Bleak revenue picture for state, local government
June 11, 2020
WORLAND — Prior to Wyoming Governor Mark Gordon announcing the upcoming closures of 10 state rest areas and painting a bleak upcoming financial picture, Rep. Mike Greear (R-Worland) provided similar news to the Worland City County on Tuesday, June 2.
Greear told the council, “It’s been an interesting several months. We came out of our last legislative session around March 12, had a good budget in place. Everything seemed normal in the world. The state’s investments were doing well, oil was doing quite well … It really wasn’t but days later the Saudi, Russia feud began, price of oil plummeted and the stock market crashed, and then by mid-March we were fully into the COVID1-19 health emergency. Things within the state of Wyoming have changed dramatically since then.”
He discussed the programs developed for the funding provided by the federal CARES Act (See related story). The programs were included in a bill approved in a special session last month.
Greear said the Wyoming Legislature leadership is still deciding if they need to go back into special session at end of this month or perhaps in late July or August.
Greear said when speaking to cities, town and counties, the main question he is often asked is if the $105 million in direct distribution is in jeopardy. “My response is no, I can’t imagine that is in jeopardy. That’s been appropriated and I think with maybe a couple of exceptions, every legislator understands the necessity of pushing those funds down to our local governments.”
He said the real question is whether or not they will need to add to that amount. The state of Wyoming is going to start feeling some real economic pressure and it is going to hit the City of Worland as well.”
Greear said they received the latest Consensus Revenue Estimating Group (CREG) report on May 26 for March and April and “it was not a pretty report.”
He said the general fund budget is $3.4 million biennium with the rest of the state’s $8 billion biennium budget coming from federal dollars.
He said the general fund budget has a tremendous reliance on the mineral industry, in particular coal.
For the fiscal year 2020, which begins July 1, the CREG report is showing $220 million decline in revenue, the following year that bumps to $450 million and the next year it is $436 million. The latter two years are 30% reduction in revenue.
“The thing I always hear is you got to make more cuts before you tax,” Greear said.
He said in 2016 the state made $200 million in cuts, which was extremely difficult. Some of the programs and employee positions have come back since then.
“Once you get past 10% and you start cutting more to an agency, it is going to start losing its effectiveness. If you continue cutting people and all of the other associated support, you just as well should cut the program, because the program is not going to have the resources to function correctly. If we think we are going to cut our way out of this we are going to see significant reductions and eliminations of programs and benefits for the citizens of our state. There’s going to be some very difficult times ahead.”
Greear said COVID-19 had some impact on the revenue decline, the oil price was brought on by feuding countries but also the drop in consumption.
The state also has had a heavy reliance on coal and natural gas and natural gas has already bottom out.
“Coal really is one of those driving factors,” he said. At one time Wyoming was exporting 430 million tons of coal a year and 2019 was at 270 million tons with a revision to 205 million tons and a decline to 175 million tons by 2024.”
Greear said they are also seeing a 9% reduction in sales and use tax for the upcoming fiscal year and a 25% reduction for the following fiscal year.
Forecast for assessed valuations are also estimated to drop 20%, he noted.
“Again we’re not going to cut our way out of this. We’re going to have to have realistic discussions about taxation and how we look at our tax base. No one wants to hear that, but that’s simply where we are,” Greear said.
He said 1% sales tax in the state generates $150 million a year. Removing the exemptions on services, food and manufacturing that would be $170 million with $57 million from the food tax alone.
He said the revenue committee is looking at other options as well.
“Are we going to pass more taxes in the Wyoming Legislature. I just don’t know. I voted for the fuel tax and I voted for the lodging tax. I vote for taxes that I think are appropriate and reasonable, and I stand by that.”
Two days later Governor Mark Gordon instructed his state agencies to prepare for deeper budget reductions. According to a press release, the reduction plan requires agencies to prepare for more drastic scenarios and be proactive, since the revenue situation could further worsen. Already the state has taken the first step by imposing a hiring freeze and limiting large contracts.
“We are in uncharted territory,” Gordon said. “We have just experienced the largest loss of income in our history just four years after our second largest loss of income. But, even if every state employee was let go, or if we closed the prisons, eliminated all money going to the courts, and stopped funding persons with disabilities, we would still run out of funds at the end of the biennium.”
The Governor is building a broad response plan to address this budget crisis. For spending reductions, he outlined a phased plan to be coordinated closely with the legislative branch. The next step requires state agency directors to identify and explain programs to eliminate by July 1, along with the consequences of those proposals. These cuts will likely lead to some employees losing their jobs. He also asked agencies to consider salary reductions, furloughs, reductions in benefits, and other options.
The subsequent step involves preparing for the unknown, with each agency building flexible approaches that are responsive to updated revenue forecasts that will be issued by the Consensus Revenue Estimating Group (CREG) in July and October.
“To be sure, the data that we used to model these revenue shortfalls are preliminary, and therefore still a bit unclear, but there can be no doubt we will see a continuing steep decline.” Gordon said. “In any event, our approach to the significant cuts we will have to make must be done strategically, with purpose, and in a manner that assures Wyoming can recover rapidly.”
The Governor reaffirmed the entirety of the response will build on his commitment to working with the Legislature to look for other ways to fund an appropriate level of government services, including the short-term use of the Legislative Stabilization Reserve Account (LSRA), the Special Investment and Projects Account (SIPA), or revenue enhancements, since merely cutting services will not be enough to address the scope of the shortfall.
REST AREAS CLOSING
Also on Thursday, June 4 Gordon announced that the Wyoming Department of Transportation (WYDOT) will close 10 rest areas located throughout the state as a way to reduce the agency’s operational costs.
The closures are effective June 15 and were prompted by a need for WYDOT to reduce costs due to budgetary shortfalls. They were approved by the Wyoming Transportation Commission during its recent special meeting.
“This is a painful reality but a necessary step given our state’s fiscal situation,” Gordon said. “This will have real impacts, not only for travelers, but for the custodial staff contracted to provide services to these facilities. These workers are our friends and neighbors in Wyoming communities around the state.”
The rest areas that will close include Lusk on US 18; Guernsey on US 26; Greybull on US 14-16-20; Moorcroft on Interstate 90; Star Valley on US 89; Ft. Steele on Interstate 80; Sundance on Interstate 90; Upton on US 16; and Orin Junction and Chugwater, both located on Interstate 25.
“We took a hard look at all of our rest areas and came up with a list of those that we feel we can close with a minimal amount of impact to our travelers,” said WYDOT Director K. Luke Reiner. “It was a hard decision but one that we came to base on the needs of the public and to ensure we maintain a balanced budget.”
The rest area closures will result in a savings to WYDOT of approximately $197,453 from June 15 through Sept. 30, which is the end of the fiscal year. After that, the department will save about $789,812 per year.