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.