Wyoming s Budget & the Minerals Connect Leadership Wyoming. October 22, 2015

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1 Wyoming s Budget & the Minerals Connect Leadership Wyoming October 22, 2015

2 Presentation Outline What is the WTA? State revenue/approps., major accounts/funding streams. Wyoming Tax Facts Previous Tax Studies Task Force on Mineral Tax Overview Q & A 1/15/2016 Wyoming Taxpayers Association Page 2

3 Wyoming Taxpayers Association What is the WTA? 1/15/2016 Wyoming Taxpayers Association Page 3

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5 The Dismal Truth Taxes are not good things, but if you want services, somebody s got to pay for them so they re a necessary evil. - Michael Bloomberg 1/15/2016 Wyoming Taxpayers Association Page 5

6 Major Sources of Revenue Federal Mineral Royalties Coal Lease Bonus Payments State Mineral Severance Taxes State Mineral Royalties/Leases State Investment Income State Tobacco Taxes State & Local Sales/Use Taxes State & Local Property Taxes Inheritance, Alcohol & Misc. Taxes State Motor Fuel Taxes 1/15/2016 Wyoming Taxpayers Association Page 6

7 Why mineral production is important to Wyoming. Household tax burden ranks the lowest in the nation (income, property, sales taxes). Mineral industry: GDP 34%, and Employment 8%. Mineral income currently makes up about two-thirds of State and Local Government total revenue. Mineral income is obtained from: Mineral severance taxes ($960 million in FY 2014). Federal mineral royalties ($1,006 million in FY 2014). Mineral property taxes ($903 million in FY 2014). Sales and use taxes ($224 million in FY 2014). Investment Income ($395 million in FY 2014).

8 Fiscal condition at a glance Notable highlights include: Changes in estimated revenue for the General Fund and Budget Reserve Accounts, as compared to the January 2015 forecast report: Account FY 2016 FY 2017 FY 2018 Total GF -$84.4M -$98.6M -$111.5M -$294.5M BRA -$102.1M -$109M -$111.9M -$323.0M GF & BRA -$186.5M -$207.6M -$223.4M -$617.5M Over the next three fiscal years, projected revenues decline! Fiscal Profile for October 2015 CREG Revenue Forecast Funds Available (Cash, Revenue, & Net Transfers) FY Biennium 2015 Session Status FY Biennium October CREG Status Total Traditional Funds Available $3,657,209,642 $3,839,888,527 Total Funds Appropriated/Transferred -$3,543,607,602 -$3,889,686,646 General Fund/BRA Balance $113,602,040 -$49,798,119 Less: Statutory Reserve (5% of GF revenues) -$109,860,000 -$109,860,000 Total Traditional Funds Available for Appropriation $3,742,040 -$159,658,119 Source: Legislative Service Office, 10/26/2015 The projected GF/BRA combined revenues, after appropriations, yields a shortfall of nearly $160M after fully funding the $109.86M statutory reserve amount for FY Source: Wyoming State Government Revenue Forecast, Consensus Revenue Estimating Group, October 2015 / Fiscal Profile, Legislative Service Office, October 26, /15/2016 Wyoming Taxpayers Association Page 8

9 Impact of Price Change How sensitive are revenues to price change? Coal [ $1.00 per ton price change ] ± $51 million revenue change. Natural Gas [ $1.00 per mcf change ] ± $189 million revenue change. Crude Oil [ $1.00 per bbl. change ] ± $9 million revenue change. Note: revenue sources include severance taxes (over $155M), federal mineral royalties (over $200M), and the 43-mill school foundation portion of ad valorem taxes (based on FY16 projections). Source: October 2014 CREG Forecast and Legislative Service Office 2015 Budget Fiscal Data Book. 1/15/2016 Wyoming Taxpayers Association Page 9

10 CREG Forecast Commodity Assumptions Oil: Gas: Calendar Year January 2015 Forecast October 2015 Forecast M $ M $ M $ M $ M $ M $50.00 Calendar Year January 2015 Forecast October 2015 Forecast $ $ $ $ $ $3.25 October YTD WTI = $45.60 WY Ave=$35.60 October YTD Opal = $2.26 Coal: Calendar Year January 2015 Forecast October 2015 Forecast M $ M $ M $ M $ M $ M $13.50 Source: Wyoming State Government Revenue Forecast, Consensus Revenue Estimating Group, October 2015 October YTD PRB = $ /15/2016 Wyoming Taxpayers Association Page 10

11 Revenues are Heading South (and not just for the winter) 1/15/2016 Wyoming Taxpayers Association Page 11

12 Billions Breaking The Pace Can we make do with less? $5.0 General Fund & Reserve Accounts (with Savings) $4.0 $3.0 $2.0 $1.0 $ Appropriations $1.0 $1.1 $1.6 $1.6 $2.8 $4.2 $4.2 $3.8 $4.1 $3.9 Revenue $1.1 $1.2 $1.6 $2.0 $3.1 $3.8 $3.5 $3.8 $4.0 $3.8 Fiscal Biennia Source: 2015 Budget Fiscal Data Book / Fiscal Profile, Legislative Service Office, October 26, /15/2016 Wyoming Taxpayers Association Page 12

13 U.S. States Are Not Created Equal! Wyoming is home to most of the top producing coal mines in the U.S. Mineral production alone makes up 34% of the state s GDP. Mineral production generates $3.5B per year in tax revenue. The mineral industry employs 8% of the State s workforce. 1/15/2016 Wyoming Taxpayers Association Page 13

14 Commodities Collapse Squashes Job Growth 1/15/2016 Wyoming Taxpayers Association Page 14

15 General Fund State Investment Income The General Fund Severance Tax State Sales & Use Tax Cigarette & Tobacco Tax Misc. Tax (Franchise Tax, Alcohol, Inheritance Tax, License & Permit Fees, Property & Money Use Fees) 1/15/2016 Wyoming Taxpayers Association Page 15

16 Budget Reserve Account Federal Mineral Royalties The Budget Reserve Account Severance Tax 1/15/2016 Wyoming Taxpayers Association Page 16

17 School Foundation Program Federal Mineral Royalties The School Foundation Program State Investment Income State Property Tax 1/15/2016 Wyoming Taxpayers Association Page 17

18 School Capital Construction Account Federal Mineral Royalties The School Capital Construction Account Coal Lease Bonus State Mineral Royalties/Leases 1/15/2016 Wyoming Taxpayers Association Page 18

19 School Capital Construction Account Federal Mineral Royalties The School Capital Construction Account Coal Lease Bonus State Mineral Royalties/Leases 1/15/2016 Wyoming Taxpayers Association Page 19

20 Sources of Revenue: Highway Fund Federal Mineral Royalties The Highway Fund Severance Tax Coal Lease Bonus Fuel Tax State Investment Income 1/15/2016 Wyoming Taxpayers Association Page 20

21 Cities, Towns & Counties Local Property Tax State & Local Sales/Use Tax Federal Mineral Royalties (Cities & Towns) Cities, Towns & Counties Severance Tax Tobacco Tax Fuel Tax 1/15/2016 Wyoming Taxpayers Association Page 21

22 ALBANY BIG HORN CAMPBELL CARBON CONVERSE CROOK FREMONT GOSHEN HOT SPRINGS JOHNSON LARAMIE LINCOLN NATRONA NIOBRARA PARK PLATTE SHERIDAN SUBLETTE SWEETWATER TETON UINTA WASHAKIE WESTON Billions 2014 Assessed Valuations $6 $5 Total: $24,164,467,525 $4 $3 $2 $1 $0 1/15/2016 Wyoming Taxpayers Association Page 22

23 Property Classes for Tax Assessment Minerals (& Mine Products): 100.0% Industrial: 11.5% Commercial/Residential: 9.5% 1/15/2016 Wyoming Taxpayers Association Page 23

24 Property Tax Revenue 2014 Where property tax revenue originates. Residential Property 18.5% Mineral Production 59.9% Industrial Locally- Assessed 9.3% Industrial State- Assessed 5.8% Commercial Property 5.3% Agricultural Lands 1.3% 1/15/2016 Wyoming Taxpayers Association Page 24

25 Property Tax Revenue 2014 Where property tax Revenue is distributed. County Governments 22.4% Public Schools 68.4% Special Districts* 4.5% Community Colleges 3.0% Cities and Towns 1.6% 1/15/2016 Wyoming Taxpayers Association Page 25

26 Wyoming Tax Facts Wyoming ranks as one of the highest in per capita state and local government revenue and expenditures. And, we have no corporate or personal income tax and low property taxes! Yet, we are ranked lowest in the nation in household tax burden.

27 Direct Tax Collections & Public Service Costs 2014 For a 3-person family with income of $60,000 and owning a home valued at $160,000 Personal Tax Collections Public Service Costs $30,000 $35,000 $25,000 $30,000 $20,000 $15,000 $10,000 Property Tax Vehicle Registration Alcohol Cigarettes Gasoline Retail Sales $25,000 $20,000 $15,000 $10,000 State Services K-12 Education Special District City/Town County $5,000 $5,000 $0 $0 Personal Tax Collections Retail Sales $ 1,000 Gasoline $ 200 Cigarettes $ 100 Alcohol $ 10 Vehicle Registration $ 450 Property Tax $ 1,200 $ 2,960 Public Service Costs County $ 5,900 City/Town $ 4,800 Special District $ 4,500 K-12 Education $ 6,700 State Services $ 8,200 $30,100 Source: Department of Administration & Information, Economic Analysis Division 1/15/2016 Wyoming Taxpayers Association Page 27

28 Tax Reform 2000 Committee A Wyoming Tax System should be: Be accountable to taxpayers. Rely on a balanced variety of revenue sources that will provide income to the state in a reliable manner. Treat individuals and businesses equitably, imposing similar tax burdens on people and businesses in similar circumstances and minimizing regressivity. Be framed in such a way to enhance economic development efforts. Be composed of elements that support the ability of local governments to raise revenue to meet their needs. Be easy to understand and administer, and therefore easy for the taxpayer to comply with as well as for the administrator to apply the system. Be responsive to interstate and international economic competition and to changes in business. Minimize its involvement in spending and land use decisions. 1/15/2016 Wyoming Taxpayers Association Page 28

29 Tax Reform 2000 Committee Wyoming s tax structure lacks equity, stability, and balance. Tax Reform 2000 Committee Inequitable: structure is regressive (lower income households pay a larger percentage of income in excise and property taxes than households with higher income). Unstable: mineral production taxes based on market values many of which are subject to national and international volatility.

30 Tax Reform 2000 Committee Tax Reform 2000 Committee (continued) Lacks balance: Tax structure reliant on extractive industries to fund operating budget (income inelastic as mineral tax collections are unrelated to state income changes). Primary tax sources: Almost 75 % of the State s tax revenue is generated by property taxes, mineral severance taxes, and sales & use taxes.

31 2000 Mineral Valuation & Taxation Committee Created in 2000 session to recommend a fair, viable and simplified system of valuation and taxation for minerals. Together for 18 months extensive study. Left few stones unturned on complexities of the current structure. Dissention levels grew with time. Cochairman (Sen. Hawks) indicated that he would like to see the lines of communication between DOR, counties and industry opened up more and have some communication... Committee ceased to exist before a simplified tax structure could be proposed task force is the reincarnation of the 2000 effort. 1/15/2016 Wyoming Taxpayers Association Page 31

32 2015 Task Force on Mineral Taxes 2014: House Bill 22 Mineral Tax-Audit Rate. Created heightened interest in revisiting the methodology for mineral taxation. Wyoming mineral tax structure labeled as the most complicated in the country. Lead to high-priority topic for Joint Revenue Interim Committee mineral tax simplification study. 2014: Stakeholder s Meetings were held. Not a new issue in Wyoming by any means. The 2000 Mineral Valuation & Taxation Committee did all of the groundwork. Goals were identified. Simplification of the code was main goal. Mineral companies do not understand the complexities of the system. All they want is to pay what they owe and move on. Audits are inevitable, however. The objective isn t broad-scale change. Identify a list of concerns among the participants, find a common thread, and focus on making that happen. 1/15/2016 Wyoming Taxpayers Association Page 32

33 2015 Task Force on Mineral Taxes 2014: Stakeholder s Meetings were held (continued) Timing for study is good - in 2001 litigation cases were stacked years deep. Representation and participation all parties is vital for success. A unified, or one-tax system, was discussed at length. One possibility talked about was to exempt minerals from being assessed an ad valorem tax, and offsetting that tax with a higher severance tax. May require constitutional amendment. Coal industry supports development of a single factor for determining the allowable deductions for their industry. Must be predicated on fairness. Any change in taxation will be on a revenue neutral basis; neither state, county or industry will gain from this or pay less tax. 1/15/2016 Wyoming Taxpayers Association Page 33

34 2015 Task Force on Mineral Taxes 2015: Senate File 42 Task Force on Mineral Taxes Similar assignment to that of the 2000 select committee - will pick up where that task force left off. Staffed by the Legislative Service Office. Both the Department of Revenue and Department of Audit will serve in an advisory capacity. Committee membership is comprised of: Co-chairman Senator R. Ray Peterson (S19, Big Horn /Park) Co-chairman Representative Michael Madden (H40, Johnson/Sheridan) Senator Michael Von Flatern.(S24, Campbell) Representative Tom Reeder (H58, Natrona) Jim Willox, Converse County Commissioner Robb Slaughter, Sweetwater County Treasurer Pat Meyer, Park County Assessor Marion Loomis, representing mining interests Bobby Rolston, representing oil & gas interests Larry Wolfe, representing public at-large 1/15/2016 Wyoming Taxpayers Association Page 34

35 2015 Task Force on Mineral Taxes Plans for meeting four to five times in First meeting was held on April 9 & 10 in Cheyenne. Informational briefings from the Wyoming Attorney General s Office, Department of Revenue, and Department of Audit. Key issues by commodity: Oil & Natural Gas - is there a different valuation methodology to consider for the two commodities? Methodologies such as discounted cash flow, a flat tax on BTU content or MCF production were discussed. How are other states tax mineral? Coal - should the proportionate profits methodology be abandoned for some other methodology? If not how can it be simplified? Trona - is the industry factor still preferred by the Department of Revenue and industry? Bentonite - should the audit requirement of every 4 years be eliminated? Methodologies used in other states will be examined and discussed, as well. Second meeting was held on May 18th in Rawlins. Informational briefings from oil & natural gas industry comparison of other states mineral tax structures and challenges. Informational briefings from coal industry comparison of other states mineral tax structures and challenges. 1/15/2016 Wyoming Taxpayers Association Page 35

36 2015 Task Force on Mineral Taxes Third meeting was held on September 28 in Buffalo. Informational briefing from DOR on New Mexico mineral tax system. Coal focus: discussion on 2012 HB 38 Coal Valuation-Industry Factor Observations thus far Particularly on the oil and gas side, every state has its own set of challenges. Wyoming s are in some ways more difficult to handle than in other states. Determination of fair market value, point of valuation, issues with notice of valuation changes (NOVCs), deductions still major problem areas. Won t try to re-invent the wheel. Focus efforts on oil and gas to more of administrative concerns, i.e., streamline the reporting and payment process and the way amendments are handled. Representative Madden wants to focus on coal industry for the next meeting (Buffalo on September 9 th ) and possibly look at finishing coal and other hard minerals by the end of the year. Both co-chairman, and DOR Director, Dan Noble, are serious getting something accomplished toward improving mineral taxes. 1/15/2016 Wyoming Taxpayers Association Page 36

37 2015 Task Force on Mineral Taxes Observations thus far (continued) Task force may focus more on reporting and payment concerns and not so much on the valuation side. Most problems will be with the relationship between gross products reporting to the state and how taxes are paid to the counties. Ultimately will come down to how those two governmental entities interact. Active communication, participation, and cooperation among ALL parties is the key requirement to progress. All parties copacetic at this point. Not likely to see proposed legislation this session. Focus will likely be on the state revenue picture, and as such, there could be little time to focus on nonbudget related items. 1/15/2016 Wyoming Taxpayers Association Page 37

38 The Tax Collector s Creed the art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing. - Jean-Baptiste Colbert, Finance Minister ( ), King Louis XIV 1/15/2016 Wyoming Taxpayers Association Page 38

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40 Buck McVeigh Executive Director Wyoming Taxpayers Association 200 E 8th Avenue, Ste. 208 Cheyenne, WY office wyotax@wyotax.org

41 Fiscal Year July Revenue Update Revenue Source General Fund Total w/o Capital Gains w/ Capital Gains January 2015 Forecast FY 2015 $ 1,145.4 m $ 1,145.4 m Actual through June $ 1,061.6 m $ 1,437.7 m Forecast through June $ 1,058.7 m $ 1,058.7 m Difference YTD $ + $ 2.9 m + $ m Budget Reserve Acct $ m $ m $ m - $ 3.8 m School Foundation Prg w/o Capital Gains w/ Capital Gains $ m $ m $ m $ 438.2m $ m $ m + $ 8.3 m + $ m School CapCon Acct $ m $ m $ m + $ 6.6 m Severance Tax - Total $ m $ m $ m - $ 14.9 m Fed. Mineral Royalties w/o Coal Lse Bonuses w/ Coal Lse Bonuses $ m $ m $ m $ m $ m $ m + $ 9.9 m + $ 14.0 m 1/15/2016 Wyoming Taxpayers Association Page 41

42 CREG General Fund/Budget Reserve Account Forecast Revenue Source for FY October 2014 Forecast FY January 2015 Forecast FY Difference Sales and Use Tax $ 1,098.1 m $ 1,106.7 m + $ 8.6 m Severance Tax $ m $ m - $ 51.8 m FMRs $ m $ m - $ 98.4 m Investment Income $ m $ m $ 24.0 m All Other $ m $ m $ 0.0 m Total/GF/BRA $ 3,522.8 m $ 3,546.1 m -$ m Source: Consensus Revenue Estimating Group (CREG) 01/2015

43 Dollars (Billions) Breaking The Pace Can we make do with less? $35.0 Total State Assessed Valuation $30.0 $25.0 $20.0 $15.0 $10.0 $5.0 $0.0 Calendar Year Coal Gas Oil Trona All Other Source: 2015 Budget Fiscal Data Book / Fiscal Profile, Legislative Service Office, October 26, /15/2016 Wyoming Taxpayers Association Page 43