On the heels of a statewide hiring freeze, University of Wyoming professor and state legislator Rep. Cathy Connolly (D-Laramie) said Wyoming has literally saved its way into the current deficit.
In Connolly’s telling, Wyoming has $1.8 billion in its rainy day account, and nearly $350 million in investment returns came in over the summer. That’s all backed up by state fiscal documents. Yet because of Wyoming’s savings laws, none of that money was immediately available to alleviate a $159 million projected deficit for 2016. As a result, Gov. Matt Mead (R) last month implemented an immediate hiring freeze for all state employees.
“The legislature’s savings policies have created the crisis for the current fiscal year, and the public is being forced to tighten its belt as our statutes direct that savings accounts be filled,” Connolly wrote in a recent letter to the Casper Star-Tribune.
At the University of Wyoming in Laramie, campus bus driver Ed Clark says he’s unclear how the freeze will affect the unit he works for. When a driver recently quit her job, the change left the system one bus short, disrupting service and bringing complaints from bus riders.
“We drivers are just as much in the dark as our passengers,” Clark said of the hiring freeze and how the university will respond.
For Connolly, the deficit that necessitated the hiring freeze is the result of lawmakers socking money away in savings. Now, as mineral prices decline, lawmakers have made it difficult to access budget lifelines to ease immediate cashflow problems. Rather than spend “rainy day” funds, some lawmakers would rather continue making deposits into savings accounts while freezing hiring and making cuts.
The hiring freeze may save $16 million to $18 million in 2016, according to Mead’s spokesman David Bush. That’s a little more than 10 percent of the $159 million projected shortfall.
From Connolly’s perspective, Wyoming’s increased revenue from investments more than made up for the downturn in mineral revenue to the state. If the savings policies weren’t in place, Connolly argued, Wyoming would have had $3.8 billion in revenue to work with, more than enough to cover the $3.6 billion budget.
Specifically, Wyoming posted nearly $350 million in investment income in early July. All of that money briefly went into the General Fund, but then $210 million was quickly transferred into savings according to formulas set by state law. The end was result was an October balance sheet showing a $159 million deficit for the 2016 General Fund budget.
The current downturn and hiring freeze begs the question of how to balance current state needs with future savings, Connolly argues.
Should the state continue to make deposits into savings today to avoid short-term deficits in the future, or should it dip into savings now to avoid a hiring freeze and agency budget cuts?
Public debate of such questions is already heating up as the Joint Appropriations Committee prepares to meet for four weeks in December and January to draft a budget bill. The full Legislature will meet for a month beginning Monday, Feb. 8.
Effect of the hiring freeze
Meantime, agencies are just beginning to feel the effects of the hiring freeze. At UW — which experiences continual turnover of faculty and staff — the freeze interrupts hiring processes at a critical time of year when academics go on the job market for positions that begin in fall 2016. Searches are ongoing, but departments can’t be certain that they’ll be able to offer jobs to finalists.
The freeze has also created challenges for day-to-day operations, where the departure of a key person — like a staff accountant — can create problems in tracking millions of dollars in grant money for dozens of faculty members.
At the same time, the freeze is not a blanket policy. The university has the authority to make exceptions for new hires that are vital to departments or the university as a whole. For example, the search for the next university president — who will likely be paid more than $300,000 — continues unabated.
But exemptions to the hiring freeze for academic faculty are rare, so far. Out of 144 vacant faculty positions, only about 10 percent have been granted exceptions from the hiring freeze. Hiring exceptions are more likely in areas that are not as reliant on state funds. Post-doctoral research positions, which are generally funded by grants, will likely be easier to approve.
Critical staff such as janitors, bus drivers, and grounds keepers will likely continue to be hired. That’s partly in recognition that janitorial staff numbers have remained flat for years, even as the campus has added many new buildings, and plans to add a total 1 million new square feet in buildings by 2018.
David Jones, vice president for UW Academic Affairs, says the real impact of the freeze will likely hit in January or February, when searches end and the university may be unable to commit funds to make the new hires.
The hiring freeze also affects the Department of Health, which like UW is reviewing vacancies and seeking exemptions for critical hires. With 1,250 employees, the department is the largest state government agency. At present, the department has 218 vacancies, which is on the high end of turnover for state agencies.
“Clearly, as the hiring freeze situation continues we would expect to see more impact on vacancy and recruitment numbers,” said agency spokeswoman Kim Deti.
While UW has discretion to approve exceptions to the hiring freeze, general government agencies like the Department of Health don’t have that power. Instead they must get approval from the human resources division in the Department of Administration and Information.
Deti said the Department of Health is determined to continue taking care of patients, particularly at state-run health facilities in Evanston, Lander, and elsewhere.
In the context of a $5.7 billion biennium budget for General Fund and K-12 schools, the $16 million to $18 million that will be saved by the hiring freeze is not a major portion of the state budget. Similar amounts are routinely spent on one-time projects. For example, Wyoming spent $20 million in matching funds for UW’s proposed High Altitude Training Center, and $15 million in matching funds for unconventional oil and gas research during the 2015 legislative session.
Despite a shortage of funds during the 2015 session, lawmakers found $113 million for those matching funds and other special projects by diverting anticipated investment income that otherwise would have flowed to the “rainy day” fund.
The rationale for savings
Lawmakers have hard-wired savings into Wyoming’s budget because of the state’s experience with revenue volatility. Such discipline in savings, the argument goes, will help Wyoming through long periods of depressed revenue due to commodity cycles.
Wyoming’s savings could help the state prepare for a time when mineral resources and the revenue they generate are diminished by cost of development and changing markets. Given that coal, oil and gas production won’t go on forever at current levels, lawmakers have set aside as much revenue as possible as a permanent trust to benefit future generations.
Savings can also help restrain overspending in boom times. Despite its proclivity for savings, the Wyoming Legislature also tends to spend more when the state’s mineral-based economy flourishes. In the mid-2000s, Wyoming had billions in new revenue due to high natural gas prices and production. The state budget doubled as lawmakers expanded agency spending and hired more than 1,000 new state employees.
By taking some of that money off the table through automatic savings deposits — or “sweeps” made each July when the Legislature is not in session — lawmakers were able to avoid unabated growth of government.
“The (automatic savings) sweeps are the result of a little more deep thinking that represents a more measured use of that money,” said Rep. Kermit Brown (R-Laramie), in a December 2014 interview with WyoFile. “I think you get a different discipline when you talk about it in the abstract than, ‘Gee, some money came in, what are we going to do with it?’ That’s what I call impulse spending as opposed to a measured, disciplined fiscal policy.”
At least on the Joint Appropriations Committee, the majority seems determined to stay the course on savings. A straw poll during a recent meeting showed only four members out of 12 supported drafting legislation to examine state savings policies before the committee’s next meetings in December.
Rep. Mike Greear (R-Worland) suggested it would be best to hold off reconsideration of savings policies until Gov. Mead proposes his supplemental budget at the beginning of December.
Options for changing savings policies
There are several ways Wyoming’s savings policy could be tweaked to keep more money readily available to address deficits. One of the options would include increasing the percentage of investment income that can go to the General Fund each year. Currently that amount is capped at 5 percent of the five year rolling average of the Permanent Mineral Trust Fund, but it could be 7 percent or some other number.
However, that’s not likely to happen. In 2015 lawmakers passed a bill to decrease the percentage of investment earnings that goes to the General Fund, in favor of putting more into the “rainy day” account and the Strategic Investments and Projects Account. Senate President Phil Nicholas (R-Laramie) sponsored the bill.
Another option would be to delay sweeps of savings accounts into permanent funds until after a legislative session, or at the end of the biennium, giving lawmakers a chance to spend the money. Currently the “sweeps” are made in July, shortly after the beginning of the fiscal year, when the Legislature is not in session. Lawmakers have changed the timing of these sweeps in the past.
Still another option would be to appropriate out of the Permanent Mineral Trust Fund Reserve Account, a short-term holding account where investment income sits before being transferred into permanent savings.
Such solutions may or may not be debated by the Joint Appropriations Committee when it meets in December.
Meanwhile, back in Laramie, UW bus driver Ed Clark said he hopes the hiring freeze won’t create prolonged problems. It may take time for UW administration to exempt bus driver positions from the freeze, but administrators in Old Main said drivers and maintenance staff positions are too crucial to remain unfilled for long.
“We just hope this doesn’t affect the students,” Clark said.
I have a hard time sympathizing with the transit department or its employees at UW, sorry. They spend thousands upon thousands upon thousands of dollars on a free “mass transit” system, including buses, SafeRide (also open to the public), and Night Owl Taxi…not to mention willingly taking over the Grand Avenue bus route (formerly Gen City Grand; open to the public as well)….in a small town of 30,000 people that also has a private transit sector (that can just as easily take over ridership, provide jobs, and…..unlike UW transit….create sales tax revenue).
As the owner of the lone remaining taxi company in Laramie, I’ve had to downsize my force, cut my hours of availability, fire people, and jack up my prices…to compete with UW’s need to spend asinine amounts of money during slower economic times. This is just one example of how UW puts itself, and the local economy, in a hole….by conscious choice.
UW could easily save a bunch of money AND help the local economy by cutting back or eliminating auxiliary services such as Night Owl, LaramieLink, and even SafeRide. These programs were created when there was very little demand for private transit and therefore no other options. Now that the options are there (my company has been here for 6 years; it isn’t going anywhere), UW needs to reevaluate how much emphasis it puts into highly inefficient services.
More spending doesn’t mean a more diversified economy (unless you consider investing more in the black hole of government diversification), it simply means more waste. My point is (completely different treasurer’s BTW) that if the democrats from 10 years ago would have had their way, we would have an even higher deficit, we would have wasted even more money on a school system that simply doesn’t give good returns, most of the kids in the surrounding states get a higher quality of education then Wyoming kids for half the price.
In your defense, if we lowered spending enough to eliminate the sales tax (by shrinking government to say the size of any of the surrounding states) it would diversify the economy some. I suppose we could create a corporate give away program also and get some more companies that way (I, of course, would much rather see rates lowered so every company in Wyoming becomes more competitive). From what I have seen though, when a Democrat says “spend more to diversify”, they mean “spend more because we are collectivists who think we should spend more money collectively”.
I don’t claim to speak for Mark Gordon and am certain he doesn’t agree with all or perhaps anything I have written. I would love to hear his opinion on the matter though.
Messieurs Burge and Craig,
There will always be a perennial discussion about whether it is better to spend or save. Though it may seem partisan, I would submit the merit of the dialogue is more complex than just that dimension. What is clear is that it is more fun to think about how to spend savings when you have them than it is to wish you had them to call upon when you don’t. Conversely, it is easier to spend savings you don’t have than it is to make sure you use the savings you have to their best ends.
“Diversification” is the holy grail of all economies, but sadly profligate spending does not seem to offer the magic bridge to it any more than say having a professional football team does. Colorado suffers from booms and busts too. There are multiple factors that encourage diversification such as tax structure, people, amenities, educational opportunity, food, climate, transportation, and so on that all weigh into the equation.
Far more important than simply spending money is to foster a culture of entrepreneurship in Wyoming. This is something we can all work on. The question is how can we leverage our savings wisely in these tough times so that we do not just deplete them on wastefully. Government rarely does the former as well as the latter, still it does a better job of it when it starts from an understanding that economies are dynamic. They can grow and they can shrink. If spending always grows regardless of income, sooner or later government is broke. I am sure you can both think of lots of examples there. Even Wyoming has experience. Yes we are linked to commodities which are cyclical, and yes diversifying our economy should help to ameliorate the shocks of a boom and bust cycle. There is just more to fixing those problems than throwing government savings at them.
Ironically, on a purely policy level, our spending policies were implemented precisely to mitigate against the commodity shocks Mr Burge advances in his argument. They were intended to bring some predictability and dependability to anticipated government revenues unlike Illinois, Greece, California, or Puerto Rico. We saved in the good times to be able to make up some of what we lacked in the bad times and we did not spend what we did not have. To be sure Wyoming has work to do, but mindlessly spending as if times have not changed will do little to limit our exposure to commodity busts or foster diversification. Failing to understand that commodity cycles can last longer than typical business cycles would be a mistake. Rather than setting us up pretty, careless, unnecessary spending will just make sure we feel the shocks more acutely.
Mr. Burge, you ask who is asking to spend so much. Lots of folks from citizens to legislators to lobbyists seem to have ideas on how we ought to use the Rainy Day fund. To be fair, they also acknowledge our tough times and their ideas are often about how to fix them. The problem is more spending per se does not assure more diversification or for that matter more resiliency in our economy. We are at a point where we would do well to figure out what we need versus what would like to have. We can save the latter for times when we are a little less hard-pressed.
Being sensible just makes sense.
Who exactly is asking to spend at the levels you are claiming? It would seem you and Mr. Craig see this as a partisan way of shrinking “government.” What bothers me is the lack of investment to diversify our economic portfolio. With the recent advancement of the technology grants bill folks came out of the woodwork to complain of “kruegmanesque” spending, as you call it. And yet we are sending letters to our lost talent in the state asking them to return to jobs they don’t want. More folks got mad about this grant line than the athletics support Pete reminded us of. Why is that? Dou you remember the “parable of the talents” from the bible? It seems like our stewards are burying the rainy day fund in the dirt and not thinking about growing our economy through diversification–good stewardship that is focused on growth and not fixations on bust cycles. Whether we like it or not our extraction industry is finite in scope. Where will we be when that final bust hits us with the mentality we currently have about economic investment?
Am I the only one who remembers all the Democrats throwing a fit about saving too much, back 8-10 years ago (when we had a president who didn’t hate the entire economy of Wyoming) when things were flush? Sure glad we didn’t listen to them then and I don’t think we should start now.
Maybe we could reduce K-12 spending from 17k per student to say 12k (still half again higher then any of the neighboring states)? Crazy talk. I know.
I struggle with the idea that Paul Krugmanesq spending is any kind of an answer to our budget woes. Capitol gains, the ambrosia that make up a lot of what the legislature likes to spend as income, are not usually treated as income by anyone but politicians tempted to denude the chicken house. We must begin to focus on the need-to-haves and set aside for later the nice-to-haves. This Legislative Session’s practice of contingent appropriations or what were called “tranches” may well have set the state back this year and such practices will not serve her well in the challenging times ahead. Spending it all today may feel good but the hangover will be awful. The “spending policies” improperly talked about in this piece were put in place to mitigate the volatility of a boom and bust commodity economy. If we are not in a bust, we are getting close. The fact people have forgotten the wisdom of those policies demonstrates how short our memories are. Extraordinary times call for extraordinary measures to be sure but spending the nest-egg so we won’t have to cut back is just foolish. Thankfully this year we will have a more robust conversation about the state’s future and look carefully at a host of options beyond just when to spend the rainy day account.
Did I recently read that Governor Mead proposed using rainy day funds for the UW athletic program?