Capitol Outlook - Week 3 (2016) Feb. 26, 2016
Feb. 26, 2016 - CHEYENNE, WY
Joint Revenue Committee co-chairman Rep. Mike Madden
Join Revenue Committee co-chairman Sen. Ray Peterson
Craig Blumenshine, Wyoming PBS- We're pleased to continue this special web-extra conversation with the co-chairman of the Joint Revenue Committee, Representative Mike Madden and Senator Ray Peterson. Viewers can see the first part of our interview in the week three broadcast episode of Capital Outlook which is also online.
Looking at funding and distributions for cities and towns which has gotten a lot of discussion in the legislature this week and Representative Madden, the amendment has your name on it and every one around here knows what the Madden amendment is. It alters and takes into account some external pressures, if you will, to adjust revenues dispersed to these cities and towns for those communities that may not have the ability to have as much sales tax revenue, for example. As it stands now, counties will fall under this formula, cities won't. Give us some history about why it's important to change the funding distribution for cities, towns and counties.
- Well, the genesis of it was, about a year ago, we were talking about interim topics and it was put on our agenda to study if in view of the possibility of lower revenues in the future available to pass to local governments. Is there a way we can distribute those revenues in a little smarter way? And then they specifically said in our, I think it was our top priority, if I remember right. That they said to take look at the concept of power equalization which of course does make some recognition of the fact that there's differences in the ability of one local government to be able to raise funds internally or finance themselves, so to speak. Others, just simply, can't finance themselves and that's particularly critical for counties because through our statutes we dictate a lot of their costs. I mean they're mandates that they gotta have a sheriff, they gotta have a jail, they gotta have assessors, you know the list goes on and on. These things no matter what your population is, no matter what your tax base is these gotta be paid for. Then we've got other counties, for example, their assessed value per capita is 35 times higher than another county in the same state. They're both in Wyoming but one's 35 times more capable of generating revenue for themselves than another one. That's what this principle of power equalization addresses.
- So it not only takes into account population but other things like sales tax generated, property values, home resale values, lots of things like that. Will it be looked at as a method of distribution for cities in the interim, do you believe?
- Well, I think I'm still not giving up hope that it's gonna be done this year, you know. We sent it over to the Senate and for one reason or another they took and split it so that we have power equalization for counties and we have no power equalization for cities in the Senate's version. So that's gonna come as a conference committee issue. I very strongly believe that the Senate's version is gonna do a lot of harm to a lot of people because if you look at what they're doing, they're taking the reverse of Robin Hood, okay and they're taking the 77 poorest, able to finance themselves communities, taking the money away from them and passing it back to the wealthiest six or seven communities in the state.
- And Senator Peterson you advocated, not just for counties but also for cities, that this amendment was the right way to fund cities, towns and counties?
- Yeah, it is a lot fairer distribution and as Representative Madden put it, it uses this inverse ratio aspect of it that puts more weight into that. The hardship formula that I helped develop when I was on appropriations a few years back was trying to address the same concern that the smaller counties and towns although their costs of trying to maintain government, the basic costs had to be met they didn't have the capability of raising those revenues completely on their own. We recognized that and so we came up with this hardship formula. The problem with the hardship formula is it has hard and fast cliffs that there's only, I believe it was probably seven or eight counties, maybe six that qualified and if you were a county that just missed that by a percentage or two then you were out the $250,000. Where this inverse ratio formula that Representative Madden came up with, it addresses that and it's more continual, it's constant, you don't--
- Smooths out those cliffs, does it?
- You're not cut out, yeah. You're not cut out automatically because you've just missed that little threshold of a percent or two. That's all taken into consideration and so we fought hard for it and I'm hoping as Representative Madden is that in concurrence in this conference committee that we can get this. I can't see the rational of having counties distributed one way and towns and cities administered another way.
- I want to remind our viewers that we started this discussion in our broadcast version of Capital Outlook and now we're in the web version,our web extra. Want to talk to you both about the budget and I'm curious, you both may look at the budget from just a slightly different perspective because of the revenue responsibilities that you have. You both voted for this budget. Did it cut enough in your eyes, so to speak? With the revenue situation as the state is in and your thoughts on this burn-rate? Are we spending from reserves at the correct rate now? Have we established that policy that no one has been willing to write about how we shouldn't spend from out reserves? Representative Madden, I'll start with you.
- Okay, to answer your questions I think we came to a pretty good consensus and a reasonable outcome when it comes to cutting the budget. I think that we have good reasons where we made the cuts and I think we defend them when we go home. I don't have as comfortable of feeling, myself, about how we're financing it. In particular I really am opposed to suspending the statutory diversion of the severance tax going into the permanent fund. When I look at all the coffee cans of potential funding that we have, to me that's the last resort, Kinda like it would be with you with your retirement. If you had a 401K and you got sick or broke a leg, you had to miss work or something and you had expenses you're not gonna quit contributing to your 401K, that's the last thing you do. You're gonna go to savings, if you have them. Now if you go back to the state we do have savings, we've got 1.8 billion dollars and I think that that's closer to a first resort and the statutory diversion, for me personally, is a last resort.
- So you're arguing that the state should have spent more from the stabilization account, the 1.8 billion dollar reserve account?
- I would rather have spent more out of the LSRA than I would have been so willing to get rid of the 1% statutory diversion into the permanent account. You know that account is saving our ...
- [Senator Peterson] Bacon.
- Our bacon right now. Yeah, it really is. I mean that thing generated 313 million and that's equivalent almost too, well it's way more than one percentage point on a sales tax. If you take that diversion, you know, let's do the math. About 100 million a year goes in out of that 1% statutory diversion, all right. One percent at 5% interest and that's what we've been roughly been able to take out, 5% without hurting the principle. Then that's 5 million, right? The next year another 100 million, now you're up to 10 million, the next year you're up to 30 million, and so, no, 15 million. The point is that if you keep, if you don't lose faith with that thing, that thing's gonna get better and better all the time. But if we take away about 40% of what we're putting into it I think we're making a big mistake and you'll hear more about that tomorrow on the floor, I think.
- Senator, you agree?
- You know, this session we gotta keep that corpus healthy to keep generating the revenue that we've come to depend on. But I think this session was just about right as far as raiding the LSRA. We talked about the burden rate and we projected this downturn to be at least four or five years and possibly going into 10 and if that's the case then that burn-rate was set at somewhere between 50 and 100 million dollars as we try to raid it, and so I think we're just about where we should be. I'd like to see more effort, even more effort on reducing expenditures. We had a pretty good ride for those last 10 or 12 years and in so doing we've created this juggernaut of expenditures in the state. We've grown our budgets and we just need to come back to reality just a bit and I would feel much better going to the voters if our committee is assigned to look at additional sources of revenue or increased sources of revenue or trying to diversify. I could sell that if we've made our attempts properly to reduce those expenditures, but until that happens I'm a pretty good pitch man, but I'm not that good.
- So more cuts to come as revenue changes might be in the offing. Is that kind of what I hear you both saying?
- Yeah, I agree with what the Senator is saying, I think that's right. You know I think a kind of a side note to that is that we've been too willing to just hold education harmless. You know, the Senator and I are gonna have our hands full dealing with revenue for facilities in the next interim but I can tell you the next interim isn't gonna be a real pleasant experience because that school foundation account is not gonna be able to pay it's way to educate kids at the rate we're doing it. I mean there's a reason why other neighboring states spend half of what we do on a per capita basis per ADM basis. We just can't sustain that, we could be looking at a half-a-billion dollars to raise the next year after that ad valorem goes away from this mineral. See the minerals pay ad valorem a year late and when that's gone there's gonna be some white faces around here.
- All eyes, I believe, will be on your committee.
- I hope so.
- I believe in the interim. Best wishes and thank you so much for joining us on Capital Outlook.
- [Representative Madden] Thank you.
- [Senator Peterson] Thank you.