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Funding Wyoming's Future: Exploring Our Economic Dependence on the Extraction Industry

As students and educators begin their trepidatious return to the classroom this fall, the public health and safety crisis caused by the coronavirus is not the only threat that education is facing. The state of Wyoming is currently facing a $1 billion revenue shortfall over the next two years, and according to Governor Gordon, “there is a $500 million shortfall in funding for education.” Because the authority of the Governor’s office to cut education is uncertain, Governor Gordon has asked districts to implement 10% voluntary cuts.

It is well understood that a comprehensive approach to remedying the state’s deficit problem will be necessary to move the state forward and that cuts alone will not resolve the financial crisis. This comprehensive approach will have to include policy measures that may not have been previously utilized in the state of Wyoming and are as unprecedented as the severity of the financial crisis itself. This means that, in some manner, revenue must be generated as part of the comprehensive approach. However, at their August meeting, the Revenue Committee failed to move forward any revenue-generating bills, while at the same time, tabling a tax exemption on the sale of feminine hygiene products and diapers. The Revenue Committee has set aside for future consideration, a bill that would change the mill levy rates for education funding, on the condition that cuts would first be utilized.

The calls for cuts to education have been vocalized by Representative Hallinan over the past couple of weeks, beginning with an op-ed calling for the legislature to adopt $200 million in cuts to education as proposed in a 2016 white paper on education funding. These proposals include reducing the school bus fleet size and/or purchasing instead of leasing vehicles; implementing a cap on special education and utilizing Medicaid as a part of the special education funding formula; reducing the amount of block grant money used to fund extracurricular activities, and instead asking families to pay fees to cover the cost; and consolidating the 48 school districts to 23. While the Wyoming Education Association recognizes the opportunity to consolidate some school districts across the state administratively, the consolidation at the level that Representative Hallinan proposes, as well as the other recommendations, would be irresponsible, disproportionately impact low-income families, and are, in general, bad policy proposals. What is more, these proposed cuts were targeted to impact the School Foundation Program Fund. Not only does Representative Hallinan disregard the negative impacts of these cuts, but he also fails to recognize that there is no legislative authority to cut money from a fund.

Regardless, the calls to cut education are growing in the legislature and have now been advocated for by the Governor himself. Cuts to education without generating any additional revenue will create massive economic and social problems across the state of Wyoming. While the path forward will be incredibly arduous and, at times, politically contentious, there are discussions amongst those in the legislature that are attempting to plot a path forward. To successfully plot this path requires an understanding of how we got here in the first place and what can be done to remedy this fiscal crisis, not only in the short term but over the long haul as well.

A State of Affairs: Wyoming Energy, Taxes, and a History of Instability.

It is well understood that the foundation of Wyoming’s economy has been based almost exclusively on extraction industries and tourism. Wyoming’s extraction industries, including coal, oil & gas, and trona, have enjoyed successes and failures during their extensive tenure as Wyoming’s leading economic driver. While cities, counties, towns, and the state government have enjoyed periods of economic success during boom periods, they have also endured the painful realization of what happens when the state economy is the third most volatile economy in all of the U.S. Foreclosures, job losses, and outmigration are emblematic of bust cycles that have become deeper for Wyoming and its residents. This is due to the evolution of energy not only in Wyoming but across the World.

Legislative Services presented to the Revenue Committee on Monday an examination of the U.S. electric power industry generation from 2009 to 2019. Over this time, the utilization of coal as an energy source in the U.S. has declined from 1.97 billion MWh in 2009, roughly 52% of the total energy generated, to 0.97 billion MWh in 2019. Petroleum has also seen a decline, while natural gas utilization had increased from 0.60 billion MWh in 2009 to 1.58 billion MWh in 2019. It now accounts for approximately 38% of the total electricity generated in the U.S.

Likewise, in the state of Wyoming, the use of coal as an energy resource has declined from 43.6 million MWh in 2009 to 34.8 million MWh in 2019. Wind and solar have seen the most substantial increases as a source of electricity in the state of Wyoming over this same time, with only 0.5 of electricity being generated from wind and solar in 2009 to over 10% of the state’s total generated electricity in 2019.

Representative Hallinan and other staunch supporters of the coal industry would have you believe that these are temporary economic and production setbacks caused by over-regulation. The fact of the matter is that many factors are contributing to coal’s decline, and this is—in no way—a temporary situation. The effectiveness and efficiency of natural gas as a source of electricity is a significant factor in the decline of coal. This trend has grown worldwide, which reduces the demand for Wyoming coal. At the same time, LSO noted that what has happened within the U.S. has been a distinct and substantial focus on states moving away from coal and fossil fuels as an energy resource and developing energy portfolios and plans that wean states off of fossil fuels. Only 13 states in the U.S. have failed to develop these types of energy portfolios and goals, Wyoming is one of them. As states continue their move to diversify their energy portfolios and become less reliant on fossil fuels, this also negatively impacts demand for Wyoming extraction resources. While natural gas has seen an increase in demand, the problem with basing a state economy on these resources is that the market for these two resources is highly volatile and would only perpetuate and make worse the boom-bust cycle already plaguing Wyoming’s economy.

Where to go from here: Taxes and Economic Diversification

During the Revenue Committee’s meeting, things became heated when Senator Bo Biteman harshly responded to Representative and Revenue Committee Co-Chair Dan Zwonitzer’s simple question of “if not this, what are you willing to vote for that will raise revenue.” Biteman noted that he and his colleagues should not be admonished for not being willing to raise taxes and that the approach should be economic diversification. While economic diversification is absolutely part of the comprehensive approach that Wyoming needs to undertake to remedy its financial situation, it is not the first. Representative Cathy Connelly was quick to point out the findings of a study commissioned by the Joint Revenue Committee in 2016 by REMI, which noted that under Wyoming’s current tax structure, economic diversification would only deepen Wyoming’s fiscal crisis. The use of services and infrastructure that new positions would bring would outpace the revenue generated that is needed to maintain infrastructure and provide those resources.

Wyoming relies on sales and use tax, investment income, and severance tax for most of its revenue. In multiple studies conducted by the Institute on Taxation and Economic Policy (ITEP), Wyoming’s tax structure was found to be one of the 10th most regressive in America. In the state of Wyoming, the lower one’s income, the higher one’s overall effective local tax rate. Low-income Wyoming citizens pay three times higher tax rate, 9.6 percent, as the state’s wealthiest residents, 2.6 percent.

This type of tax structure encourages wealth inequality and, as was found by REMI’s analysis, makes the state’s economy conducive to adding only low-paying jobs. This is in large part because Wyoming does not have a state income tax. Sales and use tax is regressive because it increases the amount of money spent on necessities like food and other essential household goods by low-income families. Wealthy citizens can save or invest, sheltering income from taxation, while low-income and middle-class Wyoming families bare the lion’s share of the sales and use tax burden.

Two of the ideas floated during the most recent Revenue Committee meeting were a real estate transfer tax and eliminating the food tax exemption. These are regressive tax policy proposals that would disproportionately impact Wyoming’s lower to middle-income earners. The real estate transfer tax would make it harder for first-time home-buyers to purchase a home, which would create a ripple effect throughout the state’s real estate market. Removing the food tax exemption would hit low-income families the hardest and would only make worse the issue of food insecurity in the state.

For these reasons, it is apparent that it is the responsibility of the legislature to address the state’s regressive tax structure. Then, and only then, can the legislature move to diversify Wyoming’s economy. It is important to note that economic diversification does not mean the exclusion or termination of extraction industries as vital components to the state’s economy. The Wyoming Education Association recognizes the massive contribution to education made by extraction industry businesses operating in the state of Wyoming. They will remain a significant contributor to our economy. Economic diversification simply means a larger economic pie with new sectors that will contribute to the work opportunity and income opportunity for Wyoming’s citizens and the children of Wyoming, who typically emigrate when profitable and stable work cannot be found.

Wyoming’s leadership can no longer kick the proverbial can down the road. Discussions should not focus on which agencies and programs are going to receive cuts and how are they going to function, but should evolve into why cuts are necessary in the first place. Indeed, the coronavirus outbreak had a substantial, negative impact on the state’s economy. However, the outbreak has only brought to the surface problems that have long-faced Wyoming. These economic issues are not fleeting or temporary, as Representative Hallinan may have you believe. These issues are pervasive and generations-old, and it is well past time that our leaders take positive steps to remedy the problem.

Picus and Odden are set to deliver their findings on school recalibration later this fall. Inevitably, these findings will demonstrate that the state is already underfunding education. The answer to the state’s woes is increased revenue to invest in the agencies, the programs, and the people that make Wyoming exceptional. The Wyoming Education Association will continue its dedication to advocating for students and educators and will fight to ensure that equitable, high-quality education is adequately funded, as is mandated by the Wyoming Constitution.

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