Wyoming PBS

Capitol Outlook - Week 3 (2016)

Feb. 26, 2016 - CHEYENNE, WY

Joint Revenue Committee members Sen. Cale Case, Sen. Dave Kinskey and Rep. JoAnn Dayton

- And we welcome our viewers to this special web extra segment with members of the Joint Revenue Committee. Earlier in our broadcast version of week three of Capitol Outlook we had a clip that showed Senate President Nicholas talking about the need to have your committee seriously take a look at the tax structure in Wyoming. Makes me reflect that Tax Reform 2000 said that the tax structure in Wyoming wasn't equitable. The legislature has implemented some of their recommendations. The removal of tax on groceries is one. But what does it mean to have an equitable tax structure in Wyoming? And is Wyoming's tax structure equitable now? Senator Case, I'll start with you.

- We don't have a very equitable tax structure. It's largely paid for by the mineral industry. To be perfectly frank, most of us enjoy that immensely. We have relatively low sales taxes, relatively low property taxes, good level of state services. But we're not actually paying for those.

- Representative Dayton, can we have an equitable tax structure in Wyoming given the emphasis on energy?

- We can, but it's going to be hard work to get there.

- People talk about equity like it's clear what it means to everybody, and my experience when people start talking about equity it usually means a horrifically inefficient tax code. Because efficiency is equally as important. People strive for equity and they end up throwing in all kinds of loopholes, all kinds of exceptions. Like we've taken the tax off food in the search of equity. Well whether you're rich or poor you still get tax relief from that, and then equity sometimes means an income tax with progressivism and redistribution. So I want to know what it means before we really settle on whether we should or should not make our tax code more equitable. And where that takes us in the end.

- Now President Nicholas said you have to do your work quickly. This is something that you can't put on the back burner. You're going to look at a lot of exemptions, and everyone who enjoys their exemption is going to come at you and tell you why it should continue on or perhaps why it should be included. How is that discussion going to evolve? Senator Case, what's your vision of the CREG like group that has been proposed to review exemptions?

- Well, I think I've actually been through the exemption discussion a couple of different times before and at the end not a lot has been done. I'm hopeful that the urgency will allow us to maybe move some exemptions forward. I think we do need to look at exemptions in a very big way. Especially in the sales tax area, where we have a lot of control, but you go back to the tax on food. That was actually a very bad idea for Wyoming.

- And the reason was. [Voiceover] To remove the tax?

- [Case] To remove the tax on food. The reason is, because you can't look at any tax in isolation and say that it's inequitable. You have to look at the overall burden. And really the tax systems are best where everybody's got a little skin in the game. And we're all kind of rowing the boat.

- So perhaps restoring the tax on groceries might be on the table.

- No, it won't be. That will be politically impossible, but it's an example of something that really hurt specific communities in Wyoming who depended on that tax for their local funds. Local funding is one of the keyest issues in this whole web. How these communities can also have sustainable operations and funding.

- Representative Dayton, how are you going to look at exemptions that people have come to depend on? Expect?

- On the house side, we did have a bill brought forward to repeal the tax on food. And it went down in flames. It's a mixed bag, like Senator Case just referred to The ones that are most hurt, if you repeal that would be your lower income families, your seniors, so you kind of vote your conscience on that, but then you also have to look at the impact that it has on your cities and counties. And some of your little towns may not have a grocery store, but they have like a convenience store. And when they don't get that sales tax on food items there, it really hurts them.

- Yeah, Senator Kinskey there's lots of exemptions that are out there. Food is one of 'em. Are there others that are on your radar, that you want to take a good look at?

- Well there's a whole book full of exemptions that we've looked at in the Revenue Committee, and Craig I'm happy to take a look at exemptions and if there's an exemption there that looks like its a favor to somebody, it looks like a loophole we can talk about what we might do there. You can close all those exemptions. You're still not going to get the kind of revenue that we need to fill the gap that we got. So that discussion, dangerously, very quickly seques into talking about tax increases. And that was another topic that was discussed that the Revenue Committee might take up. And I'll tell you from the get go, going in, I'm against any kind of tax increases. And the reason is, that talk is so premature, because government has grown so much over the last 15 years. We've got to look at reducing the size and growth of government first. And when you start talking about tax relief, it takes the heat off to really do what needs to be done. And if you think about it, if this is your income statement, if you increase your revenue, it's got to go down through all your expenses. Maybe you get a dime out at the bottom. But if you cut expenses, that's dollar for dollar savings. That's our first resort and increases are our last resort.

- Let me talk about a tax that a lot of people avoid, even though there supposed to pay, and that's by purchasing things online. If you and I are like a majority of Americans, the chances are, the statistics say we ordered online instead of going to our local store to buy our gifts for Christmas. And therefore, in a large part, avoided paying sales tax. What are your thoughts on closing that loophole? Senator Case.

- I think it'd be pretty difficult to do, to be real honest.

- That's got to mean a lot of revenue to cities and towns that they're not getting.

- No doubt, but I don't have a concept of how it could actually be closed. What we really need are vibrant communities that have stores that offer choices that people wanna buy locally. It's much better to buy locally, and I kinda like to work on that. There's just a lot to this that's very difficult to tax on internet sales.

- Any other thoughts on closing that loophole? Is it possible to do in a state discussion?

- Well it takes national legislation, and Senator Enzi has a bill that continually keeps getting stalled out to say we're going to tax internet sales. And you're seeing cracks begin to appear where Amazon has finally conceded in some states they'll start paying sales tax. I think it's just a matter of time. Not only is it a loss of tax revenue, to localities, but the biggest thing is, that represents so many loss sales for hometown merchants. And the multiplier effect of having losing those sales is arguably far greater than the loss of the tax revenue. That's the biggest concern to me. We're not supporting our local businesses, every time we go online.

- Your committee's also worked on a bill that will allow the State Treasurer's office to allow municipalities to invest a little bit differently than they have in the past and get a little bit of a greater return. Tell me about that effort and why it's important now. Senator Case.

- It's great effort. Local communities disjointed don't have the expertise to manage funds, nor enough funds to be effectively managed--

- How is this different from the WYN Star pull?

- It allows for more robust investment, I think. And under the State Treasurer's office it can improve returns for local communities, multiple times.

- Representative Dayton.

- I think that this is good idea, because as Senator Case alluded to that, we in our counties, we don't have the expertise to do the long-term banking investments. This will give us a greater return. It's long-term whereas the WYN Star was was a shorter return investment.

- In your committee work over the interim, you discussion about Lake De Smet which is in your neck of the woods, Senator Kinskey, kind of fostered this a little bit. They could not invest and get a return. They thought. Is that accurate?

- That's accurate. First let me back up a little bit, I want to be clear this does not take away the power of any Board, town or county to go ahead and put their monies out for bid for local banks. I did that all the time, when I was mayor of Sheridan. and we put that up against WY Star to compare our rates of return. First, we want to support hometown businesses.

- And generally, did you find that WY Star provided a greater rate of return?

- Sometimes yes, sometimes no. It depended on the interest rates and the market and how cheaply or how expensive it was for the banks to go out and buy money, and then they have post an equivalent amount of T-bills to secure it. So it varied. Sometimes, the banks could come through. Sometimes, it was just close enough that we'd go ahead and default in favor the local institutions. In the case of Lake De Smet, it's not unique, in that, if you think of yourself, were you treasurer in any county, you would have the ability to track disbursements and track revenues and so forth. But for buying bonds, do you buy a 10 year T-bill, a 30 year T-bill? Do you buy a debenture? Whatever a debenture is. And so what we're allowing is that money to go to the state where they're highly paid experts who know exactly what they're doing when they're buying in those bonds, bond markets. No equities. So in the case of Lake De Smet it allows them to take their return from, I think its two-tenths of a percent, to two and a half percent. Well its a huge increase. That increase alone is enough to make the fund for Lake De Smet self-sustaining. So that's a good deal.

- Representative Dayton, there was an initial discussion with House Bill 64 which changed the way oil and gas companies and others paid their ad valorem taxes to a monthly payment. It's been withdrawn. There's more work to do. What are your thoughts on that bill, and is it important to continue to take a look at it?

- It is. It's very important. I personally would like to see if it's possible and I'd think we'd probably need an opinion from the Attorney General if the solids minerals could be put into a separate bill on that. There has not been a problem in the past with your solid minerals paying the ad valorem. And your ad valorem, you have to understand, there's usually an 18 month lag before that is paid. So, the initial impact in the beginning is millions of dollars to these companies. But it's important for our economy now to do it.

- Senator Case, you agree with that?

- Yes, generally, I think that this is a big convenience for oil and gas companies, because they'll be dealing with the state now instead of the counties on paying these taxes where they have interest in all different counties. So its more important to them than it is, for example to the hard rock mineral folks who basically are saying we like the present system. And we're getting a lot of pushback from the coal companies, of course, given their financial times. I think this is something that's important, and we need to keep thinking about it.

- I want to talk about the Madden Amendment for just a moment. And it's the concept of how money should be distributed to cities, towns and counties. There's been a lot of discussion in the Senate now. I believe the bill stands where counties will take advantage of this redistribution using power equalization and cities will not. What are your thoughts on that? Some counties and cities don't have the ability to raise funds like other, perhaps larger, metropolitan areas in Wyoming. Let me start with you, Senator Kinskey.

- Well let's start with this. Here's local finance. Here's all their revenue. Okay? This is what you get from cigarette taxes, gasoline taxes, property taxes The Madden formula does not affect that. That's all driven statutorily. The Madden formula affects what we call the supplemental, which is just a little amount that's kind of a kiss for local communities when there's enough money at the state. We're talking about redistributing that. Even if we redistributed to the poorest and weakest of counties, towns and cities, it's not gonna bail them out. I mean, they have definitely an issue where some counties have had to issue warrants to meet payroll. So, I don't want to latch onto it. It's truly not equalization, it's just a slight redistribution on that supplemental. Madden was adopted by the Senate and the House for counties. This is an exercise in pure politics. The counties could agree. The cities and towns could not agree. So the Senate opted to stick to the old formula not to help out the smallest and weakest as the Madden formula does, and I lived with that for 10 years as the mayor in Sheridan, trying to get 99 different municipalities to agree on anything is like herding cats. And it really breaks my heart that the Association of Municipalities could not come to an agreement or consensus amongst the cities. Some lose, some win, and the ones that were losing said "hey I'm hanging on to what I got--"

- Was it just a matter of winners and losers in your view?

- Yeah, oh yeah. You know. There's some people who are doing some towns and cities do very, very well, and they looked at what they were gonna lose, and they said "No thanks, pal." And so it was game over.

- Representative Dayton do we need to continue to look at redistributing some of this monies that's coming to cities and towns using this power equalization formula that Representative Madden has brought forward?

- Yes, we do. And municipalities, the Association of Municipalities are working on a formula now, and I think, probably, next Session we'll see it. And we'll have the chance to vote on it again.

- Senator Case, let me give you the last word about this redistribution of funds to cities, town and counties.

- It's a good exercise, and I hope we continue down it. I'd like to see it implemented more broadly. The truth is, how we've distributed funds to cities, towns and counties has not been in any way, have any rational basis. Honestly. It's been very politically driven. At least, I commend Representative Madden, Chairman Madden for at least putting on the table that the basis should be driven by funds available per capita. I think that's a pretty good thing to do. Considering that a lot of Wyoming's mineral wealth really belongs to all of Wyoming, and it's important that we have sustainable little towns, big towns and counties all across our state.

- Last issue I want to discuss with you today is the CREG like group that might take a look at tax exemptions. Most believe should operate in an open way, but there's been criticism about how the Consensus Revenue Estimating Group works in secret, if you will, to produce they're reports. The thought is that the input that they would receive would not be as genuinely given if it were in public. Should the CREG debates be in public? Or is the way it works now a good way to go in keeping them separate and now, if the legislation passes, free from open meetings and public records laws? Senator Kinskey, let me start with you.

- Well, open meetings applies to elected bodies and it's not an elected body. It's a deliberative process of an agency of state government. I supposed you could open it up. My concern is they might open up portions of it, but let's remember, we're asking oil companies, coal companies, gas companies to come in and bare all. I mean they're telling where they think the market's going. That's the kind of stuff that moves markets. I mean you have a coal company in and give you a pessimistic forecast, next thing you know something's happened on the New York Stock Exchange. Then they're being sued for stock fraud. You just can't do that. It's a trade secret, and there is exemption. As you know, Craig. In state law for trade secrets and confidential financial information. I think that portion should be confidential. The rest of it, you know, if the media wants to go, I'd say "have at her." I'm not sure it'll be real scintillating conversation, but--

- Is the system a good one now, Representative Dayton?

- Every system can be improved upon. And I think the CREG can. I would like to see them have a session where, area, where they open it up for public comment. They don't necessarily have to discuss their strategy and planning at that, but just to get public comment. And use that for input into the decisions that are made.

- And then whose going to win the World Series? We'll give you the last word, Senator Case.

- Well ya know, Cubs always come on strong sometimes

- This could be their year.

- In people's minds.

- [Craig] This could be their year.

- As a National League fan, I don't like that, by the way.

- [Case] Oh well.

- [Craig] So we'll see what happens. Is the CREG structured well today?

- It's actually a great program, and it is so much better than the pre-CREG years. I think this year, you just have to read between the lines. They're telling you that these are optimistic projections. I think probably they should have been. You know the next CREG report will be down and more reflective, I think of longer term lower energy prices, which are, for example, natural gas is a dollar below even the last estimates. It's a good system. It's worked well. People have to have the ability to conduct some of those discussions privately, for the most part, maybe some of it could be opened up. But CREG works and we're lucky in Wyoming to have had them doing the heavy lifting on this.

- Appreciate your comments this morning. All members of the Joint Revenue Committee, Senator Case, Representative Dayton and Senator Kinskey. Thank you so much for joining us on this special--

- Thanks for having us.

- [Craig] web extra Capitol Outlook.