State Rundown 5/6: Energy Boom Goes Bust

Thanks for reading the State Rundown! Here’s a sneak peek: Wyoming and North Dakota grapple with declining revenue amid an energy bust. Arizona lawmakers reach a budget agreement. Missouri legislators consider a state EITC, and Missouri judges rebuff Krispy Kreme.

— Carl Davis, ITEP Research Director

State governments across the country continue to grapple with bottom-barrel energy prices, with Wyoming the latest to deal with the fallout. March revenue collections were worse than expected, with sales and use tax receipts $9.3 million below projected levels and severance taxes falling $17.4 million short. Wyoming, which is one of nine states without a broad-based personal income tax, is unusually dependent on the fossil fuel industry to support the state budget. Making matters worse, declining fossil fuel production could also have a secondary impact on sales tax revenue – the largest source of government funding – if demand for goods and services also decreases. Gov. Matt Mead has asked state agencies to cut their FY 2017 budgets by an additional 8 percent as revenues are expected to come in $300 million short over the biennium. Meanwhile, legislators are considering a number of tax increases to shore up the budget. One proposal would allow local jurisdictions to impose a sales tax on groceries—a development sure to worsen the stark regressivity of Wyoming’s overall tax system. Another proposal would increase the tax on producing wind energy, and lawmakers have also considered an increase in the state’s property tax to fund school construction.

North Dakota faces a similar predicament as a result of its extraordinary reliance on the fossil fuel industry coupled with historically low energy prices. This week, Gov. Jack Dalrymple asked state agency heads to hold 2017-2019 budget requests to 90 percent of current spending levels, but made exceptions for the departments of corrections and human services and K-12 spending. It is the first time since 2002 that a governor has issued budget guidelines mandating cuts. North Dakota was the only state to weather the recession thanks to the oil boom. Instead of sound fiscal management, leaders there cut taxes repeatedly when times were good and severance tax revenues were high. Now, the governor refuses to consider tax increases. Agency budgets were already reduced by $245 million in February to help balance a mid-biennium $1.03 billion revenue shortfall.

After an extended session, Arizona lawmakers have reached a budget deal. The Arizona Legislature approved a $9.6 billion budget that includes $29 million in (mostly) business tax cuts. If the budget is signed by Gov. Doug Ducey, corporations will get a number of perks, including $8 million in bonus depreciation and $7 million in sales and use tax exemptions for manufacturers. However, the budget does not include a children’s health insurance program for 30,000 kids that would have been funded by the federal government at no cost to the state.

Missouri legislators will consider legislation that would cut taxes for working families in the state. Senate Bill 1018 and House Bill 1605 would both create a state Earned Income Tax Credit (EITC) based on the federal credit. Households that qualify for the federal EITC would receive a non-refundable state EITC equal to 20 percent of the federal EITC. Most of the benefits would support families with income ranging from $20,000 to $37,000 annually. The Missouri Budget Project, citing ITEP numbers, estimates that these families would see an average tax cut of $54 to $289, giving a needed boost to these families and Missouri businesses.

In wackier Missouri tax news, the Missouri Supreme Court ruled against pastry purveyor Krispy Kreme. In what some observers termed the “doughnut hole loophole,” Krispy Kreme demanded a state refund on sales taxes paid after arguing its products were groceries. State law places a 1 percent tax rate on groceries but a 4 percent sales tax on foods made to be immediately eaten. The firm noted that many customers take their doughnuts home to consume later, but the judges didn’t buy it. 

If you like what you are seeing in the Rundown (or even if you don’t) please send any feedback or tips for future posts to Sebastian Johnson at sdpjohnson@itep.org. Click here to sign up to receive the Rundown via email.