Taxes and Jobs

Tax expenditures erode state revenue

This is Part I of an ESPC analysis of state tax policies and how they affect the health of Wyoming's economy

By Sarah Gorin

ESPC researcher

Low levels for natural gas prices continue to drag down projections for state revenues. The Governor’s 10% across-the-board budget cut from last summer has freed up funds for the coming legislative budget session that will meet in February 2010, but many legislators fear that there may be worse to come.

Despite years of hand-wringing over the boom-and-bust nature of Wyoming’s economy – and the consequent boom-and-bust effect on state revenues – very little has been done to stabilize revenues for budget purposes. The Legislature has set up “rainy day” accounts to set aside funds during boom times to spend in bust times, but not enough has been saved. For example, spending can be continued at the same level as the 2009-2010 biennium only by completely wiping out the rainy day accounts.

The state is then left with two alternatives: cut spending or raise taxes. Many legislators apparently prefer the former, as shown by the Joint Interim Revenue Committee actions at its meeting last week, when all revenue-raising bills offered were voted down (with the exception of a tax increment financing bill for municipalities).

However, there is more than one way to cut spending. Spending occurs through direct state expenditures and also through “tax expenditures” – tax not collected due to tax exemptions (for example, the sales tax exemption for purchases of manufacturing equipment) or tax exclusions (for example, sales of services are not exempt from Wyoming’s sales tax, they simply are not taxed).

Wyoming’s statutes are rife with numerous sales and property tax exemptions, and because we have no tax expenditure reporting, legislators and the public have no idea how much revenue is being lost. If, during the course of the two-day revenue committee hearing, the state had collected a million bucks for every time a state agency or a lobbyist answered “I don’t know” in response to a question about quantifying a tax exemption, we’d be well on the way to meeting next year’s budget.

That’s why it was particularly disappointing to witness the demise of a bill to repeal property tax exemptions for pollution control and fire protection equipment. We actually do have a figure for the cost of the pollution control exemption – about $15 million a year – because county assessors have to report it.

The exemption for pollution control equipment is an artifact left over from the time forty years ago when pollution controls were a new and different thing. Now, they are simply a cost of doing business.

The utility lobbyists were all over the pollution control bill, however, saying that the exemption still provides an “incentive” to comply - as if compliance wasn’t required by state and federal laws - and, if the exemption is repealed, the cost of the tax would fall on Wyoming consumers.

Most electric power generated in Wyoming is exported to other states, and the costs of generating that power are allocated to all ratepayers, not just those in Wyoming. A repeal of the tax exemption on pollution controls would mean that the cost of the tax would be similarly allocated, with a relatively small portion passed on to Wyoming ratepayers.

Right now, because Wyoming residents bear the full brunt of the tax exemption in terms of tax revenues not received by local governments (property taxes mostly go toward supporting public education), they are subsidizing ratepayers in other states for the costs of pollution control. Go figure.

A good way to start getting a handle on state spending via tax expenditures would be to require tax expenditure reporting. If we knew what the tax exemption for fire protection equipment, for example, costs us, we could better decide if it is worth it.

Next:
Part II, Electrical Generation Revenues
Part III, Manufacturing Tax Exemption & Gender Wage Gap
Part IV, The Jobs Budget