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Hello Sublette County, Merry Christmas and Happy New Year. The new year will bring some significant challenges to Wyoming. The legislature will convene on January 10th in Cheyenne at the Jonah Building on East Pershing, where we served a year ago. Construction on the Capital renovation will likely continue for two or three more years. Our declining Wyoming economy has resulted in declining revenue, both to citizens and the State of Wyoming. Our state budget is divided into two major parts. One is the General Fund side of the budget and the other is the K-12 education side of the budget. They are remarkably similar in size at roughly $1.5 billion per year. The Governor made $249 million in cuts during the summer to address our deficits on the General Fund side, but a substantial deficit still exists in K12 funding.

General Fund expenditures, nearly 80% of the budget, are spent in the five largest agencies of state government: the Department of Health, Dept. of Family Services, Dept. of Corrections, University of Wyoming, and Department of Workforce Services. Thirty-five other agencies take up the remaining 20% of the General Fund Budget. Revenue for the General Fund primarily comes from the 4 percent state sales tax. Interestingly enough, 60% of all sales taxes are paid by energy companies, 20% paid by out of state residents passing through our state, and 20% paid by Wyoming residents. Not all of the 4-cent sales tax goes to the state, as local governments receive 30% of this tax. The next major revenue stream for the state General Fund is severance taxes paid on minerals. Thus, mineral production and the taxes paid by those industries fund 65% of the General Fund expenditures of state government.

Much has been publicized about our General Fund budget shortfall. We reduced expenditures by $350 million and now have the smallest GF budget since 2005. There is more work to do but we are getting close to balancing the GF side of the budget.

The K-12 budget became a state responsibility after the school reform lawsuits of the 1970s, 80s and 90s. Revenue for K-12 comes from property taxes, specifically the 26 local mills and 12 state mills, that we as property owners pay...for every $100k of property value we pay $300 in property taxes. We used to pay an additional 6 mills, but that went away during school finance reform in the 1990s. Of the 38 mills (26+12) paid last year, once again energy companies paid 70% of the property taxes. In addition to property taxes, the K-12 budget is funded by the royalties our state receives from minerals produced on Federal lands within Wyoming which are called Federal Mineral Royalties or FMRs. These FMR mineral taxes amounted to $300 million or 1/5th of the K-12 operations last year. Thus, mineral production and the taxes paid by those industries pay 80% of the K-12 education bill for Wyoming’s schools.

The Wyoming Supreme Court has mandated that all children in Wyoming receive an equal and appropriate level of education. In other words local district or county wealth or lack of wealth is not a factor in your children’s education. We have "equalized" funding, because the Supreme Court has ruled that the wealth of Wyoming is a "State" resource, and not that of the local school district. Thus, we take from the wealthy school districts (recapture) and redistribute it to poorer school districts (entitlement) to make sure that every child has an equal and appropriate education or receives what the court calls the "basket of goods." The state then steps in and makes up any remaining amounts. This is called the "state guarantee."

Comparing the GF and K-12 school side of the budget, the General Fund side had a nearly $400 million deficit out of the $3 billion, 2-year budget. K-12 schools face a nearly $800 million deficit from our similar sized $3 billion, 2-year budget. Thus, the looming K-12 budget problem is "twice" as big as the GF budget issue.

On December 19, the Joint Education Committee, of which I am a member, met by conference call to develop actions to address this deficit. The committee decided to break this $400 million per year deficit into roughly five $80 million dollar pieces, in order to find a reasonable solution. Certainly budget cuts will be one of those, maybe diverting the 1% statutory severance tax from the General Fund to education is part of the solution, perhaps guaranteeing the 5% spending policy out of our permanent school land fund, utilizing existing savings, and finding a new revenue stream. These are examples of potential solutions to this critical issue. We hope to provide a comprehensive solution in one bill, which will make it clear to fellow legislators and the public a path forward.

During this meeting, the Joint Education Committee formed a sub-committee, of which I am a member, and we will draft a bill that will likely be considered by the new House Education Committee during the upcoming session. I expect hearings will be held in Cheyenne during the session to garner public input, and ultimately legislators will bring that public input into this bill in the form of amendments and votes. We are running out of time before session starts, and we need to develop a draft bill to provide a vehicle to solve this funding crisis. The funding gap has been projected to be $1.8 billion by 2022 if we do not act. I expect another bill will be drafted which creates a super committee to develop options for a special session in the summer, which will be a backup bill if we do not come to a consensus during the 2017 General Session to solve this issue. Wyoming also faces the elimination of coal lease bonus money from the federal government, which we have used to fund K12 capital construction, both major maintenance and construction. We have to find another revenue source for major maintenance soon, because roofs don’t last forever in Wyoming’s climate.