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From Governing’s
Hyperbole is a widely accepted literary device in state songs. It’s a bit of a stretch, perhaps, to say that sub-granite riches have brought Wyoming global renown. But in the past few years they certainly have brought fiscal peace of mind: Thanks to its supplies of oil, coal and natural gas, Wyoming is one of a small group of states currently running a surplus. The state is accomplishing this feat while demanding only a minimal tax burden from its citizens. For every $1,500 of taxes paid by Wyoming residents, they receive $7,800 worth of services. “We’re not like Alaska — we don’t pay people to live here,” says Michael Walden-Newman, executive director of the Wyoming Taxpayers Association. “We just don’t ask you to pay once you get here.”
At first glance, it might appear that Wyoming’s tax structure lacks the kind of balance that experts like to see. There is no income tax and only a nominal state property tax. But Wyoming does have a balanced system — it just gets there a different way than most states. It uses a sales tax, severance taxes and interest from the mineral trust fund. The trust fund was established in 1969 and soon started contributing 1.5 percent of all severance tax collections each year. The fund now totals $1.5 billion, with approximately $100 million in interest going straight to the general fund annually. That’s a hefty chunk in a budget that’s only about $750 million a year. While the interest from the mineral trust fund is reasonably reliable, the severance taxes are somewhat less so. For natural gas in particular, prices are extremely volatile and difficult to predict. In early 1999, Wyoming entered the fiscal year with an estimated general fund shortfall of $127 million. Eighteen months later — after the price of natural gas had soared from 90 cents per 1,000 cubic feet to $10 — the forecast for the next year changed to a $700 million surplus. So budgeting in Wyoming is, as Walden-Newman likes to say, a bit of a roller-coaster ride. The trick is to smooth out the more breath-taking curves. On the whole, the state has done an admirable job at that. The Consensus Revenue Estimating Board, formed in the 1980s by a handshake between the governor and the legislature, makes a point of estimating mineral revenue conservatively. “We realize that if we’re overly optimistic, the legislature can end up in a negative situation,” says Steve Sommers, budget fiscal manager in the Legislative Service Office. “As forecasters, that’s our worst nightmare.” One major problem looms. A 1995 school-finance ruling, one of the most comprehensive of its kind in the country, mandated more equitable funding of both school operations and capital construction. Some of the details are still being worked out, and so far the state has been able to absorb the extra expense. The future is uncertain, however. The school-finance ruling originated out of Wyoming’s mineral wealth. Schools were funded almost entirely out of county property tax receipts. Mineral-rich counties collected vastly more, leading to significant inequalities. In Wyoming, mineral property taxes are collected on 100 percent of their valuation, while small businesses and homes are taxed at only 9.5 percent. With so much reliance on mineral wealth, the system of valuing minerals is under intense scrutiny. In the recent gubernatorial campaign, Democrat Dave Freudenthal made a major issue of whether the audits the state uses for natural resource companies are sufficient. The issue factored in Freudenthal’s victory in a state where Republicans outnumber Democrats 2-to-1. Unlike other states, which merely multiply the price of a natural resource by the amount sold, Wyoming uses its severance tax almost as a corporate income tax. Producers are required to pay a proportion of their profits, necessitating complex calculations of profit margin and transportation costs. The system has bred several expensive lawsuits, and legislators are considering switching to a different process. Much simpler is Wyoming’s sales tax. The state levies a flat 4 percent and gives counties the option of adding an additional 2 percent. Groceries are included, but there is a general tax rebate of about $450 for low-income elderly and disabled residents. Unfortunately, the state does not do a tax expenditure report to track how much it’s losing to sales tax exemptions. Otherwise, tax administration is sound. Wyoming began document imaging more than 10 years ago and currently images everything except routine correspondence. Unlike many other states, Wyoming has not cut appropriations for its revenue and audit departments, allowing for audits of all the large mineral producers once every three years. Although Wyoming does not tax professional services, it does tax selected services. A few years ago, the legislature introduced a bill to tax most other services, only to watch the additions get picked off by amendments. This continued until only one newly taxable item — bingo games — remained. That provoked an invasion of busloads of bingo players, who persuaded the legislature to remove that provision as well. Copyright © 2003, Congressional Quarterly, Inc. Reproduction in any form without the written permission of the publisher is prohibited. Governing, City & State and Governing.com are registered trademarks of Congressional Quarterly, Inc. |
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eath thy granite bases deep,” the Wyoming state song proudly proclaims, “lie the riches that have gained and brought thee fame.”