to fund any given government is of lower priority than the issue of what government should do,” said Sven Larson, an analyst for the Wyoming Liberty Group. “We should definitely have a conversation about tax reform but only after we have begun the work to structurally and permanently reduce the size of government.”

That road, however, begs the philosophical question of what government should do and the concrete question of what government can do better than the private sector. The over-privatization of government services, some have argued, can be more expensive and unwieldy than doing things internally. Additionally, contracting services out decreases accountability and can occasionally provide more bureaucratic hurdles for the agencies.

Additionally, there is no guarantee the elimination of services with no discernible return of investment means there will be a private sector replacement. Some state-sponsored programs — like law enforcement officers committed to livestock issues or adult literacy programs — were either cut down or completely eliminated several years ago and, in the Department of Health, a number of preventative care programs have been cut as well, with no private sector replacements.

“There are things we used to do that we’re not doing anymore, that’s for sure,” said Kim Deti, a spokeswoman for the department.