Wyoming must prepare for worsening budget fallout

When two trains are barreling down the tracks headed straight for each other, no one in that moment worries that an even bigger train wreck is coming in the future.

Yet as Wyoming lawmakers try to mitigate the economic damage in the next two years from the one-two punch of lost mineral tax revenues and the impact of the coronavirus pandemic, they can’t afford to only focus on the current emergency. For the state’s fiscal survival, it’s the long game that will matter.

And that long game will have to entail raising taxes to put Wyoming on more stable footing.

If the Legislature doesn’t take far-sighted action when it convenes in January, what Gov. Mark Gordon now calls “the biggest fiscal crisis in our history” will result in absolute budget devastation in years to come.

Lawmakers must find revenues beyond what the state receives from taxing a dying fossil fuels industry that now provides about two-thirds of state government funding. Much of that money is gone, folks, and it’s not coming back in a world that must try to avert the looming environmental and economic disasters from climate change.

Last week, Gordon tried to brace Wyoming for what’s coming when he announced $250 million in budget cuts for the 2021-22 biennium. His recommendation includes 10% reductions to most state agencies. The toll on employees and services — plus the ripple effect it will have on communities, counties and the entire state’s economy — will be enormous.

But those deep cuts will only make up a quarter of the estimated $1 billion general fund deficit, and the state can’t keep turning to its “rainy day fund” to fill budget holes. The fund has a $1.6 billion balance, a healthy sum, but it’s not bottomless. In recent years it has been used to shore up education funding, which has a $500 million deficit headed into the next biennium.

The governor has already asked agencies to prepare for a total 20% cut, which would be devastating if it’s implemented across-the-board to all departments. The 9% cut Gordon has recommended for the Department of Health already amounts to $90 million.

The governor warns that his cuts will include severe reductions to social services and public health programs that now help seniors, the poor, the mentally ill and people with substance abuse problems.

“We must all understand what is lost and what we further stand to lose with all these cuts,” Gordon told the Joint Appropriations Committee. “They will have real impacts on people’s lives.”

It’s difficult to assess Gordon’s motive in making such noble pronouncements. By highlighting the harsh impact that cuts will have on residents, he may be hoping to spark a tax reform discussion.

But surely the governor knows the state’s most vulnerable citizens are in the crosshairs of legislators every time a budget crisis arises, and most lawmakers have no problem pulling the trigger if they think it will save the state money. Merely calling attention to the impact from cuts Gordon has already advanced isn’t going to change legislators’ behaviors.

To be sure, lawmakers should take a scalpel instead of an axe to the biennial budget and make judicious decisions to keep essential public health and social services intact. But unless they are willing to raise revenues by increasing taxes, even vital programs are destined to soon disappear.

Ignoring the train wreck that became inevitable when coal began to spiral downward, the Legislature hasn’t even tried to look for a plan B to save the state’s economy. It has rejected Medicaid expansion since 2013, killed attempts to establish a corporate income tax, refused to even debate  a personal income tax and opted against holding a public hearing on ending sales tax exemptions for many businesses.

The only revenue-generating move I’ve heard many legislators endorse is removing the sales tax exemption on groceries, which would disproportionately hurt the poor. It would be extremely callous, but it’s the one bill most likely to be approved. That’s shameful.

Gordon may call for a revision of Wyoming’s tax structure, but he’s hardly been a proponent of change during his first two years in office. He supported a statewide lodging tax that passed this year, but that’s it. He’s still on the fence about Medicaid expansion, despite its enormous benefits. It would initially add about $120 million in federal funds to the economy, create health sector jobs, provide insurance to at least 19,000 low-income residents and shore up the bottom line of the state’s struggling rural hospitals.

The governor points out it’s up to the Legislature to pass any tax increases, and he can only give his opinion about such proposals. But as the state’s chief executive, he can do a lot more.

House Minority Leader Cathy Connolly (D-Laramie) was spot-on after Gordon’s JAC appearance when she told WyoFile, “When the governor has leadership the Legislature listens, and the governor right now is refusing to take that leadership.”

State Budget Director Kevin Hibbard told the JAC if a second round of cuts becomes necessary if COVID-19 worsens, the results would be “more catastrophic, more significant.”

The fallout of drastic budget reductions would be felt for years, wiping out a multitude of jobs in the public and private sectors. Wyoming may have been spared the brunt of the pandemic’s force both health-wise and economically so far, but who knows if that will last?

Don Richards, state budget administrator, told the committee “the problem is really in the next [2023-24] biennium.”

“It gets worse if we don’t get a sizeable recovery, where we still are left with an $800 million to $1 billion shortfall on the General Fund,” Richards said. “We’re left with double the size of that shortfall on [the K-12 education account].”

Doubling the current public schools funding deficit would bring the shortfall to $1 billion. And that astounding figure may be even higher.

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Wyoming’s budget calamity comes at a time when legislators are examining how they will meet the state’s constitutional mandate to provide a quality education to all students.

In 2017, Senate budget hawks trying to justify cutting school funding appeared shell-shocked when a consultant said they actually needed to spend $70 million more. Confronted with that reality, as usual, they did nothing.

So, Wyoming could cut state budgets past the bone in the next two years, causing tremendous damage to vulnerable citizens, state agencies and institutions, and still be staring at billion-dollar deficits in both the general fund and education funding in 2023.

Looking at the big picture and taking unpopular actions may seem as dangerous to politicians as staring directly at the sun, but it’s unavoidable. The state’s first line of defense will be voters in November, who must elect a new crop of legislators who are up to the task.

But many who fill House and Senate seats will be the incumbents who have refused to diversify Wyoming’s economy. They used much of their power futilely instead, by attempting to keep the minerals industry in the role of the state’s sugar daddy.

These public servants chose to run for re-election, so I hope they are up for the challenge that awaits. It won’t be easy, but it will be necessary.

WyoFile is an independent nonprofit news organization focused on Wyoming people, places and policy.