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Thursday, December 14, 2017

WyoFlot Still Ready for Take Off

The upcoming legislative session is already packed with fiscally dangerous ideas, most of which is in the $475 million pile of tax hikes. On top of those hikes is the ENDOW report, which is now coming down to the wire.

Since Governor Mead seems to have decided to make ENDOW the crown jewel of his gubernatorial tenure, it is not very surprising that his crew, working on the report, is pushing hard to give Mead a product that can sail through the legislature. Unfortunately, they are still heavily invested in WyoFlot, one of the most irresponsible ideas for spending taxpayer money I have seen in a long time.

We will get to WyoFlot in a moment. According to the Wyoming Tribune Eagle via the Cody Enterprise (hat tip D.), the ENDOW executive council just finished a meeting to nail down...
preliminary findings and recommendations for state leaders to consider in 2018. The report is due no later than Dec. 31. There was some broad consensus among the council members during its meetings, but many details are still being finalized as they work against the clock.
This is actually very interesting. "Details" in this context means economic evidence to support their policy ideas. Ever since the ENDOW group published its "socio-economic assessment" back in August, I have criticized the the group for being macroeconomically and fiscally irresponsible with their policy proposals.
After a loose voting exercise, its priorities were reflected in the recommendations that are expected to rise to the top in the final version of the report. Broadband development, workforce training and expanding commercial air service received the most favorable votes.
We already know about WyoFlot and the duplication of workforce training - already being done, and done well, by our community colleges. The broadband part, though, is worth a serious discussion. Some research suggests that broadband development has substantial effects on economic growth, though those effects are primarily identified in developing countries.

Of course, if the Revenue Committee gets all the tax hikes it wants, Wyoming is going to descend from industrialism to a developing economy, so in that context the research on the positive effects of broadband would become relevant. That said, the ENDOW report's mentioning of broadband investments is worth serious consideration, provided they do not automatically assume that government is the sole partner in that form of infrastructure. In a short but interesting article from 2016, OTT Communications explain the public-private partnership approach to broadband investments.

Bottom line: we can get more broadband in Wyoming without open-ended commitments from taxpayers. I want to emphasize this because from what I have seen so far in terms of ENDOW policy analysis, the group appears to believe that there is a cornucopia of tax revenue to tap into for whatever projects they want.

I hope their final report will prove me wrong on this point. Now, back to the Cody Enterprise story and more policy ideas from the ENDOW group:
Improving higher educational attainment, fostering an entrepreneurial ecosystem and emphasizing computer science in K-12 education all received a significant number of favorable votes as well.
How do you foster an entrepreneurial ecosystem in a state where taxes go up by hundreds of million of dollars? It might be a good idea for the ENDOWers to coordinate their efforst with the tax hikers on the Joint Revenue Committee.

Yesterday, when I spoke at a Tea Party breakfast in Jackson Hole (thank you for inviting me!), members of the audience testified to how businesses are moving to Wyoming from Nevada because The Silver State is seriously considering an income tax. That is all it takes for small business owners to move from there to here. Imagine, now, what will happen if we raise our state sales tax, introduce a service sales tax, raise our property taxes and then slam a Gross Receipts Tax on top of it all.

Speaking of their final report, I do hope they take my criticism seriously and include a detailed economic assessment of what WyoFlot is going to do - or not do - for Wyoming. That idea, explains the Cody Enterprise, is already in a legislative bill.

If the ENDOW report does not provide a serious, transparent and credible macroeconomic and fiscal case for WyoFlot, any bill supporting that project will put Wyoming taxpayers at great risk. We are talking about 21-24 daily flights, round trip, between Denver and Wyoming, with aircraft capable of seating at least 50 passengers and the state in control of all commercial aspects of those flights. This means ticket prices, operating costs, crew, on-ground airport services and service and maintenance.

If the legislature would pass a WyoFlot bill on these terms, it would make a permanent commitment of taxpayer subsidies to whatever airline the state would contract for the actual flights. These subsidies can run in the tens of millions of dollars per year, in order to keep ticket prices down where they can fill the flights.

In modern commercial air service, it is rare to see an aircraft take off with less than a full load of passengers. There is a simple reason for this: the margins are so small that to make money, they need to fill every last seat. Since it is unlikely that 1,200 people will fly between Wyoming and Denver every day, 365 days per week, it is unlikely that any airline could come close to cost coverage on the flights that ENDOW wants; alas, we are looking at years of considerable taxpayer subsidies to keep the planes flying.

With all that said, if the ENDOW group can indeed present a case for the macroeconomic, fiscal and eventually commercial viability of WyoFlot, I will take a serious, open-minded look at it.

It remains to be seen if any such analysis is included. According to the Cody Enterprise, we should not expect too much from the final ENDOW report. The first year of the project, meaning 2018, will apparently be al about "laying groundwork and making sure some funding is available to dig deep on its priorities." In other words, what we will see now is the request for $37.5 million from the "rainy day fund" Legislative Stabilization Reserve Account so that a small, frugal fraction of the state government workforce can continue to ponder ENDOW in peace and quiet for another year.

Now, just to underscore how important it is to be vigilant on the ENDOW initiative and, especially, its costs to taxpayer, the Cody Enterprise notes that...
legislative leaders – Senate President Eli Bebout, R-Riverton, and Speaker of the House Steve Harshman, R-Casper – are both ex-officio, nonvoting members of the executive council that have expressed repeated support for the initiative. Bebout has said in the past he thinks using rainy-day fund dollars for continuing ENDOW is an appropriate use of the savings. And that’s significant.
Unless the final ENDOW report comes with that economic analysis I mentioned earlier, I have to disagree with Senate President Bebout. This would not be a responsible use of LSRA money. That said, if we have to spend $37.5 million of our savings so that Governor Mead can coast through his final year as governor without coming up with any other ideas for frivolous spending, then perhaps the money is well spent after all.

We will have many reasons to get back to the ENDOW project in the coming weeks. First stop will be their final report, due in two weeks.

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