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Draft budget relies on savings, avoids major cuts

The Joint Appropriations Committee drafted a budget bill last week that would put money back into some agencies hard-hit by previous cuts but also require Gov. Matt Mead to eliminate 50 state positions over two years.

The week of budget deliberations produced a JAC plan that relies heavily on Wyoming’s substantial savings to avoid dramatic budget reductions, even as committee members repeatedly voiced a need to align government spending with reduced revenues. Most lawmakers believe that without substantial changes to revenue or spending such savings diversions will prove unsustainable after the next few budget cycles.

Though it did not call for dramatic cuts JAC continued to look for savings and etch its priorities in the state’s funding bill. At times, that meant cuts of tens of thousands of dollars here or there, even while an $800 million shortfall loomed in the background.

This box holds the state’s two-year budget, when printed out into spiral notebooks divided by agencies. (Andrew Graham/WyoFile)

If the bill is passed as is, Mead will have to eliminate 50 state positions. By spreading the cuts over two years, lawmakers said they gave him time to eliminate positions as people leave them. Alternatively, he can keep the positions by finding an equivalent amount of savings elsewhere.

The 50-position cut was a step to continue a steady shrinking of government to meet reduced long-term revenue projections, House Appropriations Committee Chairman Bob Nicholas (R-Cheyenne) told WyoFile.

For the governor, however, it was a somewhat confusing directive, Mead’s chief of staff Kari Gray told WyoFile. The JAC seemed to recognize that agencies had been hit hard by adding money back into the Department of Health and other agencies, she said, while at the same time calling on the governor to find more cuts.

“There’s an irony there,” she said.

The Department of Corrections and the Department of Health were among several agencies that saw money drafted back into their budgets. The Department of Revenue and the Department of Audit also gained, as lawmakers hoped more employees in those agencies could generate more efficiencies and better revenue collection. For the Department of Corrections, money was reinvested in substance abuse programs that had been all but eliminated, an apparent recognition that those cuts had backfired, increasing costs by driving released inmates back behind bars. While the agency didn’t get the full amount it had asked for, DOC director Bob Lampert told WyoFile his agency would use the money to prioritize treatment for those inmates nearing release.

Mead had also urged lawmakers to put money back into the Department of Health’s budget, which he said is pinched by a combination of cuts and additional programmatic demands mandated by the Legislature.

House Appropriations Committee Chairman Bob Nicholas (R-Cheyenne)

On the whole, Gray estimated the JAC put more money into DOH than even the governor had requested — acknowledging the department’s fiscal woes.

Instead of accepting the requests for the full biennium, however, they chose to grant them for only one year. The move halved the costs for budgeting purposes, and gives DOH time to make sure the exceptions were needed and accurately estimated.

In large part because of that decision, the budget bill as written leaves $67 million in general fund. Nicholas, who served on the JAC for four years before becoming chairman last year, said it was the first time in his tenure that JAC has left that much money behind in the general fund. If any bills come out of the House and Senate that grow the cost of government, he said, the leftovers can cover them without entailing a further drain on savings.

“At the end of the day, we’ve fixed the problem for two years,” Nicholas said.

The budget bill will continue to be refined as other interim committees finish their work. It will then be debated by both the House and Senate, and the governor will be able to attempt to veto items he dislikes.

Deflating CREG optimism

The week began with a report Monday from the Consensus Revenue Estimating Group, which forecasts state revenues. Combined with the group’s October report, CREG anticipates about a $340 million increase in revenue over the coming two years. The gain was unforeseen just four months ago.

It took Nicholas little time to deflate any optimism blooming amongst the lawmakers, lobbyists, agency budgeters and other observers that filled the JAC room’s cramped public gallery for the CREG report.

The budget recommended by Gov. Matt Mead still left the state with a $204 million gap between general government expenditures and revenues, Nicholas said. For public school operations the shortfall is $484 million. For school construction — or, as is more likely in the current fiscal climate, maintenance — the projected shortfall is $166 million.

“In essence, what we’ve done is taken a billion-dollar shortfall and turned it into an $800 million shortfall,” Nicholas said. Gains in the CREG report, while encouraging, were merely a bandaid from this perspective.

A great reshuffling

At 8 a.m. Tuesday, with the crowds drawn by CREG long gone, lawmakers began shuffling hundreds of millions of dollars to pay the state’s bills. They drew on statutes and accounts unknown to most Wyoming citizens to do so.

Sen. Dan Dockstader (R-Afton) led. To pay the remainder of the state’s Capitol renovation — the state has spent $137.2 million dollar thus far — Dockstader suggested taking $81 million left over in an account from last year.

Dockstader’s motion passed. The amount exceeded the $64 million the governor had requested, but Dockstader told WyoFile he just wanted the state to put in enough money that they wouldn’t have to appropriate any more money later. Any leftovers could be used elsewhere, he said.

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Next, Nicholas made a motion to take $159 million out of one reserve account attached to education funding and put the vast majority of it into a different reserve account attached to education funding. Tee’d up last session in large part by Speaker of the House Steve Harshman, the move from one savings account into another freed $150 million for use with the K-12 education funding deficit. Nicholas suggested the remainder, $9 million, go to yet another reserve account, this one linked to higher education.

The Higher Education Excellence Reserve Account holds investment earnings from a trust fund — the Higher Education Excellence Endowment — that cannot itself be drawn on. As of October 2017, money in the reserve account was paying for 17 academic positions at the University of Wyoming — well-credentialed professors and visiting lecturers including writer and Pulitzer-prize finalist Joy Williams and Dr. Xiaohong Liu, a climatologist with a Chinese Ph.D.

But the endowment has struggled to earn consistently. Uncertain about investment income, UW has had to draw on its reserves. Nicholas’ motion, which passed, restored funding surety to UW for a time. University leadership had worried it would be unable to keep all the professorships funded, vice-president Chris Boswell told WyoFile.  

Lobbyists, agency budgeters, representatives from the governor’s office and education officials were all part of a rotating cast of witnesses as the Joint Appropriations Committee put together an early draft of Wyoming’s budget last week. This photo shows the crowd on Friday, Jan. 19. (Andrew Graham/WyoFile)

Next up was Rep. Albert Sommers (R-Pinedale), the chairman of the Select Committee on School Finance Recalibration who is considered an education advocate in the current funding debate. Sommers proposed continuing to divert the extra 1 percent severance tax into the general fund for the coming biennium instead of turning it back into the PMTF, giving the state $185 million more to spend.  

A few days earlier, Sommers had reminded lawmakers there was a choice between spending the $185 million on general government or education. His motion represented his belief that, despite their statutorily separate funding streams, both budgets were really connected, he told WyoFile.

Sen. Bill Landen’s turn came next. An extra 33 percent of the state’s royalties from coal could be dumped into an account to pay for school capital construction, the Casper Republican proposed — another recommendation from the governor. The motion passed.

Wyoming’s spending accounts are invested just as its trust funds are. But when spending accounts earn more than a certain amount on their investments, that money flows back into trust funds, where lawmakers can’t get at it. This mandated saving mechanism has frustrated both lawmakers and lobbyists over the past year as the Legislature makes cuts.

Rep. Tom Walters (R-Casper) proposed stopping those overflows for the coming biennium, and keeping the investment earnings in accounts that can be used. Walters’ motion too passed unanimously.

Rep. Tom Walters (R-Casper)

Walters brought one last motion — reallocating some distributions of severance money to put more into schools. The maneuver found $15 million for education this biennium. This also passed.

The JAC had done the core work of covering the state’s deficit in less than an hour, largely by diverting revenue previously destined for savings accounts into spending accounts. It wasn’t like the savings policies had been written in stone, Nicholas said. “It was just people like us sitting around here deciding where it was gonna go,” he said.  

Such was the power of the state’s assets, which total somewhere around $15 billion. Much public discussion has centered around the Legislative Stabilization Reserve Account, often referred to as  the state’s “rainy day fund.” Legislative observers who think the Legislature is cutting too much — or who vehemently oppose the specter of a tax hike — point to the fund’s balance, currently around $1.6 billion, as evidence of penny-pinching and say it should be drawn on more heavily. Many in legislative leadership, on the other hand, say the fund is being drawn on at a proper speed to help the state weather tough fiscal times without dangerously reducing reserves.

Speaking at the Wyoming Press Association convention in Casper on Friday, Mead said the state’s current rate of reliance on savings is sustainable for 10 years or longer.

Generally speaking, Nicholas agreed with the governor’s assessment, he told WyoFile Friday. “The problem is the only way that we are not burning it faster than that,” he said, “is by using the 1 percent severance and the 33 percent [coal royalties].” Some lawmakers think the 1 percent severance tax, and other funding streams, should be more permanently restructured to feed the general fund. But Nicholas and other fiscal hawks in the Legislature think those changes should be temporary, even if they’re needed now.

“Instead of investing in a long-term investment we’re investing [in short-term spending],” he said.  

“At the end of the day I think everyone’s hope is that those are short-term measures, to allow the economy to recover … and really what we’re doing is we’re reducing the size of government as much as we can, we’re trying to live within our means as much as we can,” he said.

“But on the other hand we don’t want to turn off the state,” he said.

Cutting with both scalpel and chainsaw

During the last budget session in 2016, lawmakers froze state hiring for the current biennium. Then, during last year’s general session, the Legislature ordered Mead to identify 90 state government positions for cuts this budget session — though not quite. The actual language called for “elimination or anticipated elimination” and allowed him to eliminate vacant positions or find equivalent money in savings elsewhere — around $13.5 million. Mead put the question to his agency heads, and they scoured budgets for savings.

Agencies identified and suggested cuts to meet the Legislature’s demands. Mead accepted some of the recommendations and rejected others in the budget he proposed to the JAC earlier this month. His proposal included $8.9 million of agency-identified cuts, he said in his letter, a $4.6 million smaller reduction than the Legislature requested.

“I have denied reductions proposed by certain agencies because the negative impact to the State and its constituents is greater than the value of the reduction,” the letter said.

Mead rejected all of the health department’s suggested reductions, with a strong warning to lawmakers. “These cuts would harm key programs, unnecessarily disrupt vulnerable populations and hurt Wyoming communities,” he said. “They are not necessary.”

Rep. Sue Wilson, a Cheyenne Republican, chats with fellow Joint Appropriations Committee member Rep. Andy Schwartz. The Jackson Democrat is one of two minority party members on the JAC. (Andrew Graham/WyoFile)

Since he cut $245 million out of state budgets in June of 2016, Mead has repeatedly told lawmakers he believes government, excluding education funding, has been thoroughly cut. The introduction to his suggested budget this year included a note that the overall spending amount is down $400 million from 2008, with 357 fewer agency positions.

In a few places, JAC went against the governor’s recommendation and worked the agency-identified cuts into its budget bill. For example, members chose to accept a health proposal to cut around $356,000 from a program that provides vaccines to low-income children who don’t qualify for federal assistance. The governor had argued the cut would defund the program. There was little discussion, but Rep. Don Burkhart (R-Rawlins) said agency officials had told him they were OK with the cut.

The JAC also cut $144,000 from a program to provide an occasional break to the parents of children with developmental disabilities, called respite care. Agency officials had said no one was using the funds, which applied only to those families not eligible for Medicaid assistance, Rep. Loyd Larsen (R-Lander) said. When asked by WyoFile, DOH spokesperson Kim Deti said there had been 11 clients served by the program this fiscal year. The year before that there were 15, Deti said.  

While in some places the JAC accepted agency suggestions the governor had opposed, in others they accepted his recommendation or even put money back where Mead had accepted the cut.

The governor’s office is still calculating the total amount, Gray said, but she believed the JAC had not reached its own recommendation of $13.5 million in cuts. Still, the committee asked Mead to eliminate 50 more positions or their equivalent in savings — estimated at roughly $7.5 million.

“It’s the desire of the majority of the folks in Wyoming,” to continue shrinking government, Nicholas said. “There’s no one in a better position to figure this out then the chief executive,” Nicholas said. “Because we’re here one month out of the year, one month and a half … we don’t know where the fat is and what has been cut to the bone.”

The governor last session attempted to veto the 90-position cut. Lawmakers voted to overrule him, which takes a two-thirds vote in both the House and Senate.

Mead also disagreed with JAC’s new proposal for finding 50 more positions to cut, Gray told WyoFile.

The 800 pound gorilla

While JAC scrutinized agency budgets, they did not make any significant adjustments to k-12 education funding. It’s largely the JAC’s job to assign money to fund education, but not adjust the scale at which schools are funded, or allocate how the funding is spent. That job is left to other committees, including the Joint Education Committee and the Select School Finance Recalibration Committee.

Nicholas suggested that education cuts would come from those committees, and would come with strong support from prominent lawmakers. Senate President Eli Bebout and other prominent senators have urged cuts to education funding, while leadership in the House has called for compromises that could include some cuts.

It’s more difficult for the Legislature to cut education, both politically and statutorily, than to reduce spending of other agencies. A series of Wyoming Supreme Court decisions created an obligation for lawmakers to fund education based upon the costs of a high quality education, as set through the state’s assessment mechanism. Outside consultants define what must be included in a complete education “appropriate for the times” — as mandated in the state’s Constitution. Figuring out how to pay for it is the Legislature’s job. With that in mind, three out of the four largest school districts have already threatened to sue the Legislature if it cuts education too deeply, according to an April report in the Casper Star-Tribune.

In contrast, the Legislature has far more autonomy to cut or increase the size of general government. Sen. Landen noted that disparity in JAC’s work.

“We’ve beat the little gorilla up,” Landen said. “He’s all bloodied up, but the big gorilla, we haven’t talked about him.”

CORRECTIONS: This story has been edited to correct the revenue increases projected by the Consensus Revenue Estimating Group. CREG has projected $340 million in revenue unforeseen before October, not $280 million as was originally reported. This story was also updated to correct the balance stated for the Legislative Stabilization Reserve Account, or “rainy day fund.” That account currently has a balance of around $1.6 billion.   -Ed

On Friday, with the lobbyists gone and lawmakers on their way out the door, Legislative Service Office fiscal staff stacked two boxes of agency budget binders and a pair of laptop bags on a cart to wheel back to the LSO office. They’ll now use the lawmakers’ decisions to write a budget bill for the 2018 budget session, which begins in mid-February. (Andrew Graham/WyoFile)

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Andrew Graham is reporting for WyoFile from Laramie. He covers state government, energy and the economy. Reach him at 443-848-8756 or at [email protected], follow him @AndrewGraham88

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One Response to Draft budget relies on savings, avoids major cuts

  1. Robert Geha January 24, 2018 at 4:41 pm #

    Andrew, good job. I thought the LSRA had about 1.5-1.6 billion dollars in it. I know it had around 1.8 billion in 2014.

    Cheyenne, Wyoming

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