Mead adds $156M to spending as lawmakers eye oil prices

By Gregory Nickerson
— December 30, 2014

Amid a drop in oil prices, Wyoming has billions in liquid savings, more than enough to cover a budget proposal Gov. Matt Mead (R) presented to lawmakers earlier this month.

Mead has proposed adding $156 million to state spending for the 2016 fiscal year, which begins June 30, 2015. About $17 million of the request is for ongoing expenditures. The rest would be spent on one-time projects.

The supplemental expenditures are additions to spending approved in the $3.6 billion budget bill passed in the last legislative session for the 2015-2016 biennium.

In a change of custom from previous budget requests, Mead included all money available in various liquid savings accounts in his budget calculations. Mead’s accounting sends a strong message that the state is in good financial shape, and that he aims to count all of the state’s various savings accounts in budget discussions with the legislature. His move for transparency challenges the legislature’s longtime practice of disregarding certain savings accounts as potential sources of spending.

He advised lawmakers and the public to not be alarmed by a negative $4.4 million General Fund balance reported by the Consensus Revenue Estimating Group (CREG) in October.

“That negative $4.4 million is largely irrelevant as we look at building the supplemental budget, because it’s not a lack of revenue, it’s not a lack of available funds,” Mead said.

As WyoFile has reported, the state has a number of policies that grow savings without direct action from the legislature. Over the summer, these policies swept $793 million into savings accounts. The state has nearly $5.9 billion available in the General Fund/Budget Reserve Account and liquid savings accounts, Mead has said.

“In an attempt to be very conservative we have put so much away (in savings) that now we see this $4.4 million dollar deficit,” Mead said.

Rep. Steve Harshman (R-Casper) agrees with Mead that the negative $4.4 million General Fund balance — and a potential $150 million drop in oil revenue — aren’t a complete picture of the state’s finances.

Rep. Steve Harshman (R-Casper) Joint Appropriations Committee co-chairman. (WyoFile/Gregory Nickerson — click to enlarge)

“That doesn’t tell the full story,” said Harshman, who serves as Appropriations Committee co-chairman. “We’ve saved a lot of money in the past year and in prior years.”

“We are optimistic,” Harshman said. “Things go in cycles. It’s a good thing we saved some money, no doubt about it.”

Balancing oil price decline with flush savings

The proposed budget comes at a time when lawmakers are cautiously watching oil prices, which have dropped from $105 dollars per barrel over the summer to $50 dollars per barrel in December, more than a 50 percent decline.

Every $5 drop in the price of oil represents about a $35 million decrease in state revenue, Mead said. That potential revenue loss is split evenly between the General Fund/Budget Reserve accounts that operate state government and the School Foundation Program account that pays for K-12 schools.

“If life continues as it is today, that’s not a doomsday, just a continuation of today’s prices, you can expect a $220 million dollar loss to the General Fund and Budget Reserve for this biennium,” said Don Richards, budget and fiscal manager for the Legislative Service Office.

Every $5 decline in the price of oil leads to a $35 million drop in Wyoming state revenue. The $35 million is split between general government and K-12 education funding. (Legislative Service Office — click to enlarge)

While that may sound like a lot, unanticipated income from investments and other revenue has routinely exceeded that number, and could provide a cushion if markets perform well. Over the past five years, the state received between $150 million and $378 million more than revenue forecasters predicted, Gov. Mead noted.

In addition, the state has $2 billion in its “rainy day” account, the Legislative Stabilization Reserve Account.

About $140 million of that balance comes from reversions — money appropriated to agencies over the past decade but never spent. Funds for this year’s supplemental budget may come from these unspent appropriations, from investments, or from savings.

Big ticket items

The supplemental budget makes specific one-time investments to highways, the University of Wyoming, community colleges, water projects, and a few other large items.

Legislative leaders say they are determined to locate about $12.5 million to fund the completion of the Gillette Madison Pipeline water project, and $37.5 million for renovating the state capitol building — spending items that are not specifically listed in Gov. Mead’s budget proposal. Instead, Mead left it to lawmakers to determine the funding source for those expenditures.

“Those are commitments we’ve made, and they have to be funded,” he said.

Harshman said the two projects remain a priority. “We’ve got the money there, we just have to figure out the vehicle to do it,” he said.

Gov. Mead’s budget includes $156 million in new spending, listed here. About $17 million is for ongoing government spending, while the rest is one-time spending. (click to enlarge)

The largest supplemental request from a single agency came from the University of Wyoming, which asked for $55.25 million. Nearly $51 million of that would be taxpayer funds to match donations for energy research, a high altitude training facility and other programs.

“I was prepared to not look too favorably on that, but when they come to you with matching money in hand it makes you look at them differently,” said Rep. Tim Stubson (R-Casper), who serves on the Joint Appropriations Committee. “I’m not sure there will be enough money to address all of those requests.”

Most of the committee looked favorably on UW’s matching funds requests, Harshman said.

Sen. Eli Bebout (R-Riverton) said he is skeptical of the $195 million price tag for the University of Wyoming Science Initiative, though just $3.75 million of that amount is requested this year. The rest would spread out over future budget cycles.

Mead’s next largest request is $25 million for local governments. “As I travel around and meet with county commissioners and city councilmen, infrastructure is a big issue for them,” Mead said. “If we are talking about opportunities for economic development, the cornerstone of that is good infrastructure.”

Mead has heard from mineral companies who are frustrated by the creation of new special tax districts within counties. The companies question why they should pay for additional county taxes when they have already paid state taxes. They say some counties are forced to impose additional taxes to pay for local needs while the state continues to grow its savings at an “exponential rate,” according to Mead.

The largest infrastructure project on the table is the $21.2 million to add passing lanes to Highway 59, a busy highway between from Douglas to Gillette through the heart of the Powder River Basin oil play. During the past year eight people died in crashes on Highway 59.

Highway 59 between Douglas and Gillette is a major artery for the coal, oil, natural gas, and uranium industries in northeastern Wyoming. The highway is one of the busiest, and deadliest, prompting calls for budgeting a major upgrade. (Dustin Bleizeffer/WyoFile — click to enlarge)

The Wyoming Liberty Group has criticized the plan to add passing lanes to Highway 59, arguing it won’t do as much to prevent accidents as reducing drunk driving and wearing seatbelts. Mead noted that drivers on the road crashed 31 times during the month of October, resulting in one fatality and 14 injuries.

Mead recommended transferring another $18 million from Water Development Account II for a variety of dam and water conservation projects.

The governor also asked for $21.6 million in to fund ongoing operations at a number of agencies.

Smaller amounts Mead recommends include:

  • $6.4 million to close leaky landfills and transfer waste to upgraded facilities.
  • $4.7 million to increase Medicaid reimbursements for nursing homes
  • $2.5 million to correct a 1995 overpayment in the severance tax distribution account
  • $705,000 for a forest health task force
  • $200,000 for a veterans memorial park in Cody
  • $10,000 for the Wyoming Grown initiative to bring Wyoming kids back to the state

Continuing cuts

Wyoming agencies cut an average of  4.4 percent from their budgets in the 2013 session. Several agencies have continued those cuts.

The Governor’s office leads the list, with a 10 percent budget cut for the 2014 fiscal year that was maintained for the 2015 and 2016 fiscal years.

The University of Wyoming, community colleges, and the Wyoming Department of Transportation also maintain their 2014 spending cuts at the same level for the 2015 and 2016 fiscal years.

Other agencies softened the cuts by splitting the average 4.4 percent cut from 2014 over two years, equivalent to a 2.2 percent cut for 2015, and the same for 2016.

Agency requests

The top five agencies in terms of spending are Department of Health, the University of Wyoming, Corrections, community colleges, and the Department of Family Services.

The Department of Health requests a $6 million increase for 2016, a small amount considering the agency’s overall budget of $900 million.

Gov. Mead’s proposed supplemental budget for 2016 would add $156 million in spending to the amount shown here. (Legislative Service Office — click to enlarge)

Community colleges requested no money for operational increases. Instead they seek money for only a few capital construction projects.

The Department of Family Services requests $2.2 million for increasing the number of crisis center beds.

Many agencies did not submit supplemental budget requests for the 2016 fiscal year. These include the Game and Fish Department, which has seen its costs go up due to inflation, increased conservation duties, and the legislature’s refusal to give it authority to raise license fees.

Gov. Mead informed agencies over the summer that he wanted them to request funds only for emergencies that couldn’t be covered by their usual appropriation. Rep. Tim Stubson said he agrees with that philosophy.

“I still am a believer that the supplemental budget needs to be for unanticipated and emergency type things that you wouldn’t anticipate at the time of the budget,” Stubson said. “You did see fairly limited budget requests from the agencies this year.”

“The matching funds (for the University of Wyoming) are certainly not an emergency,” Stubson said. “They make the argument that they didn’t have the commitments for matching funds a year ago when we did the budget, so the time to match those commitments is now. I can understand the argument, but in the context of limited funds we are probably going to have to pick and choose some priorities.”

Big picture: The actual budget

The $156 million in supplemental funding is a small amount of money compared to the state’s overall $8.66 billion budget for 2015-2016. That spending comes in four parts:

Mead points out that the $17 million increase to ongoing appropriations is a 0.5 percent increase to the General Fund budget of $3.5 billion.

The total supplemental request of $156 million is a 4.4 percent increase to General Fund spending, or a 1.56 percent increase to the overall $8.66 billion budget.

“There is a real focus on limiting to the growth of ongoing expenditures,” Harshman said. “So these one time investments to help grow the state …. those are looked on favorably.”

In the past lawmakers have considered increases in one-time funding at the same time as they make cuts. Lawmakers considered ongoing budget cuts of 4.4 percent in the 2013 session as they debated spending about $138 million more in one-time funds for special projects.

The bigger picture: Tax exporting

Whatever the supplemental budget ends up costing, it’s certain that individual Wyoming residents will pay for a only a fraction of the spending.

On a per capita basis, Wyoming’s 580,000 residents get about $14,931 in government services. According to numbers from the non-partisan Tax Foundation, Wyoming residents pay about $2,175 in property taxes per capita, and about $6,600 in total taxes per capita.

In other words, state residents get thousands of dollars in services that they don’t directly pay for. Wyoming is able to keep taxes low because it derives revenues from people and entities from other states. The practice has been referred to as “tax exporting.”

Two of Wyoming’s important revenue streams are mineral severance taxes and federal mineral royalties on energy production. Energy production companies pass these taxes on to consumers and taxpayers in other states who buy Wyoming coal, oil, and natural gas.

Incoming appropriations committee

The leadership of the Joint appropriations Committee will change in the upcoming session, with co-chair Sen. Eli Bebout (R-Riverton) moving off. He will be replaced by Sen. Tony Ross (R-Cheyenne), the outgoing Senate president.

Chair Sen. Tony Ross (R-Cheyenne)
Vice Chair Sen. Drew Perkins (R-Casper)
Sen. Bruce Burns (R-Big Horn)*
Sen. Jeff Wasserburger (R-Gillette)*
Sen. John Hastert (D-Green River)

Chair Rep. Steve Harshman (R-Casper)
Rep. Glenn Moniz (R-Laramie)
Rep. Tim Stubson (R-Casper)
Rep. Bob Nicholas (R-Cheyenne)
Rep. Don Burkhart (R-Rawlins)
Rep. Mike Greear (R-Worland)*
Rep.  Cathy Connolly (D-Laramie)*
* New members

RESOURCES:

2015 Budget Fiscal Data Book

Wyoming State Budget 2015-2016 Supplemental

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

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Gregory Nickerson

Gregory Nickerson worked as government and policy reporter for WyoFile from 2012-2015. He studied history at the University of Wyoming. Follow Greg on Twitter at @GregNickersonWY and on www.facebook.com/GregoryNickersonWriter/

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