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‘The cliff is looming’: Wyoming’s deficit to balloon again to ~$885M; local funding in the crosshairs

The Capitol Building in Cheyenne Wyoming surrounded by smoke from the Mullen Wildfire (John Roedel, Cap City News September 26th, 2020 File)

CASPER, Wyo. — The Wyoming Senate passed legislation on Friday, Jan. 29 which would reduce direct distributions to local governments by $10.5 million.

Cuts in state funding for counties and municipalities is being looked at as a way to help keep the budget deficit from ballooning again in coming years.

While cuts to state agencies may shore up Wyoming’s immediate budgetary woes, the deficit to the state’s General Fund, School Foundations Program Account and School Capital Construction Account is forecast to rise again to $75 million by the Fiscal Year 2023-2024 biennium and the shortfall could balloon further to around $885 million by FY 2025-2026.

By the 2025-2026 biennium, the state’s “rainy day fund” (the Legislative Stabilization Reserve Account LSRA) is forecast to drop near levels where it will be unavailable to cover shortfalls to the General Fund and the education-related accounts.

Senate District 22 Sen. Dave Kinskey helped prepare a long-term revenue forecast for the state which shows that the “rainy day” fund would drop to around $543 million by the FY 2025-2026 biennium.

Kinskey explained on Friday that the LSRA cannot drop below $500 million, so when it drops near that level, it cannot be dipped into to cover structural deficits in the General Fund or other accounts.

“The cliff is looming,” said Senate District 29 Sen. Drew Perkins. He said the state is faced with either finding new sources of revenue or finding ways to cut the budget.

On Friday, the Senate set local government distributions in their crosshairs as one of many cuts that could be coming.

The Senate modified their rules on Friday in order to consider several pieces of legislation on second and third reading on the same day. The chamber passed Senate File 64 on a third reading vote of 22-7, sending the legislation to the House for consideration.

The legislation would reduce the $105 million in direct distribution to counties and municipalities for the fiscal year 2021-2022 biennium by $10.5 million. Since the first half of that funding has been provided to counties and towns (based on what is known as the “Madden” formula), the $10.5 million cut would apply to direct distribution levels in the second half of the biennium.

Senate District 09 Sen. Chris Rothfuss spoke in opposition to the cuts to local government distributions, saying that they would affect locations across the state disproportionately. Rothfuss also argued that it is high-time the state give cities and counties greater ability to generate their own tax revenues.

Rothfuss said that cuts to local government in Albany County would mean less firefighters to protect people at the university, less policeman and an inability to address deteriorating roads.

He said that he “certainly can’t support” the cuts to local government but that “what I could support is more flexibility for the locals.”

“We have to empower local communities to solve their own problems,” Rothfuss said, adding that he thinks if they weren’t barred by state statute, Laramie and Albany County would choose to add additional local sales and use tax. “We’d like the flexibility to do that ourselves.”

Senate District 02 Sen. Brian Boner said he thinks the legislature needs to begin contemplating a “seismic shift” in the way the state approaches funding for local governments. He said he thinks there should be more debate about giving cities, counties and school districts the “ability to make more decisions for themselves.”

However, Boner said that the bill to cut $10.5 million from local government distributions was not where that debate needs to occur.

Senate District 26 Sen. Tim Salazar, on the other hand, said he would vote against the cuts to local government funding and said the he looks forward to debate about modifying the “Madden” formula, which determines how the funding for local governments is distributed.

Senate District 30 Sen. Charles Scott said he has “some sympathy” for counties such as Albany who would take a larger cut out of the $10.5 million reduction.

“It is unpleasant to be the one who’s ox is being gored this time,” he said. However, Scott said the thinks that as the 2021 General Session continues, “each one of is going to have our ox gored.”

Rothfuss said he he disagreed: “Oxes are not going to be gored evenly.” Under the legislation debated on Friday, he said about one-sixth of the $10.5 million cuts would be felt in Albany County and the City of Laramie.

“We need solutions, we need revenue, we need budget cuts, but this doesn’t have to be the bill,” he said.

Perkins said while it is true some communities would be harder hit by the local government distribution cuts, this is not the only source of funding they received. He said that the cuts would amount to an overall reduction in funding for local governments from ~$722 million to around ~$712 million for the biennium.

Nevertheless, he said that “budget cuts are not going to make [people’s] lives better, they are going to make them worse.”

Senate District 20 Sen. Ed Cooper asked how the legislature could cut local government distributions in the middle of the biennium.

“Didn’t we enter into a verbal contract with these communities when we told them this is what you had [in direct state funding for the biennium]?” he asked. “We’re changing the rules in the middle of the race.”

Kinskey said that counties and municipalities know that funding as budgeted for the biennium could be slashed.

“Local governments know it is at risk of going away,” he said. “Everybody has been on notice that as fiscal fortunes collapse….those [distributions] might not go out.”

Senate District 18 Sen. Tim French said that a big chunk of General Fund revenues for the state in the long-term revenue forecast are from sales and use taxes and that a lot of those revenues are due to economic activity at the level of counties and municipalities.

While the General Fund is forecast to face deficits in coming years, the School Foundations Program deficit would account for ~$549 million of the forecast ~$885 million deficit to the state’s largest accounts by the 2025-2026 biennium and that’s after accounting for $100 million that would be transferred into the account from the Rainy Day fund.

Perkins said that tax revenues from minerals have historically covered about two-thirds of expenses through the General Fund and the School Foundations Program, “the two main checkbooks that most of the bills are paid from.”

He noted that even in the current biennium, about $105 million is set to be paid out of the rainy day fund. The long term revenue forecast projects that about $646 million in rainy day funds would be needed to cover costs during the FY 2023-2024 biennium, which would reduce the fund to a point where it would no longer be able to cover the structural deficit moving into the FY 2025-2026 biennium.

Perkins noted that the forecast does not project returns the state could see from capital gains since these can move up and down unpredictably. He said that in a “great year,” such returns could add “a couple hundred million” to the budget, but that this still wouldn’t resolve the structural deficit.

He said that “lots and lots of painful decisions” will have the be made and that there needs to be a broad discussion not just among legislators but among the public about what government services are really considered important.

Senate District 25 Sen. Cale Case said that while Fremont County is among those which would be more impacted by cuts to direct distributions, he would still support the cuts.

However, he also noted that he didn’t pledge to find new revenue sources for the state (such as new taxes).

“I’m going to support revenue measures,” Case said, adding the he would also support tweaking the formula which determines how local government funds are distributed.

He said that a question the state needs to wrestle with surrounds mineral wealth and the tax revenue this generates. Case said the question is whether this belongs to the state or to local governments and what the right balance between those perspectives is.

Senate Vice President Larry Hicks said that the state needs to be cautious in thinking about mineral tax revenues moving forward. He noted that the largest revenue source historically were taxes stemming from coal production, which he said provided a stable revenue foundation.

However, with oil related tax revenue being the number one source, there could be more volatility for Wyoming’s revenue picture. Hicks noted that oil prices “fluctuate radically based on geopolitical issues.”

He said that revenue projections in the long-term forecast assume oil is at $45-50 a barrel, but that oil has in fact dropped much lower than this on multiple occasions in recent years.

Hicks said the long-term revenue forecast which sees the state’s deficit to the major accounts ballooning to $885 million by FY 2025-2026 “may very well be the best case scenario going forward.”

The Senate’s third reading vote on Senate File 64 (which would reduce local government distributions by $10 million) was as follows:

  • Ayes: BALDWIN, BITEMAN, BONER, BOUCHARD, CASE, DOCKSTADER, DRISKILL, ELLIS, GIERAU, HICKS, HUTCHINGS, JAMES, KINSKEY, KOLB, KOST, LANDEN, MCKEOWN, NETHERCOTT, PAPPAS, PERKINS, SCOTT, STEINMETZ
  • Nays: COOPER, FRENCH, FURPHY, ROTHFUSS, SALAZAR, SCHULER, WASSERBURGER
  • Excused:
  • Absent: ANDERSON

The House received the legislation for introduction on Monday.

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