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State eyes uncertain federal aid and cuts as revenues plunge

By Andrew Graham,

Oil prices traded in the negative for the first time in history on April 20, 2020.

The Legislature and Gov. Mark Gordon began this week to square up to plummeting state revenues with plans for a special legislative session, calls for flexibility in the use of federal funds, indications of budget cuts and talk of new taxes.

The global COVID-19 pandemic has sent the state, national and global economies into a tailspin. Meanwhile an oil price war between foreign powers intensified the hits to Wyoming’s energy economy. These global events have left the state facing a drop in revenue that legislative analysts predict could run anywhere from $556 million to $2.8 billion, depending on the length and depth of economic damage.

Fallout from the revenue hit has already begun. Gordon on Wednesday ordered state agencies to freeze hiring, halt some large contracts and begin identifying parts of their budget that could be cut. The cuts are likely to come even as the state battles COVID-19 and tries to chart a recovery from the crisis that has expanded the need for government services and left many in Wyoming without work.

The state is going to emerge from its partial COVID-19 shutdown into a “different economy,” Gordon said Wednesday at a press conference.

The minerals industry alone, which pays most of the state’s bills, will take a year to 18 months to ramp back up from plummeting demand and low oil prices, Gordon said.

Pandemic aside, an oil price war between Russia and Saudi Arabia devastated the oil industry that once propped up state revenues amidst coal’s decline and natural gas’ own price slump. The virus’s slowing of the global economy, and thus global energy demand, has exacerbated the impacts of that price war and threatened a slower recovery for the state.

“There are going to be a lot of new realities that we are going to have to face,” the governor said.

Over the next two weeks, the state government expects $1.25 billion to arrive in state coffers, much in the fashion that some Wyoming residents saw $1,200 deposited into their bank accounts by the federal government this week. Both result from the COVID-19 CARES Act, a $2 trillion stimulus package the U.S. Congress passed last month.

Unlike the unrestricted cash handed out to Americans, the money to the state appears to be restricted to reacting to the pandemic, not filling holes in state budgets, officials said this week. It also has to be spent by the end of this year, while Wyoming’s budgets cover two year periods and state revenues promise to suffer through 2021.

Wyoming’s U.S. senators are pushing for a loosening of the restrictions on the CARES Act.

Wyoming’s U.S. Sens. John Barrasso and Mike Enzi, both Republicans, were among 16 senators who signed a letter April 7 urging the U.S. Treasury to publish guidances for CARES Act distributions that allow states to spend the money more freely. The letter asks the treasury department to give states more freedom to distribute aid directly to local governments and that “responding to economic impacts” of COVID-19 and government’s response to it be “explicitly authorized.”

“We have all worked closely with our Governors, Mayors and other local officials throughout this crisis,” the letter reads. “While the attention is often on Washington, they are the ones actually on the front line. We implore you to recognize this fact and to ensure that in the implementation of the Coronavirus Relief Fund you do not strangle the ability of states to work with local governments to respond to the crisis.”

Gordon said Wednesday the restriction placed on the funding “was particularly disappointing.”

Lost revenue was part and parcel of a virus response that necessitated shutting down or slowing huge parts of the state’s economy, he said. “I would challenge almost anybody in Wyoming to say that lost revenue isn’t a condition of COVID-19,” he said.

The National Governors Association has asked for an additional $500 billion to be distributed to states in future stimulus packages as direct aid for lost revenues.

Governors are “implementing a variety of stay-at-home orders and other aggressive measures that are successfully flattening the curve of the spread of the virus,” a statement from Maryland Governor Larry Hogan and New York Governor Andrew Cuomo read. “While these public health strategies are working to protect the American people, they result in catastrophic damage to state economies.”

The CARES Act provided “zero funding” to counter those losses, the governors said.

That deficiency would “further prolong the economic recovery and severely limit our collective efforts to get people back to work,” Hogan said at a press conference Wednesday afternoon, according to NGA spokesman James Nash.

In Washington D.C., progress on a next round of stimulus funding has become mired in partisan differences. Congressional Democrats sought to add money for local governments and hospitals to a Republican effort to boost funding for small business loans. The package has now stalled while the parties negotiate.

Barrasso’s deputy communications director Laura Mengelkamp did not respond to a question about whether the senator would pursue additional funding along with his efforts to loosen the strings on the CARES act money. Rep. Liz Cheney’s communications director Jeremy Adler did not respond to multiple emails requesting comment.

The Wyoming Legislature’s Management Council met online Thursday and discussed the timing, goals and logistics of a special session. Leadership hopes to convene the Legislature in early May to address the CARES Act funding, by which time lawmakers hope to have clarity on how it can be used. Lawmakers might also consider COVID-19 responses ranging from preventing evictions of people suddenly out of work to preparing mail-in ballots for this year’s elections.

Lawmakers also suggested resurrecting state-funded construction projects that died for lack of compromise at the end of the 2020 legislative session, and possibly funding them with CARES Act money. At least one of those building projects — the removal of hazardous waste at the Wyoming Life Resources Center, a residential medical facility in Lander, appears even more essential in light of the pandemic, Gordon told lawmakers Thursday.

Legislative leadership did not set dates for a special session or decide whether it would take place online or in Cheyenne. Lawmakers discussed the possibility of a second, longer special session to deal with the pandemic’s lasting effects.

As they do every year, the legislative leaders assigned topics to the Legislature’s various committees for study over the course of the year. Those topics did not change in light of the pandemic. Leadership assigned topics the committees had chosen at the end of the last legislative session, before COVID-19 had upended public life. The committees may subsequently take on topics specific to the pandemic’s effects later on, legislative leaders said.

The need for new revenue streams now has a new urgency, Speaker of the House Steve Harshman (R-Casper) said. The Legislature is going to make cuts to funding, but then will have to consider new taxes, Harshman said.

Proposals to increase taxes and diversify the tax base away from the energy industry have been immensely unpopular with the Legislature. But the state has now been buffeted by unforeseeable forces, Harshman argued. “I think the message to Wyoming people is it’s not anybody’s fault,” he said.

Lawmakers discussed creating a special committee once the revenue fallout from the pandemic grows clearer but did not take any action.

The Legislature has declined for years to pivot the state away from its dependence on the energy industry for tax revenues. Most Wyoming residents pay little in taxes as the state has no personal income tax and some of the lowest property and sales taxes in the nation. Mineral companies have long picked up the bill, paying severance taxes as well as providing much of the state’s property and sales tax revenues.

Now, as the entire economy falls off, tax proposals that once would have helped right that balance won’t go as far, a legislative analyst told lawmakers Thursday. “A one percent sales tax will not generate the same amount of revenue,” LSO analyst Don Richards said.

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