CREG report projects slight decline in revenue for Wyoming 

A dragline digs coal out of a mine in the Powder River Basin. Wyoming's Consensus Revenue Estimating Group recently decreased its price forecasts for coal in 2015-2016. (USGS photo)

A shovel digs coal out of a mine in the Powder River Basin. Wyoming’s Consensus Revenue Estimating Group recently decreased its price forecasts for coal in 2015-2016. (USGS photo)

By Gregory Nickerson
— January 21, 2014

When the Wyoming legislature convenes on February 10th, it will consider a bill to spend roughly $3.3 billion in General Fund dollars for 2015-2016. That makes for a lot of planning, and a lot of discussions between lawmakers and state agencies, all of which are dependent on money that the state hopes to collect in the future.

That’s a point that Don Richards, budget and fiscal manager for the Legislative Service Office, made in a meeting of the Joint Appropriations Committee last Friday.

“Next month you will be appropriating projected revenues that you hope will be coming in 2016. You are not appropriating cash,” Richards told lawmakers. In other words the legislature is in the business of appropriating billions of dollars of imaginary money. One might reasonably wonder how they do it with any degree of confidence.

Enter the Consensus Revenue Estimating Group, also known as CREG, the body whose projections inform every dollar Wyoming appropriates. This group is made up of economists, legislative staff, and mineral production experts, all of whom make their best guess at how market trends and mineral production will effect the balance of Wyoming’s coffers for the next four to six years.

Last Friday, the CREG group released the January update to its October 2013 report. The document doesn’t contain much in the way of earthshaking news. The only adjustments it made were a slight decrease in the projected coal price per ton, and an increase in sales tax collections.

It didn’t do anything to alter Wyoming’s relatively sound fiscal picture, which is this: Wyoming could see slightly less revenue in the near future, but modest increases are expected through the end of the decade. Barring any major shifts in spending or revenue, Wyoming could see budget surpluses in each budget cycle going out to 2018. In any case, there’s more than enough money to cover the 2015-2016 budget proposed by Gov. Matt Mead.

“My budget is $3.33 billion, instead of $3.31 billion last year,” Gov. Mead said in a speech at the Wyoming Press Association’s annual convention in Laramie last Friday. “If you are holding your budget flat, that is a remarkable thing, and it’s definitely not the case for most governments.”

The most recent CREG report projects some $75 million less in revenue in the upcoming budget cycle. That’s $3.723 billion in revenue for 2013-2014 decreasing to $3.648 billion for 2015-2016.

Yet if the legislature follows Gov. Matt Mead’s spending proposal exactly (which it won’t) it would still have a $238 million surplus. If the 2013 session is any indication, lawmakers will find some creative uses for the $238 million Mead “left on the table” in his budget proposal released November 30.

Changes in forecast

Between the CREG report made last October and the one released last week, the group decided to extend it’s currently projected coal price of $13.50/ton through 2016. Previously, CREG had projected prices of $13.75 starting in 2015 and going through 2018. They altered the projection when they realized coal prices are trending below previous forecasts, despite a recent uptick in prices for Powder River Basin coal.

The total effect of the coal price forecast on the budget will be modest in the context of $3.648 billion in revenue. CREG expects the lower coal prices to bring in about $5 million less in severance taxes to the General Fund and Budget Reserve Account compared to previous projections. The group also projects the prices will lower Federal Mineral Royalties flowing to the Budget Reserve Account by $5.2 million.

As an aside, the Budget Reserve Account is effectively a savings account with its own revenue stream that supplements the General Fund. Over the years, lawmakers have used it as General Fund part II.

Though the January report didn’t adjust coal production numbers, CREG has done so several times in recent years.  That’s because Wyoming coal mines have dropped production as power plants shift to using plentiful supplies of natural gas. The Environmental Protection Agency’s proposed regulations to curb carbon dioxide emission could also drive the trend to lower production figures.

“We reduced the (coal production volume) forecast by tens of millions of tons over the past 18-24 months,” Richards told the Joint Appropriations Committee last week. He added that if new EPA regulations come to fruition they would have, “significant and negative impact on coal prices.”

“It’s hard to be optimistic about volume when we see the attack we continue to be under,” said Joint Appropriations Committee co-chair Sen. Eli Bebout (R-Riverton) in response.

The good news in the January CREG report is that the forecasters increased their projections for sales and use tax collections. They did so because they saw modest growth in income for Wyoming residents in 2013. Further, they predict increases in the number of oil and gas jobs in the state through 2016. Both of those changes are supported by job and income growth on the national level. Overall, CREG expects about $33.5 million more in sales and use taxes for 2015-2016 than it had previously projected.

In any discussion of the state budget, it’s important not to forget the funding of Wyoming’s K-12 schools, which draw from the School Foundation Program and the School Capital Construction Account. That means Wyoming’s sizeable school funding is not counted in General Fund budget totals.

In its October report, CREG projected $2.143 billion in revenue for the School Foundation Program and the School Capital Construction Account for 2015-2016. That’s nearly $100 million less than the amount of revenue CREG expects to come in for 2013-2014.

A large portion of the funding for school operations and construction — roughly $1 billion — comes from Federal Mineral Royalties and Coal Lease Bonuses, which are generated when the Bureau of Land Management leases coal parcels to mining companies. In the face of changing markets for Wyoming’s mineral-driven tax base, school funding will continue to be a point of concern for lawmakers.

In the near term, Wyoming’s sizeable investments and savings could make up for decreases in school and General Fund revenue. At present, the state has roughly $17 billion in investments. Of that amount, about $1.6 billion is in the Legislative Stabilization Reserve Account, also known as the “rainy day” account. Temporary shortfalls in school funding could be covered by the LSRA, though other revenue would be needed for the longer term.

Another $6.5 billion of savings is socked away in the Permanent Mineral Trust Fund. In recent years lawmakers have made an effort to grow that fund to $8 billion by 2018, in hopes of making it’s investment income support 20 percent of General Fund spending. A primary proponent of that goal is Rep. Steve Harshman (R-Casper) who co-chairs the Joint Appropriations Committee.

Investment income can make a large difference for Wyoming’s budget. In 2013, Wyoming collected $366 million in investment income from the Permanent Mineral Trust Fund, and another $189 million from pooled investments from other state accounts. About $346 million of the investment income from those accounts came as capital gains, which are not projected by CREG. The major gains came from Wyoming’s investments in stocks, and from long-term bonds that have become profitable due to rising interest rates.

Unprotected gains like that could more than make up for the $75 million drop in revenue that CREG is predicting for 2015-2016 compared to the previous biennium. However, Richards says that Wyoming shouldn’t count on that happening.

“In the near term, we have seen pretty extraordinary gains in the equity markets that are perhaps unlikely to continue at that rate,” Richards said.

See also:
CREG reports record 2013 revenue for Wyoming, but flat projections, By Gregory Nickerson, October 25, 2013.

— Gregory Nickerson is the government and policy reporter for WyoFile. He writes the Capitol Beat blog. Contact him at greg@wyofile.com. Follow him on twitter @GregNickersonWY.

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Published on January 21, 2014

{ 2 comments }

Ben Tonak January 28, 2014 at 10:21 am

The Chronicle study is self-reported via survey. How many people do you think factor in the total compensation package, which is better at UW than at most other schools? How about cost of living?

Here’s the simple math, if you go to work at CSU, you need a 12-20% higher salary just to have an equal compensation package. I know for a fact because I worked at UW, and I interviewed for jobs at CSU.

Let me break it down:
4.69% Colorado State Income tax off the top
6.2% Retirement contribution difference in UW’s favor
$50/mo Health Insurance out-of-pocket difference in UW’s favor (& still get less coverage at CSU)
8% cost of living difference in UW’s favor (average of 5 different internet calculators)

So, yes UW salaries may be lower but when health insurance premiums went up a couple years ago, the university covered it. That’s functionally a raise. When the state retirement system needed employee contributions, those that aren’t on the state system and are instead on TIAA-CREF got a 1.43% raise sent to their retirement account. And while it was a pittance, everybody got a 1% bonus last year.

I left in November. I no longer have skin in the game. But my reasons had more to do with other factors than salary.

Yes, the university needs a sensible system to reward those who produce/perform more than those who do not. It was incredibly demotivating to me to see some “desk jockeys” who had grown stagnant in their jobs continue to get the same raises or non-raises as I did (I think I performed, especially at first. I tried to really kick butt at first, until I saw where it got me). That is the real problem regarding compensation at UW. It has nothing to do with a gross salary comparator to other schools that doesn’t take into account all the compensation package factors.

Disgruntled UW Professor January 26, 2014 at 6:21 pm

I think the following observations are great: “…Wyoming could see budget surpluses in each budget cycle going out to 2018.” and “…Investment income can make a large difference for Wyoming’s budget. In 2013, Wyoming collected $366 million in investment income from the Permanent Mineral Trust Fund, and another $189 million from pooled investments from other state accounts.”

Based on the rosy financial picture of our state, I am disgusted that our legislature can’t seem to find the money to pay UW employees what they are worth. UW professors like me have not had a raise in years. The last time I received a theoretical 2% raise (so many years ago I have since forgotten when), half of it went to my college. I have never received a merit-based raise, and this is not for a lack of merit. Now I’ve learned that the legislature voted down every dollar of the $1.1 million Governor Mead recommended allocating toward merit-based raises. Of the 2.5% per year for the next 2 years he recommended giving UW employees, only 2% per year was approved.

Go Pokes! Let’s build some more multi-million dollar buildings! Hopefully we can find good people to fill them.

UW professors are paid “far below median” (http://chronicle.com/article/aaup-survey-data-2013/138309#id=240727) compared to other universities despite being in one of the most financially flush states in the US. Five years ago, 14 UW professors left to take jobs at other universities. Last year, 35 did. Next year it will undoubtedly be more. Being overworked and underpaid in a state with plenty of cash to spare does not necessarily engender long-term loyalty.

Wyoming is a highly conservative state, where free market principles are exalted. UW is learning these principles the hard way with respect to its professors, such as “you get what you pay for,” and “you don’t get what you don’t pay for.” I love my university and my state, and words cannot describe the anger and sorrow I feel about this situation.

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