“Wyoming’s Budget & the Minerals Connect”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

“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?


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

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


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


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


• 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


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:


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:


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)



“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!


• 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


General Fund


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


The Budget Reserve

Account Federal Mineral

Royalties Severance Tax

School Foundation Program


The School

Foundation Program Federal Mineral

Royalties

State Investment

Income

State Property Tax

School Capital Construction Account


The School Capital

Construction Account Federal Mineral

Royalties Coal Lease Bonus

State Mineral

Royalties/Leases

School Capital Construction Account


The School Capital

Construction Account Federal Mineral

Royalties Coal Lease Bonus

State Mineral

Royalties/Leases

Sources of Revenue: Highway Fund


The Highway Fund Federal Mineral

Royalties

Coal Lease Bonus Fuel Tax State Investment

Income

Severance Tax

Cities, Towns & Counties


Cities, Towns &

Counties

Local Property Tax

Tobacco Tax Fuel Tax

State & Local

Sales/Use Tax

Federal Mineral

Royalties (Cities & Towns)

Severance Tax

$0

$1

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2014 Assessed Valuations


Total:

$24,164,467,525

Property Classes for Tax Assessment

Minerals (& Mine Products): 100.0%

Industrial: 11.5%

Commercial/Residential: 9.5%


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


Where property

tax revenue

originates.

Property Tax Revenue 2014


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


Tax Reform 2000 Committee


• 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.


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)


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.


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.



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.



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



• 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.



• 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.



• 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.


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 (1665-1683), King Louis XIV

Wyoming Taxpayers Association

200 E 8th Avenue, Ste. 208 | Cheyenne, WY 82001

307.635.8761…….office

www.wyotax.org | [email protected]

Buck McVeigh Executive Director

Fiscal Year 2015 - July Revenue Update


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

Documents

“Wyoming’s Budget & the Minerals Connect”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