Lawmakers prep ‘A budget like you’ve never seen before’

Wyoming lawmakers plan to use leftover funds and reach into short-term savings to cover a six percent deficit for the 2016 budget. They will rely on projected investment earnings to pay for special projects for the next two years. All of that money comes from state sources.

At the same time, they have turned down a projected $265 million in federal funds for Medicaid expansion for 2016-2018, on top of approximately $226 million for 2014-2015.

Both chambers of the Wyoming Legislature gave initial approval to the 2016 supplemental budget bill Thursday. That sets the stage for two more rounds of debate where lawmakers will amend the budget.

The Joint Appropriations Committee started out budget negotiations with a projected deficit of $222 million for 2016. They quickly resolved the deficit with unspent agency funds (reversions) and money previously set aside for the Strategic Investments and Projects Account and the “rainy day” account.

As it stands now, the Joint Appropriations Committee proposes just $8 million in new General Fund spending for 2016. That’s a relatively small addition to the roughly $3.5 billion already appropriated for general government operations in 2015-2016.

However, the JAC also created a $278 million wish list of projects it would like to fund. The projects won’t go forward unless the state’s Permanent Mineral Trust Fund generates enough investment income to do so.

“This is a budget like you’ve never seen before,” Senate JAC Chairman Tony Ross (R-Cheyenne) said. “Nobody has seen a budget like this where we have gone out and tried to say, ‘If we get this money, this is what we are going to do.’”

The 2015 priority list consists of 31 separate projects for a total of $112.6 million. The 2016 list has 16 projects for a total of $165.9 million.

Big-ticket items for 2015 include $37.5 million for renovating the State Capitol. Also on the list is $40 million in matching funds for the University of Wyoming. That money would be split equally between oil and gas research and a high altitude athletic training center.

Big items for 2016 include another $37.5 million for the State Capitol, and $30 million for the University of Wyoming Science Initiative. (See pages 122-139 of the budget bill for details.)

“It is our feeling that when the economy is down, we need to keep Wyoming’s economy moving forward,” Ross said. “These are all one-time monies, we want to use them for one-time projects.”

House JAC Chairman Steve Harshman (R-Casper) agreed that the state should keep investing in one-time projects despite a downturn in state mineral revenue.

“We are going to continue to invest in our state and our people and our institutions,” Harshman said. “I don’t think anyone wants to say it is the 1990s again, and we are putting up the ‘closed for business’ sign and we’re only going to shrink down and protect state workers jobs.”

For House Minority Floor Leader Mary Throne (D-Cheyenne), the list of special projects represents an improvement in spending policy. That’s because they rely on investment income that the state is quite likely to receive, but which lawmakers had previously been unwilling to factor into budget planning.

“(This is) the first time that we’ve been at least a little more straightforward with the income of the Permanent Mineral Trust Fund,” Throne said. “That’s real money to the State of Wyoming that is regular and predictable, and we always pretend like it is not and then we stuff it into the LSRA (“rainy day” account.)”

The Senate and the House will each have two rounds of debate and amendments on separate versions of the budget bill next week. As of Thursday afternoon, the House had filed 43 amendments to the budget, while the Senate had 34.

After the two rounds of debate, a conference committee will meet to draft a compromise between the House and Senate versions of the budget bill.

Is the deficit real?

For some, the $222 million projected deficit was a matter of perception, and the result of the state’s fiscal policy. Over the summer, Wyoming put away $793 million by sweeping balances from temporary savings accounts into permanent savings.

State revenue estimators projected in October that the state would have about a $4 million deficit in its General Fund. When oil prices dropped as winter set in, revenue estimators revised their projections downward to show a $222 million deficit for 2016.

“There are people out there claiming that we are deficit-spending at this point, and we are not,” Rep. Charles Pelkey (D-Laramie) said. “I’d like to get a better picture of our revenue side instead of playing games with that, and making people believe we don’t have the resources to invest in the state.”

However, House JAC Chairman Harshman said the deficit is real. It stems in part from a cash-flow problem. Under the 2014 budget bill the state wouldn’t have enough revenue coming in by June 30, 2015, to pay for 2016 spending.

“We would be in a deficit just because of timing,” Harshman said. “Those capital gains (on state investments) would not arrive in time. It’s at the end of the fiscal year, and it takes time for it to be accounted for, so there’s definitely a budget hole.”

To fill in the projected deficit, the JAC intercepted $184 million that would have been swept into the Legislative Stabilization Reserve Account, also known as the “rainy day” account. That means the account will hold $1.8 billion in emergency funds on June 30, 2015, instead of the $2 billion originally projected.

“Quite frankly, we didn’t have a choice but to intercept those sweeps,” Ross said. “We had to, because we had a $222 million dollar hole that we had to fill first before we could do anything else. So that’s what we’ve done.”

Differences from the governor’s recommendations

In December, the Gov. Matt Mead (R) recommended that the state provide $25 million in additional funds for local governments. That was on top of $175 million that went to cities, towns, and counties in the 2014 budget bill.

The JAC rejected that recommendation, but Ross expects that denial to be debated on the Senate floor. “What may happen on the floor is a whole different ball game,” he said.

The JAC also rejected Gov. Mead’s proposal for $8.5 million to increase K-12 teacher salaries. The proposal would have restored Mead’s original salary increase for teachers, which lawmakers shot down in the 2014 budget session.

By Thursday afternoon, Rep. Albert Sommers (R-Pinedale) had already introduced an amendment to restore the pay increase for teachers.

“I think we’ll probably get that back,” Throne said. “There seems to be a big push for it.”

As lawmakers consider the budget, some remain frustrated that the state turned down $53.9 million in federal funding for 2016 when the Senate voted down Gov. Mead’s plan for Medicaid expansion. The action also turns down $213.2 million in Medicaid funding for 2017-2018.

“My biggest disappointment at this point didn’t have anything to do with the JAC, and that was Medicaid expansion; I am just floored by that,” Pelkey said. “It’s a financial disappointment. In a sense it’s a moral disappointment. We have a commitment to make sure people are taken care of.”

“That would have returned a significant amount of money to the state to help offset the costs of providing medical care to those people, and we are just kissing that money off,” he said.

Is UW getting too much?

One comment heard during floor debate was that the University of Wyoming has a quite a few major projects on the 2015 and 2016 priority lists. If the state has money to fund all of UW’s 2015 proposals, the college would receive $46.5 million in matching funds and about $9.7 million in appropriations. The money would be spread out over 12 projects.

If investment income is sufficient to fund the entire 2016 list, UW would receive another $39.8 million in appropriations for four projects.

Harshman advised critics to take the long view, and remember that community colleges received a significant amount of funding for various projects in the 2014 session.

“When some folks like to say we have done more for (one part of government) than another, the real message is we’ve done a lot over the last 10 years,” Harshman said. “I think the whole state has benefitted.”

After 2016?

The budget measures being debated will provide sufficient funds to cover Wyoming’s 2016 budget. However, the downturn in oil prices could make it necessary to cut the budget in 2017-2018, state budget leaders say.

“In the next cycle, you’ll probably look at operating budgets that will shrink,” Harshman said. Spending that isn’t mandated by the constitution — local government aid and community colleges, for example — could decline, he said.

In part, that’s because the state won’t have reversions — or unspent appropriations — that could help bail out the 2016 budget to the tune of $174 million. These reversions have accrued over more than a decade, and can only flow back to the General Fund once.

“Depending on how our economy goes, oil, coal, mineral resources, we are pretty much a one-trick pony when it comes to how we get our revenues to fund our budget,” Ross said.

This year’s budget supplemental bill aims to partially prepare for a downturn in 2017 by storing additional funds for operating K-12 schools.

Specifically, the budget raises a cap on the Permanent Land Fund Holding Account from $475 million to $600 million. That has the effect of keeping $125 million more in liquid cash that could be spent on K-12 school operations.

Details on how the budget hole got filled

Gov. Matt Mead sent a letter to the JAC identifying potential sources of revenue to ease the deficit. The JAC adopted most of the suggestions, with a few additions, in a meeting on January 21.

The JAC covered the projected 2016 deficit with $240 million in available cash:

• $140 million in reversions (pre-2013 funds that agencies did not spend)
• $34 million in 2013-2014 reversions
• $21 million from the Strategic Projects and Investments Account
• $44 million in funds that would have flowed to the LSRA “rainy day” account

Next, the JAC set aside $116 million in investment income for 2015 special projects:

• $76.4 million from the Permanent Mineral Trust Fund realized earnings
• $40 million in funds that would flow to SIPA under the 2014 budget bill

The 2015 earnings, while realized today, could diminish if the state has investment losses before the fiscal year end on June 30.

The JAC set aside $173 million in potential investment gains for the 2016 special projects. These investment gains aren’t realized, but are calculated based on the Spending Policy Amount. (That amount equals a 5 percent return on the Permanent Mineral Trust Fund balance averaged over the past five years.)