By Michael Illiano

The Sheridan Press

Via Wyoming News Exchange

SHERIDAN — The state Legislature’s Joint Revenue Committee discussed replacing direct distribution funding, crucial state aid provided to Wyoming municipalities, at its September interim meeting, which could require tax increases and redistributions of tax revenues. 

Rep. Mike Madden, R-Buffalo, who co-chairs the Joint Revenue Committee, explained that the state Management Council instructed the revenue committee to explore replacements for direct distribution funding in anticipation of the possibility that the state will no longer be able to afford it.

During the latest budget session, the state Legislature authorized the state to disperse $105 million in direct distribution among local governments over the next biennium. But the state continues to struggle financially, and as legislators contemplate slashing funding for education and other crucial services, future direct distribution disbursements are in jeopardy.

And state municipalities have come to rely on that funding. The Wyoming Association of Municipalities released finance reports in 2016 and 2017 that concluded Wyoming’s cities and towns are more dependant on state aid than the municipalities in every other state in the country. If that funding disappears, local governments around the state would lose money crucial to building and maintaining infrastructure.

Because direct distribution funding is not guaranteed in the long term — that is, the Legislature needs to re-approve direct distributions each biennium — it cannot be used for ongoing expenses like salaries or employee benefits. As a result, it is often used for one-time infrastructure projects. In Sheridan, for instance, direct distribution funds have been used to remodel the police station and city hall, replace emergency vehicles, purchase snow removal equipment and improve city parks and streets.

WAM has lobbied the Legislature to allow municipalities to create their own revenue by implementing local taxes for the past several years. Ultimately, it would be up to local governments how those taxes are structured and voters in local municipalities if those taxes are implemented.

The Revenue Committee introduced a draft bill at its last meeting that would authorize municipalities to implement local sales taxes, pending voter approval.

Local tax options alone, though, likely cannot replace direct distribution funding entirely, as the revenue local taxes generate would depend on the tax base in each municipality. A city like Sheridan, which has numerous retail options and a sizeable population, could probably generate sufficient revenue from a local sales tax, but a smaller city, like Clearmont, could not.

Johnson County Commissioner Bill Novotny, who also co-chairs the Wyoming County Commissioners Association’s Revenue Committee, testified at the Revenue Committee’s last meeting and explained that finding a serviceable replacement for direct distribution funding would require a multifaceted solution. Further, he stressed that any solution would have to be a true replacement of direct distribution funding.

“Voter-optional tax authority is not a replacement, it is a gamble,” Novotny said.

Pete Obermueller, the executive director of the WCCA, also testified before the committee and presented three examples of solutions, noting that the WCCA was not endorsing any of the proposals, only presenting potential mathematical solutions.

The first would raise the state sales tax from 4 percent to 4.25 percent and increase the percentage of sales tax revenues that local governments receive combined with slight increases to property taxes. The second option would also increase the sales tax revenues provided to municipalities, as well as re-instituting a 4 percent sales tax on groceries. The third scenario would increase the amount of severance taxes that go to municipalities, increase the amount of sales tax revenues that go to municipalities and institute a 2 percent sales tax on groceries.

All three scenarios result in higher taxes, which means they could prove to be a tough sell politically.

The Revenue Committee has one more meeting, in November, before the Legislature reconvenes in January. Based on the scenarios Obermueller presented, any replacement for direct distribution funding will be complicated.