Green River Star -

By Michael Madden
Wyofile.com 

Tax ideas that stumble may return

 

March 11, 2020



If there was anyone left in Wyoming who hadn’t yet gotten the memo, lawmaker activity during current legislative session has made it abundantly clear: The state needs to find some funding solutions.

Toward that end, lawmakers have considered bills that would change the sales tax rate, alter the flows of severance and mineral royalty revenues and reduce dependence on the state’s general fund — which was the major motivation behind the lodging tax passage.

The House Appropriations Committee even brought forth House Bill 186 – K-12 and local government structural deficit repair act, which contained a novel series of options that would channel investment earnings and severance tax revenues to different accounts according to today’s perceived need. The bill draft also included a glimmer of optimism by prescribing the disposition of future balances when the rainy day fund exceeds $1.75 billion.

HB 186 would also have hiked the state sales tax by 1 percent if the rainy day fund balance drops below $500 million.

Leadership ultimately declined to schedule HB 186 for hearing by the entire house. The bill was complex and contained a lot of moving parts. It would have been a herculean feat to see this bill to final passage during the short budget session. It, like every other significant revenue measure raised this session, died.

Yet the bill’s debut to the Legislature couldn’t have come at a better time.

The body appears to have little appetite for increasing taxes or otherwise generating fresh revenue without first making sure it’s done all it can to reduce spending. And a great opportunity to significantly trim costs is just around the corner: Recalibration. The major brunt of the budget deficit falls to the School Foundation Program, in part because funding for the program is determined by a complex model and a rigid set of standards. It’s not subject to lawmakers’ discretion the way other aspects of state spending are. The K-12 school recalibration process is the only way to significantly alter School Foundation Program cost funding, and recalibration is slated to happen between this year’s budget session and next year’s general session.

There are a number of nuances of the Wyoming school funding model that set it apart and render it more costly than public school education in other western states. It is the significant added cost of these features that brings pause to legislators when it comes to adding higher taxes to fund them.

These costs have been discussed in many previous legislative sessions but the prevailing thought was that the state could afford them. Thus, there was little urgency to change the model significantly. That reality has certainly changed, and with it, lawmaker interest in a number of long-recognized opportunities for savings.

One of the recurrent paradoxes in the Wyoming model is that while quite precise funding obligations fall to the state, individual school districts maintain control of spending and day-to-day management at the local level. The resulting apparent inefficiencies that come from divorcing income from spending can drive budgeters mad.

The House recently considered a budget amendment, for example, that addressed school district “phantom employees” and associated health insurance costs. The state is required to fund a certain number of staffers in each district. Districts, however, occasionally distribute those funds a bit more creatively.

Instead of hiring the slated and funded number of employees, a district may put the money elsewhere. New needs arise over time and employee positions need to be reshuffled, they argue. Security positions have been prioritized of late, for obvious reasons, thereby justifying local control decisions that diverge from the model.

Another school board claimed they need higher salaries to attract new employees, and so they take the funding for “phantom employees” and fold it into higher pay for fewer teachers.

This is the kind of controversy that a re-calibration effort can, and will need to, address.

Economic and social changes often dictate a need to alter the resource mix and are often the triggers for changes in the model during recalibration.

Regional cost adjustments are another great example of how recalibration can generate significant savings. These district-by-district adjustments to specific funding levels are critical in Wyoming. With historical boom and bust cycles occurring in local communities, housing and many other living costs vary from community to community and also within a given community over time. It’s more expensive to live and run a school in Jackson than in Rawlins, for example.

That disparity absolutely needs to be accounted for. The way Wyoming makes those adjustments now, however, is needlessly expensive.

Districts get to choose which of two cost adjustment indices they want applied to their block grant. Of course, each district chooses whichever index secures them the most money. But wait, there’s more. As currently structured, districts can receive an upward cost adjustment if their community is more expensive than the average, but no district can lose funding for being more affordable. In other words, no district is below average when it comes to costs of living adjustments in the model.

Consequently while we do have districts that receive above-average regional cost adjustment, we have no districts in the state that actually receive an adjustment below the index average. These two inappropriate applications of an index belies its entire purpose and add millions to the cost of the foundation program.

The way Wyoming reimburses for transportation is also expensive, and outside what would be considered usual and customary among other states. Wyoming is unique in that busing costs are 100% paid by the state and are considered above and beyond the block grant reimbursement from the school foundation program.

In contrast to Wyoming, other states employ detailed policies to manage transportation allowance. Some, for example, operate under a matching-funds policy where all transportation costs are shared by the state and individual school districts. Finally, some states make no special allocation for transportation and any costs must be borne by a combination of local taxes and state aid to education programs.

The Wyoming policy of total reimbursement produces the expected impacts on transportation costs for the state. Examples exist where school bus routes are repeated each day to accommodate different school activities. Also, longer travel distances for activities are now the rule among districts. The policy also encourages the use of more buses than the minimum necessary for the students participating in activities.

These are expensive outcomes and result directly, and predictably, from the reimbursement policy. Recalibration could change that and potentially save millions of dollars in future years.

Perhaps the largest potential reduction in school foundation costs centers on school class size. It is also the most controversial.

The current funding model is built around a 16-to-1 student-to-teacher ratio for the lower grades. Statutory language has been relaxed recently to make clear this ratio is a goal to strive for rather than a formal policy rule. The courts have made it clear, however, that any formal policy change in the funding model that relates to class size must be made only in conjunction with a recalibration process, and must be evidence-based as determined by expert opinion.

Some modification in this area appears quite feasible because education consultants in past recalibration efforts have not recommended a strict 16-to-1 ratio. The policy was rather placed into the model by legislative directive.

Classroom sizes are also affected by curriculum choices. Districts often design and add elective courses that result in much lower enrollments than are found in required core classes. Small school districts that have insufficient enrollment also have low class sizes, driving up the cost of education in the state.

The fact remains that small class size drives up educational costs substantially. If class size moves from 16 to 20 for elementary grades, the savings would amount to more than $100 million per biennium.

There are no doubt many other avenues for reducing the cost of public education in Wyoming, including the merging of small school districts and to share resources. This option received minimal legislator interest when funding was plentiful.

As the reality of funding shortfalls that reach into the hundreds of millions of dollars each budget cycle takes hold, however, these options and more will likely be on the table during the 2020 recalibration effort. A hard discussion resulting in education cost reductions will be critical for a majority of the legislature to seriously consider new revenue measures.

But once that’s completed — something I anticipate to occur during this round of recalibration — the table will be set for a bill similar to what is envisioned in the current session’s HB 186.

 

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