Earlier this week I reported that Wyoming is experiencing major economic growth problems. In the bad recession years 2009-11 we were the only state that saw our state GDP fall two years in a row.
I also reported that our private sector is very reluctant to hire new workers. In 2012 there were almost 1,000 fewer private employees in Wyoming than in 2009.
One sector that has not seen a recession is government. While the productive sector has slimmed down and is held back by a mediocre outlook on the future, state and local governments in Wyoming have hired thousands of new employees. Wyoming has more government workers relative private workers than any other state in the country.
The combination of anemic private-sector growth and heyday-level expansion of government is unsustainable. It is time for our governor and our state legislators to get serious about putting the private sector in the driver’s seat of our economy.
There is a lot we can do, from small, immediate steps to large, structural reforms. Below are five ideas on how to improve the state economy. Two of them are short-term items, while three require longer-term reforms.
First, the two immediate-action items:
- Cap government growth. This can be done in many ways, from the classic TABOR (Taxpayers Bill of Rights) to more sophisticated growth caps. One example is a payroll parity rule which ties growth in the number of government employees and their compensation to the growth of employment and compensation in the private sector. If Wyoming had introduced this payroll parity rule in 2007 it would have saved taxpayers $301 million in 2011 alone.
- Windfall tax holidays. Our state government has ample funds put aside in various accounts for “rainy day” purposes. But the trend is that funds continue to grow while legislators spend the “rainy days” scrambling for more tax revenue (the extra fuel tax dime is a good example). Furthermore, windfall revenue from the state’s funds is often used toward new spending, which tends to be more permanent than the windfall revenue. To prevent this in the future we could use a rule that all windfall revenue should be used strictly toward a tax holiday the following year. If, for example, the state gets an unexpected $300 million in capital gains in 2013 it would match that with a $300 million rebate on the property tax in 2014. This prevents spending increases and lets the private sector keep more of its hard-earned money.
Longer term solutions require more comprehensive reforms. Here are some ideas to consider:
- Block-grant federal funds. Even though Congress is 1,700 miles away, it is good at making Wyomingites know it exists. One of its ways it does so is through federal funds for the state and local governments. Historically, federal funds have grown at rates of 6-8 percent per year, which means that state matching and maintenance-of-effort funds have to grow about as fast. To stop this cost drive, our state should negotiate a block-grant solution for all federally sponsored programs, where we get to decide how to run the programs – and what programs we would like to privatize. (Wyoming Liberty Group will publish a report on this topic in late March.)
- A Regulatory Overhaul Commission. Wyoming is often praised for its low taxes, though recent studies from the Tax Foundation show that we are not as good anymore as we used to be. In other areas, we have performed poorly for quite some time. Business regulations is one of them, as demonstrated by the 2011 Freedom of the 50 States study from the Mercatus Center. Overall the study ranks Wyoming 21st, one reason being intrusive and stifling regulations. This criticism was echoed by the 2012 CNBC study of state business climates (which also mentions poor access to venture capital as a problem). To address the regulatory situation, the governor or the legislature could appoint a Regulatory Overhaul Commission with the purpose to create a complete map of all business regulations, local as well as statewide, and propose repealing and streamlining regulations to improve Wyoming’s business climate.
- Structural prioritization of government programs. One of the major economic problems in Wyoming is that government is sprawling in all directions. It is involved in everything from income security and infrastructure to education and health care to “economic development.” But not everything government does is equally important. On the contrary, most of what government does can be handled better by the private sector. Given how fast government has grown over the past five years – with 7,000 more state and local government employees in five short years according to the Bureau of Labor Statistics – it is fair to say that our state legislators are not very good at separating essential government functions from non-essential functions. Time is ripe for our lawmakers to start learning how to focus on the essential functions and structurally reform away the non-essential ones.
These are some ideas, though the list is of course not exhaustive. It focuses on measures to reverse the destructive imbalance between a growing government sector and a troubled private sector in Wyoming. There are many other areas where we need good, free-market oriented reforms to improve both economic and individual freedom, with education and health care being two of them.
However, reforms to contain and reverse the overall growth in government in Wyoming will have positive effects on all sectors of our economy. They would facilitate reforms to privatize non-essential government functions and help inspire private businesses to step in and replace government where government should not be involved.