It’s a familiar refrain: Hunker down. Weather the storm. Ask God for one more boom.
But most agree tightening your belt isn’t a long-term solution, it’s a way to get you through a bust.
When schools eventually close, businesses leave and government makes cuts, people begin to wonder how many times they can weather the same storm.
They talk about tax changes and economic diversification. But then prices tick up or a miracle happens, and those debates are drowned out by shouts that the economy is improving.
Nearly 500 coal miners lost their jobs on a single day in March of 2016. Crude prices dropped by 50 percent from one summer to the next. Natural gas struggled. But coal production has improved, oil is creeping towards $60 a barrel, and some talk of export terminals turning natural gas into a global commodity.
Yet many state officials are convinced Wyoming’s economy is recovering. Despite some of the most conservative lawmakers agreeing earlier this year that overhauling taxes might be necessary for solving the budget crisis and enabling economic diversification, it now appears the will to do so is waning.
“People are pretty much expecting that our downturn has flattened out and that we’re maybe on the upswing,” said Buck McVeigh, executive director of the Wyoming Taxpayers Association, which seeks to broaden the state’s tax base. “It’s going to have a dampening effect for lawmakers.”
Eating your vegetables
Even staring down a major budget shortfall last winter, lawmakers decided not to raise taxes.
But following the session, leaders asked a committee to generate proposals to raise significant sums of money — up to $300 million — before lawmakers meet again this February. And, very reluctantly, they did.
The committee took a painstaking approach to considering tax options, often voting not on whether to sponsor a given measure but simply whether to move it on to their final meeting. Then, at what was supposed to be its final meeting Monday in Cheyenne, the committee punted once again. It created a new meeting in January at which it would really — finally — decide which bills to sponsor.
Even with all the caution, lawmakers on the revenue committee aren’t considering any fundamentally new measures like a corporate or personal income tax, either of which experts say would lessen dependence on minerals. Instead, the weightiest items considered have been modest increases in the state’s very low sales tax and a temporary increase to the property tax rate — which would be removed after a few years or when the energy industry recovers, whichever happens first.
But the recoveries of years’ past aren’t expected this time around.
Not out of the woods
The factors that drove coal, oil and gas into a bust haven’t really changed, according to Rob Godby, director of the Center for Energy Economics and Public Policy at the University of Wyoming.
“All the dynamics are still there,” he said. “They are only getting worse.”
This is particularly true of coal, a resource that’s been an economic bedrock for Wyoming for more than 30 years. Coal is now in direct competition with natural gas as its long-term dominance in the electricity sector diminishes. Coal-fired power plants are closing. Renewable sources of power are on the rise.
Oil, which showed some improvement this year, has trouble of its own. The global upset that led to the downturn was caused by a sudden rise in U.S. production. If companies adjust to the new normal of $60-plus a barrel, that could upset the balance again and drive the price right back down, Godby said.
Long-term concerns about climate change only add to the mix as the transportation sector moves away from gas and diesel.
Meanwhile, predictions that natural gas prices will tick up haven’t proved true, Godby said. The state revenue projections, released in October, made similar warnings.
But it’s the short-term boosts projected by the Consensus Revenue Estimating Group that appear to be what those in charge are focused on.
The CREG projections determined that the state would have at least $200 million more than expected to spend over the next two-year budget cycle. That still leaves the gap of $770 million, according to an estimate from the Legislative Service Office.
State officials and political watchers are now convinced that whatever iota of momentum major tax changes may have had with lawmakers going into the February budget session is quickly evaporating.
Mead acknowledged recently that the tax changes needed to go along with economic diversification, a major priority for the governor, are now unlikely to come during the Legislature’s winter session.
“I think as the revenue picture improves, whatever appetite that was out there — if any — is somewhat diminished,” he said last week.
The revenue committee’s new January meeting is meant to take place after CREG releases its quarterly update to the October report, which may project even more of a revenue boost. It will also come after a select committee on school funding issues its final recommendation, which some lawmakers are likewise hoping will allow the Legislature to spend less on education.
Senate President Eli Bebout, R-Riverton, a strident opponent of most new taxes, said he thinks the senate remains largely opposed to new taxes. “The CREG numbers being better ... certainly make it easier to say no.”
Bebout’s views on the state’s tax code are complex. He believes in Mead’s Endow effort to move the state away from its reliance on minerals through job training and infrastructure spending, and Bebout recognizes the role taxes will play in achieving a more diverse economy.
“We’ll never be totally out of the woods unless we truly make a good effort to diversify our economy and broaden our tax base,” Bebout said.
But Bebout’s priorities are cutting state spending and, while he freely acknowledges that the Legislature can’t cut its way entirely out of its current hole, the longtime lawmaker still rejects most of the steps that would broaden the tax base and provide revenue to accompany spending reductions.
“I’m a no on property tax increase. I’m a no on sales tax increase. I don’t like the 1 percent leisure tax,” Bebout said. “I’m a no on an income tax.”
(Bebout has said he may support a so-called “tourism tax.”)
While Bebout may be one of the anti-tax leaders in the Legislature, Speaker of the House Steve Harshman, R-Casper, whose chamber has been more open to increasing revenue, is now also saying the potential for major tax changes this session has been all but killed by the CREG report.
“I just don’t think we’re going to have to do those big ones at this point,” Harshman said. “That’s kind of the way I’m looking at these numbers.”
Long term risks
But that doesn’t mean the conversations about taxation that have been taking place on the revenue committee over the past year have been a total waste. Revenue committee co-chair Rep. Mike Madden, R-Buffalo, thinks they have set the stage for fundamental tax reform at some point in the future.
“There’s no good time to reform taxes in Wyoming,” he noted.
But the longer the state waits, Madden added, the more desperate the future will be.
For formerly resource-dependent regions like the clusters of timber towns across the Pacific Northwest, surviving the loss of their primary economic driver hinged on transitioning their economy before the final bust, according to Mark Haggerty, a natural resources expert for Headwaters Economics in Montana.
The areas in Washington and Oregon that were already removing themselves from dependency on the mill and the forest could continue to do so as the logging industries finally collapsed. The communities that put off those tough decisions withered.
“They are still depressed,” Haggerty said. “They never recovered, and they never diversified.”
A similar story has played out in Appalachia, but in those towns and states it was coal’s decline that drove down regional economies, he said.
McVeigh, with the taxpayers association, has mixed feelings about the air running out from the Legislature’s tax reform balloon. His organization supports broadening the tax base, but McVeigh worries that some proposals, such as raising taxes on liquor, are the “knee jerk” result of lawmakers desperate for revenue. That’s not good policy, he said, and if lawmakers abandon major tax reform this year, they may avoid passing some of those bills.
But the Legislature has been putting off major tax reform since at least the late 1990s, when a study called Tax Reform 2000 that recommended implementing an income tax was shunted aside by skeptical lawmakers. McVeigh said that if elected officials again decide to ignore the problems with Wyoming’s tax code this winter, it is unclear when they will ever tackle an issue that he agrees is crucial to stabilizing the state’s economy for decades to come.
“I don’t think anything’s going to change,” McVeigh said. “In the next downturn we will be just as vulnerable as we are now.”