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“Wyoming’s Budget &
the Minerals Connect” Leadership Wyoming
October 22, 2015
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
12/3/2015 Wyoming Taxpayers Association | Page 2
Wyoming Taxpayers Association
What is the WTA?
12/3/2015 Wyoming Taxpayers Association | Page 3
The Dismal Truth …
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“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
Major Sources of Revenue
• Federal Mineral Royalties
• Coal Lease Bonus Payments
• State Mineral Severance Taxes
• State Mineral Royalties/Leases
• State Investment Income
• State Motor Fuel Taxes
• State Tobacco Taxes
• State & Local Sales/Use Taxes
• State & Local Property Taxes
• Inheritance, Alcohol & Misc.
Taxes
12/3/2015 Wyoming Taxpayers Association | Page 6
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).
CREG General Fund/Budget Reserve Account Forecast
Revenue Source for FY 2015-16
October 2014 Forecast
FY 2015-2016
January 2015 Forecast
FY 2015-2016
Difference
Sales and Use Tax $ 1,098.1 m $ 1,106.7 m + $ 8.6 m
Severance Tax $ 983.7 m $ 831.9 m - $ 51.8 m
FMRs $ 737.7 m $ 639.3 m - $ 98.4 m
Investment Income $ 437.0 m $ 461.0 m $ 24.0 m
All Other $ 274.8 m $ 274.8 m $ 0.0 m
Total/GF/BRA $ 3,522.8 m $ 3,546.1 m -$ 217.6 m
Source: Consensus Revenue Estimating Group (CREG) 01/2015
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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
Fiscal Profile for 2015-2016 – October 2015 CREG Revenue Forecast
Funds Available (Cash, Revenue, & Net Transfers)
FY 2015-16 Biennium 2015 Session Status
FY 2015-16 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
Over the next three fiscal years, projected revenues decline!
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 2017-18.
Source: Wyoming State Government Revenue Forecast, Consensus Revenue Estimating Group, October 2015 / Fiscal Profile, Legislative Service Office, October 26, 2015
Impact of Price Change
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• 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.
How sensitive are revenues to price change?
CREG Forecast Commodity Assumptions
12/3/2015 Wyoming Taxpayers Association | Page 11
Calendar Year January 2015 Forecast October 2015 Forecast
2015 78.6 M bbls. @ $50.00 83.0M bbls. @ $40.00
2016 80.2 M bbls. @ $55.00 71.0M bbls. @ $45.00
2017 81.0 M bbls. @ $55.00 67.0M bbls. @ $50.00
Oil:
Calendar Year January 2015 Forecast October 2015 Forecast
2015 1.848 Tcf @ $3.80 1.976 Tcf @ $2.85
2016 1.793 Tcf @ $4.00 1.936 Tcf @ $3.20
2017 1.757 Tcf @ $4.00 1.898 Tcf @ $3.25
Gas:
Calendar Year January 2015 Forecast October 2015 Forecast
2015 385M tons @ $13.50 375M tons @ $13.50
2016 385M tons @ $13.75 370M tons @ $13.50
2017 385M tons @ $13.80 365M tons @ $13.50
Coal:
October YTD
WTI = $45.60
WY Ave=$35.60
October YTD
Opal = $2.26
October YTD
PRB = $11.55
Source: Wyoming State Government Revenue Forecast, Consensus Revenue Estimating Group, October 2015
Revenues are Heading South (and not just for the winter)
12/3/2015 Wyoming Taxpayers Association | Page 12
12/3/2015 Wyoming Taxpayers Association | Page 13
“Breaking The Pace “ Can we make do with less?
97-98 99-00 01-02 03-04 05-06 07-08 09-10 11-12 13-14 15-16
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
$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
Bill
ion
s
Fiscal Biennia
General Fund & Reserve Accounts (with Savings)
Source: 2015 Budget Fiscal Data Book / Fiscal Profile, Legislative Service Office, October 26, 2015
U.S. States Are Not Created Equal!
12/3/2015 Wyoming Taxpayers Association | Page 14
• 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.
Commodities Collapse Squashes Job Growth
12/3/2015 Wyoming Taxpayers Association | Page 15
General Fund
12/3/2015 Wyoming Taxpayers Association | Page 16
The General Fund State Investment
Income
State Sales &
Use Tax
Cigarette &
Tobacco Tax
Misc. Tax (Franchise
Tax, Alcohol, Inheritance
Tax, License & Permit Fees,
Property & Money Use Fees)
Severance Tax
Budget Reserve Account
12/3/2015 Wyoming Taxpayers Association | Page 17
The Budget Reserve
Account Federal Mineral
Royalties Severance Tax
School Foundation Program
12/3/2015 Wyoming Taxpayers Association | Page 18
The School
Foundation Program Federal Mineral
Royalties
State Investment
Income
State Property Tax
School Capital Construction Account
12/3/2015 Wyoming Taxpayers Association | Page 19
The School Capital
Construction Account Federal Mineral
Royalties Coal Lease Bonus
State Mineral
Royalties/Leases
School Capital Construction Account
12/3/2015 Wyoming Taxpayers Association | Page 20
The School Capital
Construction Account Federal Mineral
Royalties Coal Lease Bonus
State Mineral
Royalties/Leases
Sources of Revenue: Highway Fund
12/3/2015 Wyoming Taxpayers Association | Page 21
The Highway Fund Federal Mineral
Royalties
Coal Lease Bonus Fuel Tax State Investment
Income
Severance Tax
Cities, Towns & Counties
12/3/2015 Wyoming Taxpayers Association | Page 22
Cities, Towns &
Counties
Local Property Tax
Tobacco Tax Fuel Tax
State & Local
Sales/Use Tax
Federal Mineral
Royalties (Cities & Towns)
Severance Tax
$0
$1
$2
$3
$4
$5
$6
AL
BA
NY
BIG
HO
RN
CA
MP
BE
LL
CA
RB
ON
CO
NV
ER
SE
CR
OO
K
FR
EM
ON
T
GO
SH
EN
HO
T S
PR
ING
S
JO
HN
SO
N
LA
RA
MIE
LIN
CO
LN
NA
TR
ON
A
NIO
BR
AR
A
PA
RK
PL
AT
TE
SH
ER
IDA
N
SU
BL
ET
TE
SW
EE
TW
AT
ER
TE
TO
N
UIN
TA
WA
SH
AK
IE
WE
ST
ON
Bil
lio
ns
2014 Assessed Valuations
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Total:
$24,164,467,525
Property Classes for Tax Assessment
Minerals (& Mine Products): 100.0%
Industrial: 11.5%
Commercial/Residential: 9.5%
12/3/2015 Wyoming Taxpayers Association | Page 24
Mineral Production
59.9%
Residential Property 18.5%
Industrial Locally-Assessed
9.3%
Industrial State-Assessed
5.8%
Commercial Property 5.3%
Agricultural Lands 1.3%
Property Tax Revenue 2014
12/3/2015 Wyoming Taxpayers Association | Page 25
Where property
tax revenue
originates.
Property Tax Revenue 2014
12/3/2015 Wyoming Taxpayers Association | Page 26
Where property
tax Revenue
is distributed.
Public Schools 68.4%
County Governments
22.4%
Special Districts* 4.5%
Community Colleges 3.0%
Cities and Towns 1.6%
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.
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
Retail Sales $ 1,000
Gasoline $ 200
Cigarettes $ 100
Alcohol $ 10
Vehicle Registration $ 450
Property Tax $ 1,200
Public Service Costs County $ 5,900
City/Town $ 4,800
Special District $ 4,500
K-12 Education $ 6,700
State Services $ 8,200
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
Personal Tax Collections
Property Tax
Vehicle Registration
Alcohol
Cigarettes
Gasoline
Retail Sales
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
Public Service Costs
State Services
K-12 Education
Special District
City/Town
County
Source: Department of Administration & Information, Economic Analysis Division
$ 2,960 $30,100
12/3/2015 Wyoming Taxpayers Association | Page 28
Tax Reform 2000 Committee
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• 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.
A Wyoming Tax System should be:
“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.
Tax Reform 2000 Committee
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.
Tax Reform 2000 Committee (continued)
Tax Reform 2000 Committee
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.
• 2015 task force is the reincarnation of the 2000 effort.
12/3/2015 Wyoming Taxpayers Association | Page 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.
12/3/2015 Wyoming Taxpayers Association | Page 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.
12/3/2015 Wyoming Taxpayers Association | Page 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
12/3/2015 Wyoming Taxpayers Association | Page 35
2015 Task Force on Mineral Taxes
• Plans for meeting four to five times in 2015.
• 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.
12/3/2015 Wyoming Taxpayers Association | Page 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 9th) 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.
12/3/2015 Wyoming Taxpayers Association | Page 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 non-
budget related items.
12/3/2015 Wyoming Taxpayers Association | Page 38
The Tax Collector’s Creed
12/3/2015 Wyoming Taxpayers Association | Page 39
“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 (1665-1683), King Louis XIV
Wyoming Taxpayers Association
200 E 8th Avenue, Ste. 208 | Cheyenne, WY 82001
307.635.8761…….office
www.wyotax.org | wyotax@wyotax.org
Buck McVeigh Executive Director
Fiscal Year 2015 - July Revenue Update
12/3/2015 Wyoming Taxpayers Association | Page 42
Revenue Source
January 2015 Forecast FY 2015
Actual through June
Forecast through June
Difference YTD $
General Fund – Total w/o Capital Gains w/ Capital Gains
$ 1,145.4 m $ 1,145.4 m
$ 1,061.6 m $ 1,437.7 m
$ 1,058.7 m $ 1,058.7 m
+ $ 2.9 m + $ 379.0 m
Budget Reserve Acct $ 548.9 m $ 431.6 m $ 435.4 m - $ 3.8 m
School Foundation Prg w/o Capital Gains w/ Capital Gains
$ 317.0 m $ 317.0 m
$ 291.7 m $ 438.2m
$ 283.4 m $ 283.4 m
+ $ 8.3 m + $ 154.8 m
School CapCon Acct $ 214.4 m $ 221.0 m $ 214.4 m + $ 6.6 m
Severance Tax - Total $ 818.1 m $ 677.1 m $ 692.0 m - $ 14.9 m
Fed. Mineral Royalties w/o Coal Lse Bonuses w/ Coal Lse Bonuses
$ 692.0 m $ 910.2 m
$ 601.1 m $ 825.8 m
$ 591.2 m $ 811.8 m
+ $ 9.9 m + $ 14.0 m
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