Sagging natural gas prices have state lawmakers searching for new revenue sources as they begin the 62nd Legislature.
With the energy boom in its twilight, no one wants to revert to the grim austerity and crumbled infrastructure of the 1990s. During the next couple of months, lawmakers must decide whether to heed Gov. Matt Mead’s call for a fuel-tax hike or possibly tap into the state’s nearly $1.6 billion in “rainy-day” savings to fund highway projects, for example. It’s a new problem in Wyoming following a decade of soaring energy royalties, and legislators are eager to hash it out on the Senate and House floors. In a state that loathes taxes, many people are asking: What constitutes a rainy day in Wyoming?
“It’s not rainy,” Rep. Steve Harshman, R-Casper, said. “It’s not desperate times.”
Harshman said the severity of the bust in the 1990s put lawmakers on their toes.
“We were able to hold off with coffee cans of money back then,” he said. “The thought is, if we save one budget cycle’s worth of funds, we can prevent drastic cuts and tax increases.”
The goal is to have $3 billion in the Legislative Stabilization Reserve Account, or rainy-day fund, according to the governor’s budget proposal.
Only when essential government services are underfunded, the thunder, lightning and precipitation start rolling in, Harshman said.
If the general fund can’t finance police, fire and other necessities for local communities, Harshman said, it’s time to tap into the rainy-day fund.
“We’re not there yet,” he said. “We’re still funding one-time projects out of the general fund,” he said.
In Mead’s budget proposal he suggested using general funds for one-time projects in the state: $30 million for the Gillette-Madison Water Project, $31 million for capital construction projects and $20 million for other local government ventures.
The one-time expenses out of the general fund are prime examples of why the state shouldn’t tap into the rainy-day fund, Harshman said.
Rep. Patrick Goggles, D-Ethete, believes the clouds are moving in. He has been working on a bill to introduce on the House floor that will divert money from the rainy-day fund into the general fund.
“In the end all the taxes will be paid for by the consumer,” Goggles said. “Have we mandated the account for savings, or is it just a label for the appropriations committee and lobbyists?”
Taking advantage of that fund rather than raising taxes is a better option, said Rep. Ken Esquibel, D-Cheyenne, in regards to Mead’s proposal of a 10-cents-per-gallon fuel tax hike to pay for highway construction and repairs.
It’s not intended to be another permanent mineral trust fund, a savings account that can only be used if the Legislature changes the state constitution, said Rep. Mary Throne, D-Cheyenne.
“It shouldn’t be treated as sacrosanct,” she said. “It’s intended to be a liquid savings account.”
A plateau of revenues in a five-to-15-year period is what constitutes a rainy day for Sen. Phil Nicholas, R-Laramie. He said Wyoming is entering a plateau period where natural gas prices will hover around $4 for 10 years.
Nicholas intends to use the rainy-day funds. Just not now.
“We will manage budget cuts when necessary and we have a plan to continue operating government once we go into the accounts,” he said.
The Legislature created the Legislative Stabilization Reserve Account in 2005. The fund receives no stable source of revenue. Whatever monies lawmakers don’t spend in the state’s general fund and budget reserve account are transferred into the rainy-day account at the end of the fiscal year. Mead proposed diverting 1 percent of severance tax revenues from the permanent mineral trust fund into the rainy-day fund, giving the account a recurring source of revenue, said Don Richards, budget and fiscal manager for the Legislative Service Office.
The rainy-day account is the use of carryover funds, or excess funds, for priorities established by the Legislature, Goggles said.
“We ought to look at the real name of the account and what it implies,” Throne said. “It was intended to stabilize revenues.”
Forty-seven states in the nation have rainy-day funds. Wyoming, Alaska and Texas are the only states that haven’t reached their hands into the piggybank since the last recession. The states are three of a kind. Their revenues are dependent on natural resources more than the other energy-producing states. Compare that to natural-gas-rich Pennsylvania, for instance, which has diverse sources of revenues, including a state income tax.
Some states save rainy-day funds for natural disasters. Other states save for times when the economy softens, said Kim Rueben, a senior fellow at the Tax Policy Center, a nonpartisan think tank in Washington.
“You guys are in a better position than other states,” she said about Wyoming.
Nationwide, states went into the recession of 2007-2009 with about 11 percent of their general fund spending in rainy-day funds, said Liz McNichol, a senior fellow at the Center on Budget and Policy Priorities in Washington.
After the recession in 2010, the average state declined to about 3.5 percent.
“It’s been building up a little bit after that,” she said. “But the typical state is in a holding pattern now. Revenues aren’t back enough.”
Texas has about $8.2 billion in rainy-day funds, according to The Associated Press.
“They have a fair amount of money they haven’t really touched,” Rueben said. “Much of it came because oil prices were high.”
Texas conservatives, including one-time presidential candidate Gov. Rick Perry, oppose tapping into the funds. But Democrats and moderate Republicans believe it’s time to spend a portion. The lieutenant governor wants to spend about $1 billion from the rainy-day fund for a water bank to help the state during droughts. Educators, employee groups and disabled rights advocates argue that they need funds, too, according to media reports.
Alaska is an outlier.
Like Wyoming, natural resource-rich Alaska has no state income tax.
Unlike Wyoming, Alaska has no state sales tax and residents receive checks from the state based on a portion of money in a government reserve account, Rueben said.
Time to talk?
As a state, Wyomingites need to have a discussion about the revenue outlook in the future, she said.
“Given they have a fairly large rainy-day fund, I would probably — if I was governor — I would do some of both,” Rueben said, referring to dipping into rainy-day funds and raising gasoline taxes.
Not everyone agrees with Reuben.
“The best policy is to try to fund your own budget with ongoing revenues,” said McNichol of the Center on Budget and Policy Priorities. “If you feel like you’re going to have a permanent gap between the cost of the program, you want to fill that in permanently with a tax increase rather than taking the money out of the rainy-day funds,” she said.
Wyoming’s rainy-day fund may look excessive, but the state has a volatile revenue source, McNichol said.
“You have to balance the two,” she said.
Goggles said the source of the problem is the state’s dependence on the energy industry for revenues.
“We’ve become overly dependent,” he said.
Long gone are the days of natural gas selling at $7 per thousand cubic feet.
Natural gas has been an integral part of keeping Wyoming’s budget in the black. Natural gas severance tax revenues in fiscal year 2012 were $346,218,365, down by nearly $300 million from 2008.
Wyoming’s been blessed by natural gas, Nicholas said. But the price plateau is “something we predicted,” he said.
“A rainy day in Wyoming is when we plateau our revenues at $3 to $5 mcf on gas and you look at the prices and know they’re not going to change,” Nicholas said.