Planning for Wyoming’s future
Guest Column
by Wyoming State Senator Eli Bebout and State Representative Steve Harshman
— February 18, 2014
President Dwight D. Eisenhower once said, “Plans are nothing; planning is everything.” It’s one thing to talk about making plans for the future, it’s another to take the necessary actions to plan ahead for the things you can predict and, more importantly, the things you cannot.
Fortunately, Wyoming has done just that and, as a result, we have come through rocky fiscal times ahead of the curve.
And it is no accident.
The Wyoming State Legislature worked hard to control the growth of government over the last four years while developing reserves required to maintain services. Their sound judgment has allowed us to stave off severe budget cuts and laid the foundation for smart budgeting that strikes a balance between saving, investing and spending.
It’s through this lens we developed the Fiscal Year 2015/2016 biennial budget that prioritizes Wyoming needs and invests in Wyoming’s people, jobs, communities, responsible mineral development and education. The bill appropriates $3.32 billion of general funds, approximately the same as the previous biennium. The budget does more with less, decreasing the size of government while making focused investments in Wyoming’s infrastructure that create jobs and maintain a high quality of life throughout our communities.
Most importantly, this budget plans for the future. In Wyoming, approximately 75 percent of our budget is derived from mineral production which is subject to world markets, weather and the regulatory whims of Washington D.C. Future dips in revenue are not a possibility, they’re a given. The war on coal is being waged right here in Wyoming’s backyard. The overreach of the Environmental Protection Agency (EPA) has already had detrimental impacts on energy production in Wyoming, and things only stand to get worse.
Wyoming’s private sector bears the brunt of these changing dynamics. Energy producers must frequently acclimate to regulatory and market variations that alter their business models and plans for the future. It is because of their innovation and adaptability that Wyoming has the revenues to fund this budget cycle. The challenge we face is planning today for the next decade. What should we spend and what should we save? Responsible saving has served us well and we need to continue this practice going forward.
To protect against anticipated revenue fluctuations, Wyoming established the Legislative Stabilization Reserve Account (LSRA), commonly referred to as the “rainy day fund,” and the people of Wyoming voted to create the Permanent Wyoming Mineral Trust Fund (PWMTF) as part of the Wyoming Constitution in 1974. The PWMTF was established with the goal of setting aside a portion from the extraction of minerals (severance tax) so we could sustain our way of life and keep taxes low when the minerals are gone. Further amendments to our Constitution and statutes have allowed up to 55 percent of the fund to be invested in equities. An additional 1 percent of the severance tax was designated to the fund in 2005. Currently we save just over one-third of the severance tax in the PWMTF. We spend the other two-thirds every year to provide services.
In Fiscal Year 2003, the PWMTF produced $59 million in investment income for the state. Last year, it produced more than $366 million. It is through careful planning and discipline that we were able to double the size of the fund between 2002 and 2010. By continuing to save just one-third of the severance tax we can double it again to $8 billion by 2018. Additionally, the budget directs $33 million to the LSRA at the end of the 2013/2014 budget cycle.
Wyoming currently has $17 billion managed by the State Treasurer’s Office, including these constitutionally protected funds (of which we can only spend the interest):
- $6.5 billion in the PWMTF
- $3 billion in the Permanent Land Fund (created when Wyoming became a State)
- $1.6 billion in the Workers Compensation Fund
- $557 million in the Hathaway Scholarship Fund
- $119 million in the Excellence in Higher Education Fund
Combined, these funds are on pace to generate nearly $1 billion in returns in this biennium to help fund the government. This is a tremendous hedge against an income tax or increased property taxes like most other states have. These investment returns are literally saving our budget.
The Wyoming Legislature has worked hard and made tough budget decisions to protect future generations. We must continue to set good fiscal policy for future leaders and not saddle our children with a legacy of debt and overspending. Through prudent budgeting and disciplined planning Wyoming can make significant investments in our people, our infrastructure, our children and our future.
— Senator Eli Bebout and Representative Steve Harshman are co-chairs of the Joint Appropriations Committee.
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I do believe saving a certain amount of our money is a good thing, but there is an old saying, “Any value pushed to its ultimate extreme, is bound to eventually conflict with another value you hold dear.” My worry is increased during some of the debates I have seen; where we seem to be putting off the critical state investments which may have paid us greater dividends than the little bit we are putting into savings. Or at least by recognizing the need it would have us making the payment earlier when we do not have to eventually build the needed systems when it costs us three time more than it would have cost if we had recognized to need immediately. It is very easy to sit on the outside and criticize the hard work of other where we never have to be accountable for our decisions in the public eye, but I hope we are always looking to the “long view” not simply the immediate concern. My father was one who constantly put as much as he could in savings, but when a crisis hit, his money was not enough to carry him through the problem. He never recognized that when he had to spend his savings it was worth not even half of the value it was when he put it away. My mother tried to get him to invest into certain ventures which would have, paid huge dividend in hindsight, but he simply could not see past his savings mentality. It is hard to know what might have happened if we had a clear plan of where we want to be and we invested in that plan versus the save at all cost process we seem to be in today. This may work out fine, but I have a feeling of ‘deja vu’ all over again.”
As a Democrat—the Party that walks the walk in Washington while the other party, while in power, talked the talk but took us ever deeper into deficit and debt—I greatly favor fiscal discipline and am proud that Wyoming has practiced real fiscal discipline. We should certainly not be spending more than we take in.
Yet I’m a bit concerned that Wyoming may be going overboard with squirreling money away. We are way too dependent on the energy industries, for all they do for our state and its workers. We need other kinds of jobs and other sources of government revenue.
More subtly, is it actually a good thing that mineral extraction money makes our government less and less dependent on the consent of the governed, more and more dependent on a few industries? I doubt that.
I wouldn’t expect any less than a gushing, self-congratulatory column from these two. After all, what motivation is there to give themselves anything less than a standing ovation for their work?
Their analysis leaves out a few obvious points. First, if the problem they’re trying to solve is that 75% of the state’s revenue is derived from mineral extraction, why have they chosen to squirrel money away in a trust fund rather than invest in diversification of the state’s economy? How do we know that the investment strategy they’ve pursued is better than those they did not?
While $366 million makes for a very nice revenue stream, we need to see this income against two factors that these lawmakers conveniently leave out of their analysis. First, there is the opportunity cost. Can we compare the $366 million to a fictional portfolio of investments in the state of Wyoming that may have helped diversify the state’s economy and produced revenue from other streams? We could certainly look to Montana and Idaho (and plenty of other states) for examples of how investment in infrastructure has led to a more diversified tax base. Second, could we compare the $366 million in revenue against the performance of other funds, managed elsewhere? This is difficult, because a significant chunk of Wyoming’s money has been invested in private equity funds that are not legally required to disclose fees or returns. In order to know the effective rate of return, we have to be able to know both the performance of the specific funds and the costs of managing Wyoming’s money.
Without looking at opportunity cost or being able to compare the effective rate of return on Wyoming’s Permanent Mineral Trust Fund with other investment strategies, it’s very difficult to know whether these two deserve the standing ovation they’ve given themselves here. I think Wyoming deserves to know the answer to these questions.
“The war on coal is being waged right here in Wyoming’s backyard.” It’s not a war on coal. It is a reality check to protect our air and water. Can’t have a viable economy with out it.
“The PWMTF was established with the goal of setting aside a portion from the extraction of minerals (severance tax) so we could sustain our way of life and keep taxes low when the minerals are gone.”
All the more reason to create a renewable energy policy and energy efficiency program for all of Wyoming. We have other valuable resources which are infinite, that can help Wyoming have a healthy energy portfolio.