Wyoming budget debate kicks off at $4 million in the red

The Wyoming legislature introduced its budget bill to both chambers of the Capitol yesterday, setting off five days of debate over the 2015-2016 budget. Of the roughly $8 billion in proposed spending, about $2 billion would go to K-12 schools, while $3.54 billion is proposed for the General Fund.

As the debate over the budget begins, lawmakers have already put forward legislation to spend all of the $209 million available to them following Gov. Matt Mead’s November budget proposal. If both houses pass all of these bills, Wyoming would have a negative General Fund balance. The amount could be as much as minus-$4 million, but the number is subject to change according to votes taken throughout the session. Since Wyoming’s constitution requires a balanced budget, lawmakers will have to prioritize spending to get back in the black.

This week’s budget debate will result in 70 to 90 amendments made to the budget bill, aiming to balance the budget bill by this Friday. Some of those amendments will cut spending, while others will try to add in items that were previously struck out of the budget bill. Next week the House and Senate will reconcile their amended versions in a conference committee. The resulting legislation will need approval from each chamber before heading to Gov. Mead’s desk at the end of the session.

“It’s like one bank account and you have two or three people writing checks out of it,” said Sen. Drew Perkins (R-Casper) “At the end of the day you have to make sure it all balances.”

Overshooting projections

Here’s the brief story of how lawmakers got to that minus-$4 million figure: In December Gov. Mead released his General Fund budget proposal of $3.33 billion. He based it on projections that said the state would have $3.54 billion in General Fund revenues in 2015-2016. That left a little more than $209 million “on the table” for lawmakers to discuss spending or saving. The Joint Appropriations Committee then drafted a budget that legislators added to until it exceeded the projected revenue.

The key point about the negative cash available is that it flows largely from the budget bill drafted by the Joint Appropriations Committee in January. In particular, the committee proposed transferring about $154 million out of the General Fund to other accounts.

The proposed transfers included:

• $70 million for the creation of a new School Foundation Reserve Account
• $41 million transferred back to water development accounts that were drawn down in past sessions
• $37.5 million for renovation of the State Capitol and the Herschler Building
• $5 million for a permanent fund to support fish hatcheries
• (These transfers are listed on page 109 of the budget bill)

The Joint Appropriations Committee wants to put $70 million in the new School Foundation Reserve Account to hedge against the impending loss of Coal Lease Bonus revenue. During the last two years, auctions of federal coal parcels have resulted in no new leases. By 2018, state projections suggest Wyoming will receive no Coal Lease Bonus money, which funds about 25 percent of Wyoming’s K-12 education system.

“No one can deny what’s coming with coal lease bonus (revenue),” said Joint Appropriations co-chair Rep. Steve Harshman (R-Casper). “Unless we can somehow export our coal to Asia … we’ve got to start planning for that. What’s the other option? Raise taxes?”

New spending bills

The second step to outspending the money Mead left on the table fell to the Legislature. As of last Friday morning, lawmakers had passed a number of bills through first reading that had significant appropriations attached. These appropriations total about $66 million in spending not profiled in the budget bill. The addition of this number to the JAC’s $154 million in transfers exceeds the $209 million in cash Mead left on the table.

A partial list of the legislature’s spending bills include:

• $31.4 million to cover shortfalls in the Fireman A pension account (House Bill 51)
• $18.3 million to fund the legislature (Senate File 11)
• $10 million for courthouse security (Senate File 14)
• $6.5 million for state employee pension contributions (House Bill 46)
• For text of the bills, see the 2014 bill index.

Last Friday afternoon the Senate also introduced Senate File 97, which would appropriate $24.4 million from the General Fund to the Wyoming Business Council. The money would be used to expand the “Cody Labs,” an opiate drug manufacturing facility in Park County owned by Lannet Corporation. For more on that topic, read this article by the Casper Star-Tribune, or this article by the Cody Enterprise.

In other action Friday afternoon the Senate voted to introduce Senate File 45, which would send $14 million in General Funds to the Game & Fish Department. The money would go to grizzly bear management, while also covering the cost of health insurance for Game & Fish Employees.

Senate File 97 and Senate File 45 will not be added to the legislature’s tally of proposed expenditures until they pass Senate committee and first reading on the Senate Floor.

Striking the balance

Lawmakers will have a number of options for balancing the budget this week. They could reduce the transfers proposed by the JAC, or eliminate spending bills. They could also reduce one-time construction recommended by the JAC. The alternatives will be debated on Wednesday when the budget bill goes through second reading, and on the third and final reading Friday.

“We are either going to take some back from savings, or sweep something somewhere, but no one is leaving here with the budget under water,” Rep. Harshman said.

One option to help balance the budget would be to make more appropriations effective immediately. That would shift spending to money left over from the 2013-2014 biennium. However, such spending would eat into the $32 million the JAC wanted to transfer in to the “rainy day” account, properly known as the Legislative Stabilization Reserve Account.

Of the General Fund transfers proposed by the JAC, the $70 million for the School Foundation Reserve Account is likely to survive. Legislative leadership sees the fund as a vital way to keep school capital construction underway even with the suspected loss of Coal Lease Bonuses. JAC co-chair Sen. Eli Bebout (R-Riverton) noted that the School Facilities Commission currently has more than $1 billion in school projects approved for construction, with another $299 million proposed in this year’s budget.

“The savings for schools is the last place I’d want to pull funds from,” Harshman said.

Similarly, the $37.5 million for renovating the Capitol has a good chance of survival. The legislature started setting aside money for renovating the Capitol 10 years ago, and this year’s General Fund appropriation would help kick-off the $239 million project. That momentum, plus the fact that Senate president Tony Ross (R-Cheyenne) champions the project, makes it unlikely to be cut from the budget.

Harshman said that the $41 million in transfers to water development accounts could be delayed. The legislature transferred the money to the General Fund in past sessions, and could put the repayment off for a future session.

Looking at the bills with appropriations attached, Harshman expects significant debate over the $31.4 million Fireman A pension bill, and the $10 million in court security funding. Similarly, the Game & Fish insurance bill for $14 million and the $24.4 million Cody labs appropriations could be adjusted or eliminated.

JAC member Sen. Drew Perkins (R-Casper) told WyoFile that the legislature could also balance the budget bill by cutting spending on capitol construction projects. The JAC budget approved some $22 million in construction money for community colleges above the projects recommended by Gov. Mead.

Yet another option for balancing the budget would be to take money from the “rainy day” account, which has a balance of $1.7 billion. However that is very unlikely to occur because the Republican majority in the legislature that wants to see the fund keep growing.

“It could come out of rainy day account, but that would be a tragedy when you have $209 million on the table,” said Sen. Perkins. “When you have $209 million after the governor develops his budget and we are dipping into the rainy day account, something is wrong.”

A secondary issue that may play a role in the budget debates is how much money to save for the supplemental budget session in 2015. Current proposals wouldn’t leave much for lawmakers to spend on unexpected needs that may arise.

“I’d like to see us have some money to go forward to the (2015) supplemental budget session,” said Sen. Bebout. “I’d hate to have that be zero.”

“Hidden” savings

While some lawmakers say that Wyoming’s proposed budget is in the “red” based on current appropriations, others say that is merely a perception that doesn’t fully account for the money the state has available. “The sky is not falling. It didn’t fall last year or the year before,” said Sen. Chris Rothfuss (D-Laramie). He observed that a substantial amount of funding flows into permanent savings before it shows up on the balance sheet for the General Fund.

“Step one is take a lot of money off the table by diverting it to savings accounts and coffee cans, and then when we look at the (fiscal profile), it looks like we don’t have any money to spend,” Rothfuss said.

At present the legislature diverts about $150 million each year from the General Fund to the Permanent Mineral Trust Fund. Chapter 80 of the 2005 session law put that policy in place. It went into effect in fiscal year 2006.

From Rothfuss’ point of view, the statutory diversion of severance tax to savings could be seen as an appropriation. The fact that the diversion is enshrined in state law makes savings a kind of institutionalized priority, and one that isn’t debated on a yearly basis.

The actual debate on this year’s budget won’t turn on savings policy for the permanent fund or the “rainy day” account. “The real battle is between the governor’s recommendation and the JAC recommendation,” Rothfuss said. “There will be some noise outside of that range, but I expect the bulk of the discussion to be where to set the point within that range, and I’d expect that from both chambers.”

2014 Budget Bill as introduced