Legislature opens amid calls for fiscal sustainability


By Andrew Graham,

WyoFile.com

CHEYENNE – The 65th Wyoming Legislature opened Tuesday amid calls from Republican leadership for moderate steps toward fiscal sustainability and predictions of productive collaboration.

Wyoming’s new governor Mark Gordon isn’t pushing major legislative changes yet but believes his history of working with lawmakers while serving as state treasurer will produce a successful session.

Speaker of the House Steve Harshman (R-Casper) and Senate President Drew Perkins (R-Casper) want to make progress on a myriad of issues from healthcare to government efficiency. On the state’s pressing fiscal issues, both men said they want to see a tax debate. Without changes in savings or revenue policy, the state faces a deficit somewhere between $200 million and $300 million.  

Harshman is returning as speaker while Perkins is a veteran of the Senate and senate leadership. The leaders discussed their objectives and concerns for the 2019 legislative session in interviews with WyoFile.

All three men cited the work they’ve done together in the State Capitol over the years as evidence of good rapport even before Gordon’s first session. Long-term fiscal concerns remain for the state, but the education funding hole that last year led to often acrimonious exchanges between the two legislative chambers is now less acute. 

“I anticipate having a very good working relationship with them all the way through,” Gordon said. “I’m hopeful that we arrive at the finish line without having to have a referee per se.”

The respective chamber leaders discussed in recent weeks how to avoid a repeat of the stalemates between the chambers that defined last year’s session, Perkins said. Last year, Senate bills offering a vision for public education that was anathema to the House, and vice versa, were batted back and forth all session.

“Why would we go to the trouble of sending a bill down the hall if it’s not going to come out of the speaker’s desk or out of the president’s desk?” Perkins asked. Still, he said, a “difference of opinion about what a sustainable funding model for education is going forward” remained. Senators still worry that current statute may lead to school costs escalating out of control, he said.

“We’re trying to find common ground,” with the House, Perkins said.

The lack of a pressing crisis could open the door to more long-term solutions, Harshman suggested. But minority party leaders warned Republicans against considering the crisis solved by an improved economy. A lasting fix, they argue, will require lasting changes to the state’s revenue streams — tax reform.  

“We haven’t solved anything in terms of our revenue streams not only for education but for the funding of state government,” said House Minority Floor Leader Cathy Connolly (D-Laramie) .

After years of cuts and budget fights, Republican leaders too seemed conscious of the need for progress on revenue and other core issues. 

Gordon called for lawmakers to have “modest expectations” of future revenue, saying such a perspective would lead to better fiscal planning.

Harshman called for debate on proposals to broaden the sales tax and raise property taxes this session. Perkins too said he wants to see a the sales tax proposal debated in the Senate. The proposal isn’t an effort to haul in more tax dollars immediately, Perkins said, but to broaden the tax base and enable Wyoming to benefit from long-sought economic diversification.

“We have to” discuss the proposal and the state’s tax structure, Perkins said. “At the end of the day our tax system hasn’t changed in any significant way in decades.”

From revenue proposals to continuing to utilize the state’s large investment funds to pay bills, Harshman largely echoed the sentiments of his new colleagues when he called for “small, smart steps” and “steady adaptation to the way an economy changes and markets change.”

In six years as state treasurer, Gordon was conservative with the state’s trust funds while also beginning to modernize their investment. As governor, facing his first legislative session, he is focused on working with legislative leaders and creating fiscal stability, he said. Gordon plans to let former-Gov. Matt Mead’s 2018-2019 budget ride without major amendments, he said, and has not suggested major structural changes to law or fiscal policy.

“Generally speaking I think [outgoing] Governor Mead hits the high spots and all the things that I would be also supportive of,” Gordon said. “My job as governor, as new governor… is really maybe on the edges. My budget proposal will come next year and so generally speaking I think we’re going to carry on with Gov. Mead’s recommendations.”

Budget aside, Gordon pointed to “reorienting” economic diversification efforts and putting the state government to work bolstering town and county governments by helping them to secure federal funding.

“This may wait until my budget, but I think the foundation is going to be built here to make sure we have capacity in the Office of State Lands and Investments and others to help local communities with federal granting,” he said.

More specifically, Gordon endorsed a bill being crafted by Sen. Dave Kinskey (R-Sheridan) to fund technical training programs at Wyoming’s community colleges. The bill, for a program called Wyoming Works, is not yet public. The program would fit a need for skilled workers in fields like welding, machining, commercial driving and electrical work, Kinskey said.

“There are good paying jobs that need to be filled and we’re going to train people to fill them,” Kinskey said.

The new governor suggested he’ll consider warily a new version of a controversial critical infrastructure protection bill, which failed last session on a veto from Gordon’s predecessor. “There were some problems with it last year and I thought Gov. Mead was appropriate in the way he handled it,” Gordon said. “I’m going to read the bill very, very carefully and watch it as it goes through the Legislature.”

Though he is cognizant of the concerns bill supporters cite, Gordon said, “the law of unintended consequences can sometimes come into play.”

Budgeting

Looking past his first session, Gordon wants a more stable budgeting process, he said, and urged lawmakers to “set modest expectations” for spending. He cited the instability of today’s budgeting process, which relies upon revenue estimates that can fluctuate over the course of the year.

“In October, just like we saw this year, that’s always an optimistic perspective,” he said. In January, with new revenue estimates, there “is always sort of the tracking to reality.”

An October revenue projection report nearly wiped out the “structural deficit” cited by lawmakers since energy revenues plunged in 2016. The deficit is calculated by squaring projected revenues against projected expenses, but also by legislative decisions. Choices made about spending, savings and the use of investments determine the size of the “structural deficit” after a legislative session.

Gordon’s summation of revenue projection reports could prove correct. Recent low oil prices likely have dented the state’s fiscal soundness. Lawmakers anticipate a drop when the January report is unveiled.

The October report showed high enough revenues to eliminate the deficit for general government funding but still projected a $172 million biennial shortfall for public education. Lawmakers likely now face a biennial deficit somewhere between $200-300 million across both general government and education funding, Harshman said.

Revenue

Last year, Harshman killed the few tax increase bills that made it through interim committees by holding them back from introduction. This year, however, he said he wants to see debate on a proposed broadening of the sales tax and increase of property taxes to raise money for public schools.

Public education is funded in part by property taxes in Wyoming, where residents pay one of the lowest property tax rates in the nation. Those low rates on private homes are subsidized by severance taxes on the extraction of minerals. Taxes assessed on minerals production generate the majority of public school funding in Wyoming. The structure is flawed, Harshman said, and will put Wyoming back in a deep hole even after the economic uptick and cuts made to education over the last few years.

“If we don’t fix [it], this will happen again,” he said. “It is repeatable, predictable, and these things don’t fix themselves. You’ve got to fix it.”

The sales tax bill is complicated. In two parts, it lowers the sales tax rate from 4 percent to 3.5 percent, while removing exemptions on sales tax from a variety of services ranging from corporate accountants tobarber shops. The bill better reflects modern purchasing habits, Harshman argued, where people spend more money on services than goods.

But the bill also removes a sales tax exemption on food, which House Minority Leader Connolly criticized. “We’re going to be asking people to pay for taxes on milk and bread and chicken when we ask so little of any corporations,” she said.  

The bill’s varied nature could lead it into trouble. Lobbyists are likely to line up to defend exemptions for the various service categories included in the bill, Connolly said. Meanwhile, there will be an appetite among conservatives for reducing the sales tax. Securing the exemption for sales taxes on grocery purchases was a tough battle for proponents even in 2006, when Wyoming’s coffers were in better shape. 

Connolly intends to introduce a personal income tax bill as well, one that she said will be scaled to capture revenue only from people earning more than a quarter million dollars a year. It’s “a tax that would not hit the vast majority of Wyomingites,” she said, “but our most wealthy, they need to chip in.” Using estimates the Legislative Service Office gave on a similar bill last year, the tax would raise more than $100 million a year, Connolly said.

Income taxes are a political bogeyman for Wyoming Republicans. Without apparent awareness of Connolly’s proposal, Harshman panned any possibility of an income tax. “We’re not going to have an individual income tax,” he said.

“We’re just not. I don’t think it’s anywhere out there,” Harshman said. “Nor should we. You can print that: Nor should we.”

Perkins agreed, and expressed wariness about both the property tax bill and the lifting of the sales tax exemption on food. “My thought from talking to a number of my constituents is that the property tax and the sales tax on food exemption may be a bridge too far,” he said.

Even the tax bills Harshman spoke of positively will face a tough road in his chamber. Many returning members of the House of Representatives are adamantly opposed to raising new taxes. With just 10 new representatives seated this year, it remains to be seen whether the House attitude toward raising revenues will change. Under the Wyoming Constitution, any bill that raises taxes must originate in the House.

There was an adamant anti-tax attitude in the Senate last year. Former Senate President Eli Bebout (R-Riverton) frequently told the public he wouldn’t consider any tax hikes, though he later tried to move a lodging tax. Perkins takes over as the new leader of the chamber, which saw unusually high turnover in the 2018 election.

Seven new senators join the Senate this year. Four of them, Sen. Bo Biteman (R-Sheridan), Sen. Mike Gierau (D-Jackson), Sen. Lynn Hutchings (R-Cheyenne) and Sen. Cheri Steinmetz (R-Torrington) previously served in the House. Hutchings opposed the increase in gasoline taxes in 2013, but otherwise their voting records on taxes are sparse. Three others, Sen. Tom James (R-Sweetwater), Sen. Wendy Schuler (R-Evanston) and Sen. R. J. Kost (R-Powell), have no legislative record. 
Like Harshman, Perkins suggested that people now purchase more services than goods, and said he wanted to see the sales tax discussed in the Senate if it survives the House. Both the sales tax bill and the property tax bill came out of the Joint Revenue Committee with room for amendments, he said. Lawmakers could pick and choose which sales tax exemptions to remove and which to leave in place.

“You do this thoughtfully and you do this steadily and you have that debate and you see where it is,” Perkins said.

The Republican party itself, whose leadership hasn’t hesitated to deliver ultimatums on conservative issues to lawmakers, has taken a firm stance against new taxes. Party officials reiterated that position at the Republican legislators’ closed-door caucus meeting on Saturday, according to people in attendance.

“The sales tax isn’t a new tax,” Perkins said. “That’s why we’re looking at not only broadening but lowering [the sales tax].” At the Republican party convention in April, Perkins said, he discussed the concept with “other conservatives” and found some support for the idea.

When it comes to taxes, Gordon has described himself as both open to discussion and opposed to new taxes. On the campaign trail last year, he said he was against new taxes. Still, in an interview with Wyoming Public Radio, he said wants to find a funding solution that brings continuity for public education.

Calling education “the centerpiece of our economic diversification platform,” Gordon told the radio station he was “anxious to get into that discussion and see if there are ways that we can find a long-term solution that brings some continuity.”  

As Wyoming state treasurer, Gordon’s office played a key role in a study that was released this spring and made headlines across the state. The study found that under Wyoming’s current energy-dependent tax structure, economic diversification will worsen the state’s fiscal woes, not solve them, because new, non-extractive businesses cost more in services than they generate in new tax revenue.

In his inaugural address Monday, Gordon focused on finding government efficiencies. “We in Wyoming are not eager to take on new taxes and especially so if we have not done our best to control our expenditures,” he said.

Gordon and Harshman — a former chairman of the House Appropriations Committee — have gone back and forth over savings and spending strategies for Wyoming’s big trust funds for years. They’ve been allies on some initiatives and disagreed on others — like how much investment income should go to spending and how much should feed back into accounts.

The two finance hawks are still debating such policy questions. Currently, the Legislature guarantees that the annual equivalent of five percent of investment earnings from the Permanent Mineral Trust Fund, Wyoming’s biggest investment account, will be available for spending. That keeps the earnings from going into the trust, where it can’t be spent. When Harshman started in the Legislature, he said, eight percent of PMTF investment earnings were guaranteed for budgeting.

Partly at Gordon’s urging, the Legislature passed a bill in 2017 that would begin to reduce that guarantee over time to 4.5 percent. Each percentage point drop takes roughly $80 million off the Legislature’s balance sheet as the laws are now written.

Harshman voted for the change in 2017 but has changed his mind, he said, citing rising interest rates and other economic circumstances. “To somehow tell the people of Wyoming we gotta raise your taxes or cut your services because something’s changed in the world and we’re not going to change with it,” he said, “boy, I don’t think that’s good enough.”

Protecting the state’s trust funds could be a lower priority for Gordon since his switch from state treasurer to governor, Harshman said. But Gordon demurred.

“We don’t need to be changing the spending policy this year because it doesn’t actually start ratcheting down for another year,” Gordon said. “I come at this issue from the perspective of the treasurer, he comes at it from the experience of building a budget.  We do not have a disagreement, simply different ways of looking at the situation.”  

Perkins and Gordon have also collaborated on financial policy. They worked together on passing Amendment A, a constitutional initiative to allow the investment of state agencies’ savings accounts that was approved by voters in 2017.

Both men have also expressed an interest in crafting a more efficient government, even when that takes initial upfront investment. Perkins has been a key driver of a government efficiency project over the last two years, and Gordon leaned on government efficiency both on the campaign trail and in his inaugural address.

Gordon won a competitive Republican primary full of candidates who touted their lack of governing experience as an asset that assured a fresh approach. Harshman sees an advantage to working with Gordon, who is practiced at testifying to legislative committees and working lawmakers on the sidelines.

“We’ve talked a lot on broad things, broad concepts,” Harshman said. “Now the details start hitting and I think the biggest thing is it’s not like he’s brand new. He’s sat on all these State Land and Investment Board meetings, he knows all these issues.” Harshman, who eyed a run for governor himself, now wants to see Gordon be “the most successful governor in our state’s history,” he said.

“As the governor is successful, Wyoming is successful.”

Across the executive branch, with the exception of Superintendent of Public Instruction Jillian Balow, the statewide elected officials are new to their posts. But they’re not new to government.

Secretary of State Ed Buchanan, who has been serving since March following former Secretary of State Ed Murray’s February resignation, is a former speaker of the House. The new treasurer, Curt Meier, spent more than 30 years in the state Senate. The new state auditor, Kristi Racines, was a constant presence in the Legislature over the last two years in her role as chief fiscal officer and human resources director for Wyoming’s judicial branch.

The House of Representatives too, which two years ago seated 21 new lawmakers, only saw 10 seats turn over in the last election. Harshman called it the “most experienced House of Representatives you’ve had in a long time.”

“The bench just keeps growing,” the high school football coach said. “You learn and learn.”

For his part, Gordon has yet to make public a number of key appointments, particularly agency heads. Some see his current policy staff, which today has four dedicated persons, as light in comparison to those of past governors. There could be anywhere between 400-500 bills introduced this session.

But when it comes to the Legislature, Gordon said, “I’m really looking forward to be able to hit the ground running.”