CREG report projects slight decline in revenue for WyomingBy 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.
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