Sequestration may have “significant effects”

Rep. Mark Semlek discusses Wyoming’s troubled finances

 

By Sarah Pridgeon

The total dollar amount that will be siphoned from Wyoming’s mineral revenues through sequestration may be anything from $50 to $100 million, said Representative Mark Semlek at this month’s regular meeting of the County Commissioners. Cuts to Payments in Lieu of Taxes (PILT) and the Forest Reserve, according to County Attorney Joe Baron, will meanwhile have significant local impacts.

Exactly how much of the state’s mineral revenue payments will eventually be withheld depends on how long sequestration continues, said Semlek. Governor Matt Mead recently received a letter from the Department of the Interior claiming $10.6 million per month between now and July, with more potential withholding in August and September.

“The Legislature, leadership and Governor’s office are a bit puzzled as to how they can do that. With the agreements we struck, much like with the division orders on any royalties, you decide what those are going to be and you put them in an agreement,” he said. “Perhaps the sequestration can trump that. I don’t know but we’re going to find out.”

If sequestration continues beyond the next five to seven months, Semlek said, it could have a significant effect on the state, compounding the economic situation Wyoming has found itself in over the last few years with lower natural gas prices and a decline in revenues.

“This year, the discretionary revenue that the Legislature had to appropriate during the supplement session was about $68 million,” he said. “When we go back to ’08 and ’07, when natural gas was six or seven dollars mcf, we had a billion dollars – that’s how the landscape of Wyoming’s economy has changed.”

That billion dollars, he went on, was shared with local governments. “I think the highest amount during those good years was $458 million, so we took about half that and sent it out to the 99 cities and towns and 23 counties. As you’re all well aware, that’s changed dramatically.”

Although the School Foundations account is still in good shape, he said, the situation may change if its income flows continue to be jeopardized. If revenue sources continue to deplete due to sequestration and other influences, Wyoming may find itself in a situation of “real economic concern.”

Wyoming is one of 35 states who face mineral revenue cuts thanks to sequestration.

“We’re trying to get some answers about how they can do that to us when we have an agreement,” said Semlek. “As I said, maybe sequestration can trump it, I don’t know. Should Wyoming be a partnership to helping the federal economy? I guess that depends on how you feel about it.”

Baron, however, was more concerned about the potential impact of sequestration on PILT and the Forest Reserve.

“In most conversations that you guys have, AML and Federal Mineral Royalties are more stable sources of revenue, but the two things affecting the county are PILT and Forest Reserve,” he stated, confirming that Crook County has been notified of cuts to both fund sources.

“Most of that money comes directly to local governments and not the state government. When state people are worrying about this whole situation, they need to be looking at those things for their impact on the local government.”

“The outlook for the next four or five years is probably not real good,” said Semlek, speaking of the state’s financial situation in general and referring to the downturn in the world, national and state economies. “We will continue in the interim to look at agency budgets with the idea that we’ll likely have to make recommendations on decreasing some of their budgets, as we did last summer.”

“We’re in much better shape than some other states but we are looking at some program cuts, which may effect what services are offered. The good news is what’s happening here in Crook County,” he continued, referring to the upcoming mining projects in the area.

Semlek told of his experience of budget cuts through his involvement with an oversight committee last year. “The first eight percent was pretty easy. The second eight percent will get into people and will likely have some effects on services.”

 

How will the sequester affect Crook County?

Federal funding is generally issued to the county in three ways, says County Treasurer Mary Kuhl. Of these funds, current projections imply that both Payment in Lieu of Taxes (PILT) funding and Forest Reserve payments will each be cut for the year ahead.

“Other federal funding is usually via grants, so I would think they are probably not going to fund some of those grants,” she explains.

PILT funding is issued as compensation for counties with tax-exempt federal land within their boundaries; in June 2012, the county’s annual payment through PILT was $549,975. In Crook County, PILT funds are handled by investing them in a holding fund until the following fiscal year, creating a half-million dollar “savings account” for the county that is then moved into the budget as revenue as it is replaced by the next year’s funds. Consequently, any cuts to PILT will not affect the county until the 2014-2015 fiscal year.

Forest Reserve payments are meanwhile received in January and partially distributed to the school district. The most recent payment, in January 2013, amounted to just under $190,000.

“I assume in the near future we will see a decrease – we’ve already seen a decrease over the last few years through fluctuations in timber sales, but an increase in PILT,” says Kuhl.

Sequestration cuts to PILT and the Forest Reserve are projected to be around 5.1 percent each, according to Kuhl. “That’s at the current projection, but we are of course concerned that the cuts won’t stop there,” she says.

The current yearly budget for Crook County’s required appropriations is around $13 million. PILT and the Forest Reserve make up approximately $780,000 of that and a 5.1 percent cut would total $40,000, which means that the sequestration cuts will reduce the county’s budget by around one percent.

“Hopefully by the time it affects us, we’ll see some movement from the mining projects, such as RER and Strata,” says Kuhl. “Production of mining products is taxed the year following production, so it’s a way out but it will help.”