Gov. Matt Mead released his spending proposal for the 2017-2018 spending cycle, which notably called for borrowing from the “rainy day” fund to ease a cash flow crunch, then paying the money back by altering revenue flows out of other savings accounts.
The willingness to tap savings is a sign of Wyoming’s fiscal woes. In October revenue estimators projected a 23 percent revenue decline through 2017-2018, equal to $1.3 billion less money available for the General Fund and K-12 schools.
As a whole, Mead’s proposal would balance the 2016 budget, and keep General Fund spending relatively flat at $3.5 billion for 2017-2018.
Mead also plans to continue the state employee hiring freeze at least through Jan. 2016, and make another run at Medicaid expansion, which he estimates could increase state revenue by about $10 million per year.
Those points were highlights of the message Mead delivered in a press conference on Tuesday held in conjunction with the release of his budget proposal for 2017-2018. The document sets the stage for the Legislature’s budget session debates that begin Feb. 8, 2016.
“This isn’t our first time as a state that we’ve been in this position,” Mead said, “but we are in a better position than in the past to weather the storm.”
Mead’s budget proposal includes $159 million in cuts for the 2016 biennium. While some may have liked Mead to cut deeper, the Legislature only allows him authority to make enough cuts to balance the budget during interim actions, Mead said.
For this year, that number was $159 million. If lawmakers want to make further cuts, they will have to pass them during the session.
For 2017-2018, Mead also proposes to borrow $488 million from the Rainy Day Fund to pay for the $3.5 billion budget.
However, he says the state should be able to pay that money back by 2018 by redirecting 1 percent of severance tax revenue and investment income that would normally flow into savings.
The cumulative effect, if all goes as planned, could be roughly a $97 million increase in the “rainy day” fund — from $1.8 billion currently to $1.9 billion in 2018 — if lawmakers decide to put the money back into that account.
Alternatively, Mead said the $97 million could be spent to “patch holes” in the budget, such as funding for local governments, which he would favor over growing the “rainy day” fund.
Proposed “rainy day” fund spending
The “rainy day” fund, officially called the Legislative Stabilization Reserve Account (LSRA) has a balance of roughly $1.8 billion. The chart below shows the “rainy day” spending Mead proposed for 2017-2018.
Redirecting severance taxes and investment income
Mead’s proposal for spending “rainy day” fund is his solution to a cash flow problem.
By law, legislators can redirect 1 percent of severance taxes on minerals that normally flow into the Permanent Mineral Trust Fund. But even if lawmakers made that change in the upcoming session, the money wouldn’t be available until the end of the 2018 fiscal year, leaving the General Fund under water for most of the budget cycle.
Additionally, investment income will come in in bits and pieces in 2017 and 2018, without providing a steady stream of revenue. Normally this money would go to the “rainy day” account and the Strategic Projects and Investments Account. Mead’s budget proposes stopping the flow of investment income to the SIPA, and redirecting it to the “rainy day” fund.
A new trend in budgeting investment income?
While he didn’t say it explicitly, Mead’s plan to balance the “rainy day” fund partly with investment income — which is often several hundred million per year — may represent a significant change in budget policy.
Lawmakers have put into law many savings policies for investment income, but they typically refuse to plan on spending investment income until after it materializes. Lawmakers in 2015 took a step down that road in 2015 when they budgeted anticipated 2016 investment income for special projects.
Mead’s “rainy day”-investment income swap seems a further step toward assimilating investment income into budget planning.
Hiring freeze will continue
In October Mead implemented an immediate hiring freeze for all state employees. That effort has saved the state about $15 million so far, and Mead plans to keep the freeze in place at least until January.
That’s when the Consensus Revenue Estimating Group will release another revenue projection, and if the budget picture improves, Mead may call for an end to the hiring freeze.
As it is, all agencies have a process to seek exemptions to the hiring freeze for crucial positions and special situations.
Less funding for towns and counties
While Mead is typically a strong supporter of state aid for towns and counties, he proposed a much smaller amount of funding for counties for 2017-2018 than in the past.
In 2015-2016, the legislature approves more than $175 million in aid to towns and counties. For the upcoming budget cycle Mead only recommended $90 million.
That will be a blow to towns and counties, many of which are seeing a decline in sales tax revenue with decreased energy production, and also a drop in property taxes due to low mineral prices.
“With revenue down significantly, counties are painfully aware of the difficult choices we all face,” said Richard Ladwig, president of the Wyoming County Commissioners Association in a statement. “You can bet that in every county we will be having frank conversations with legislators to ensure they [turn] over every stone to keep Wyoming’s communities strong.”
For more on local government funding, see this article from K2 News.
Another push for Medicaid expansion
Given the state’s fiscal picture, Mead repeated his arguments in favor of Medicaid expansion, which include providing health care access to an estimated 18,000 people, and helping to reduce the level of uncompensated care that hospitals face.
The revenue downturn provides an added reason to expand Medicaid, Mead said. He estimates the Department of Health could save about $10 million by expanding the program, while continuing with the status quo would cost the Department of Health $23 million.
In total, Mead said Medicaid expansion would have about a $34 million positive impact on the General Fund, plus add a significant boost to the state’s health care sector.
“Are we going to forego the hundreds of millions of economic driver that would come with Medicaid expansion?” Mead asked. “We challenged the Affordable Care Act. I was one of the leading proponents. We’ve lost. It’s the law of the land. Now the question is how much are we going to stomp and say, ’We don’t like it,’ as we send money to other states when we are short on revenue.”
Medicaid expansion proponents applauded Mead’s stance. “We thank Governor Mead for his leadership on Medicaid expansion,” said Healthy Wyoming coalition member Jan Cartwright.
Opponents of Medicaid expansion have already made their case in anticipation of Mead’s support. The Wyoming Liberty Group has published several pieces disputing the cost-effectiveness of expanding the program.
Cuts for 2016
Earlier this summer Gov. Mead asked agencies to identify possible cuts for the 2016 fiscal year. Together the agencies and Mead’s staff identified $52 million in cuts.
A partial list of those cuts includes:
- Department of Health: $17 million
- Department of Corrections: $14 million
- University of Wyoming: $5 million
- Department of Insurance: $3 million
- Wyoming Business Council: $3 million
- Community Colleges: $2.4 million
- Department of Education: $1.4 million
- Wyoming Department of Transportation: $1 million
Most of the agency cuts are for 2016 fiscal year only. Many of them will not roll forward into 2017-2018, but that will be decided on a case by case basis, Mead said.
Mead also diverted funds from large accounts to reach the $159 million total needed to balance the budget in 2016:
- $28 million from a suspended transfer to School Foundation Program Account
- $20 million from state facility construction
- $10 million in health insurance carryover
- $10 million through a suspended transfer to the Water III Account
- $8.4 million from Governor’s large business improvement account
- $5 million from data center recruitment
The $20 million diversion in state facilities money will slow down capital construction on the State Hospital in Evanston and the Life Resource Center in Lander. Neither project is ready to break ground at this time, Mead said. His plan is to use this money to balance the budget in 2016, and then replenish the funds for construction in 2017-2018 as needed.
Republican leaders agree with approach
Mead said his approach to balancing the budget and borrowing from the “rainy day” account has been well-received by GOP leaders.
“I met with Republican leadership this morning, and there was embarrassing rousing applause for me, and at least that is my memory of it,” Mead quipped.
Even so, he expects some disagreement with the budget proposal. “Some think we shouldn’t fund local governments, and some think more or less for capital construction,” Mead said. Even so, “The model for how we are funding it is generally accepted.”
Democrats urge diversification
Wyoming Democratic Party director Aimee Van Cleave agreed with Mead’s approach of borrowing “rainy day” fund money, while paying it back with severance taxes and investment income.
However she pointed to the downturn as an opportunity to make structural changes that would reduce Wyoming’s revenue volatility, which is second highest in the nation, according to a study by the Pew Charitable Trust.
“[It] doesn’t have to be this way, and the governor knows it,” Van Cleave said. She advocated continued investment in infrastructure, access to healthcare, and economic diversification including growing the tourism industry.
Lawmakers and Gov. Mead “have an opportunity to fulfill decades of promises to diversify Wyoming’s economy and invest in all of our futures,” Van Cleave said. “The question is whether they will put a short-term band aid on Wyoming’s economy, or tackle the entrenched problems that got us here in the first place.”