Gov Mead calls for fiscal policy change, and fuel tax

Gov Mead calls for fiscal policy change, and fuel tax

By Dustin Bleizeffer, November 30, 2012

Gov. Matt Mead will ask lawmakers to approve “major fiscal policy” changes intended to level out the up-and-down nature of Wyoming’s mineral-based revenue cycle. The governor will also push for a fuel tax increase of about 10 cents per gallon to maintain highways.

Mead announced the measures Friday morning at a news conference marking the release of his supplemental budget proposal. When the Wyoming Legislature meets in January for its general session it will mull significant budget cuts to align state spending with declining revenue from weak natural gas pricing and a modest slowdown in coal production.

Regarding the fiscal policy changes, Mead said, “In a state that is heavily reliant on mineral prices, these things (revenue fluctuations) can happen, so I asked for a more smooth, stable trend-line that allows us to project out where we want to be and need to be.”

To help stabilize Wyoming’s budget Mead wants changes in state statute to allow lawmakers to divert one stream of revenue that normally goes to the Permanent Mineral Trust Fund to the Legislative Stabilization Reserve Account (LSRA), also known as the “rainy day” account. The statute change would also allow lawmakers to take money from federal coal lease bonus bids and put it into the rainy day account. For years, Wyoming’s portion of federal coal lease bonus revenue has been dedicated to school construction in Wyoming.

Shifting these two revenue streams to the LSRA would swell the account to an estimated $2.2 billion next year, and beyond $3 billion for the next fiscal biennium, according to Mead.

The third portion of Mead’s proposed fiscal policy change would require that the state conduct a more comprehensive revenue estimate for its investments and capital gains. Last year, there was an unexpected $30 million on the budget table that the governor’s office didn’t even consider because it wasn’t part of the state’s normal revenue forecast.

Regarding a fuel tax, the governor said he wants to force Wyoming lawmakers to come up with a long-term plan to pay for highway maintenance because putting off maintenance only creates more cost down the road. He said if the Legislature doesn’t approve of a fuel tax, he will ask that a portion of mineral severance taxes be dedicated toward transportation maintenance.

Gov. Mead also said the state discovered an unexpected health insurance premium overpayment of $16.9 million, which gave him confidence to recommend $11 million toward raises for state employees.

In all, the Wyoming Legislature has about $3.4 billion to manage when it meets in January. Mead will present his supplemental budget proposal to the Joint Appropriations Committee in December, then the Legislature’s general session begins January 8.

For more on Wyoming’s ongoing budget discussions, read these WyoFile features:

— “Fiscal Plateau: Lawmakers trim budget to match declining revenue,” by Gregory Nickerson, November 20, 2012

— “Cheyenne Confidential: How Wyo’s lawmakers spend your $3.4B,” by Geoffrey O’Gara, November 20, 2012

— “Lawmakers in the Classroom: The Battle for Wyoming’s Schools,” by Geoffrey O’Gara, November 27, 2012

— Also check back at WyoFile weekly for its ongoing Legislature 2013 special report.

— Dustin Bleizeffer is WyoFile editor-in-chief. Reach him at (307) 577-6069 or dustin@wyofile.com. Follow Dustin on Twitter @DBleizeffer.

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The following is the complete text of Gov. Matt Mead’s press release regarding his supplemental budget proposal:

CHEYENNE, Wyo. –  Governor Matt Mead’s budget proposal focuses on a more efficient and effective government that positions Wyoming well for the future. The supplemental budget proposal, submitted to the Legislature today, combines reductions in spending and reductions in the size of government with investments in important one-time projects. The Governor’s recommendations reduce ongoing spending by over $60 million per year, which is more than a 6% annual reduction in ongoing general fund spending, and eliminates 86 vacant positions.

“I believe my proposed budget continues our history of fiscal conservatism and lays out specific ideas that ensure a bright future for Wyoming,” Governor Mead said. “The comprehensive approach we have taken is needed to deal with revenues that are flattening out, with the costs of a historic fire season and with a loss of $700 million in Abandoned Mine Land money.”

Governor Mead’s proposed reductions exceed the 4% that the Legislature proactively asked state agencies to prepare for fiscal year 2014. Governor Mead had asked agencies to propose 8% cuts in light of lowered natural gas prices and ongoing state spending that more than doubled over the last decade. Agencies submitted proposals to Governor Mead and he reviewed those proposals thoroughly before making his own recommendations today.

“These reductions build on my efforts to solidify a long-term philosophy of government that operates optimally in all years – the lean and the abundant,” Governor Mead said. “It was important to me that these reductions be sustainable so we move forward with a smaller state government for the long haul.”

Governor Mead said, “We do not take our fiscal strength for granted. We know we cannot continue on the trajectory of the decade past, where the standard budget more than doubled.”

The proposed budget reductions include a 10% decrease for the Governor’s Office and Governor’s Residence. For other agencies Governor Mead reviewed each proposal and made decisions on an agency-by-agency basis. The Governor recommends closer to 6% reductions for UW and the community colleges. The Department of Health is not part of the proposed reductions because the Legislature separately reduced its budget by 4% for fiscal year 2014.

Fiscal Policy Recommendations – Planning for Tomorrow

“Wyoming through thoughtful Legislative planning and prudent budgeting has built strong reserves both permanent and as backstops that can be spent in unforeseen circumstances,” Governor Mead wrote in a letter to legislators that accompanied his budget proposal. He emphasized that now is an appropriate time to review the state’s investment structure. He also made several bold recommendations that will help Wyoming weather future fiscal storms and maintain a conservative fiscal course in times of abundance.

Currently 2.5% percent of severance taxes go into the Permanent Mineral Trust Fund (PMTF). Of that percentage, 1.5% are constitutionally directed and 1% are statutorily directed. Governor Mead is proposing that the statutory 1% of the revenue instead go into an account that can used in tough fiscal times called the “Rainy Day Account.” He also proposes that new coal lease bonuses be deposited into the same account. The money from coal leases now goes to the School Capitol Construction Account (SCCA). The Governor’s proposal continues to build the SCCA to $600 million for the next five years without the additional new coal bonuses.

“It is proper that all available resources set aside for ‘rainy days’ be housed in a single pool – this allows decisions to be made considering the total circumstances and Wyoming’s obligations to its entire citizenry – whether they be school children, college students, adults with developmental disabilities, businesses seeking startup funds or recreationists visiting state parks,” Governor Mead wrote. His proposal is that both the redirected 1% and new coal lease bonuses be deposited into a single account to build a balance that is substantial enough to provide a backstop for general obligations and for funding schools, if circumstances necessitate.

These proposals make for more transparent government because they place all the savings into a single account rather than depositing them in several places that can create confusion.

Governor Mead agrees with the Legislature’s direction related to investment income. He would include capital gains as part of forecasted revenue, the same as for severance and sales taxes. Governor Mead points out that Wyoming continues to benefit from prudent investments and has seen significant revenue from those investments. However, because all investment income is not included in revenue forecasts it cannot be used when planning future budgets. Governor Mead said, “In lean years, like those we now face, a conscious decision to ignore significant revenue – revenue we know about – in making official revenue projections does a disservice to Wyoming and limits my ability to prepare rational budgets.”

Efficient and Effective Government

Governor Mead’s proposal includes a salary increase for employees across all of state government, including UW, colleges and non-judge employees in the judiciary. His proposal is for $8.5 million in salary increases and $2.5 million in one-time merit based bonuses. “No business succeeds without a qualified, motivated workforce – employees are our most valuable asset. They are the core of effective, efficient government,” Governor Mead said. His proposal is based on the comprehensive employee performance management system, which was finalized in late 2011 and provides expectations and goals and feedback for employees to help them improve and succeed.

Wyoming represents a model of how government should work, but there is room to improve efficiency and transparency in rules and regulations. Wyoming has nearly 18,000 rules from state agencies. Governor Mead is proposing to review the rules on the books and to formulate a plan to reduce and simplify them. “I want citizens to clearly see and understand the purpose of a rule and make sure it is easy for them to comply with any rule.”

Investments in Tomorrow

Governor Mead’s budget is a strong investment in Wyoming’s future. Education, workforce training and workforce safety are priorities for his administration. This budget maintains funding for K-12 education and school construction. He recommends salary increases for employees of the University and colleges, trimmed cuts for UW and the colleges from 8% to 6% and does not reduce spending for workforce training or safety programs. There were no reductions recommended for tuition programs that support veterans.

“Investing in education ensures our citizens have economic opportunity and businesses can rely on a talented Wyoming workforce,” Governor Mead said.

Governor Mead also proposes other one-time expenditures important to Wyoming’s future. These include money for: local governments, landfills, the Wildlife and Natural Resource Trust, replenishing the data center recruitment fund, and the Gillette-Madison water project.

“These proposals improve Wyoming’s future while not growing next year’s budget. They build on our successes in diversifying the economy, protect our natural resources and improve the quality of life for Wyoming citizens,” Governor Mead said.

This year a record 550,000 acres burned across Wyoming. Fire costs totaled about $108 million and the state’s share is nearly half of that total. To cover the shortfall in fire funding and prepare for next year Governor Mead proposes $60 million from the $150 million the Legislature set aside last session as a safeguard against a revenue shortfall. “By doing this Wyoming will adequately prepare for what could be another challenging fire season. Fire falls squarely into this safety net and this recommendation will leave Wyoming prepared to meet its commitment to safety with confidence,” Governor Mead said.

Roads and Highways

The Wyoming Department of Transportation (WYDOT) asked for an additional $50 million from the general fund. WYDOT estimates $134 million per year is needed to maintain Wyoming’s roads. Governor Mead rejected WYDOT’s request for one-time funding. “Every part of Wyoming’s economy relies on an effective, well-maintained and continually improved highway system. WYDOT projects are planned years into the future – good planning, reasonable costs and effective management can only be achieved through reliable, long-term funding,” Governor Mead said. He said this year is the time to develop a long-term solution and, of all the funding sources, he believes fuel tax is the most fair and least expensive for Wyoming citizens. He added that in the event the Legislature does not pass an increase, lawmakers should earmark a like amount of revenue for highways from mineral revenues.

Health

The Wyoming Department Health receives the largest share of the state funding. For this biennium DOH will get just under $1 billion from the general fund and Budget Reserve Account. Of that more than half of the budget goes to the Medicaid program. Both of these totals account for a 4% reduction of funding for fiscal year 2014 that was passed earlier this year.

Under the Patient Protection and Affordable Care Act (ACA), states are required to expand Medicaid for certain populations. Governor Mead approved an increase of $6.7 million for that required expansion. He denied the optional expansion of Medicaid and asks for a public discussion exploring the effects of Medicaid expansion on Wyoming’s people. He also believes the U.S. Department of Health and Human Services (HHS) needs to finalize regulations and answer states’ questions about expansion. In his message to lawmakers Governor Mead wrote, “My office will continue to work with HHS to get as many answers as possible to enable us to make a decision this session. I stand ready to work with you on this important question – understanding as do you that it will have far-reaching implications no matter what is decided.”

The ACA also requires the establishment of a health insurance exchange. A health insurance exchange can be run by the federal government, by an individual state or by a partnership. The first deadline to choose which of these options Wyoming prefers is January 2013. Unanswered questions and legislative conditions make it likely that when these exchanges start operating in 2014 Wyoming will have a federal exchange. However, Wyoming can opt at any time to change to one of the other options. Governor Mead recommends $100,000 to assist in the process of deciding which option is best for Wyoming. “Now is the time to be proactive and decide what exchange is the best for Wyoming in the long term.”

Governor Mead’s entire Budget Message is available on his website.