Wyoming has a budget problem. Or two. That much is clear. But just how big that problem is — or whether “problem” is even the best way to characterize the fact that projected expenses are outpacing projected revenue for upcoming years, is an open question.
“I prefer not to use the term shortfall,” Don Richards of the Legislative Service Office’s budget division told the Joint Appropriations Committee on Friday in Casper.
That’s because the Legislature doesn’t set a budget until its annual winter session in Cheyenne, meaning that all that Richards is able to estimate is revenue.
“If you only have revenue and no idea about expenditures I can’t project what the shortfall is,” Richards said.
Richards was presenting the Consensus Revenue Estimate Group’s annual report, released early last week. The CREG report, as its known, is an incredibly dry document — full of strings of acronyms like a table displaying the balances of “the GF, BRA, OPSTA, and LSRA” — but one absolutely essential to the state budget process because it projects public revenue for the coming budget cycles. During a down economy like the current one, lawmakers use the report to determine how much state agencies must cut and how much to spend out of reserve accounts.
The October CREG report updates one issued in January ahead of last winter’s legislative session. Given that Wyoming remains in an economic downturn, the revenue projections were greeted as relatively good news. The state made more money than expected in the fiscal year that ended in June, and the CREG group is projecting more money to come in during the next three years than they were in January.
During the current two-year budget cycle, the Legislature has found itself with $104 million in unspent funds, roughly $30 million more than expected. In all, the Legislature has $200 million more in revenue to spend as it sets its budget for the next two years.
“Use it how you wish,” Richards said. “You could put it in savings if you want, you could put it toward education, you could put it toward state government.”
Richards said that the revenue projections mean that the Legislature’s “standard budget” is covered, meaning mandatory payments toward entitlement programs like Medicaid are covered as are the base costs of operating state agencies.
Additionally, more money is coming into education accounts — for both operations and the building fund — than anticipated. About $63 million in additional education dollars came in last year, and that amount can be rolled over into the upcoming budget cycle. The CREG report projects an additional $20 million to $30 million annually for education through this June and over the following two years, dollars that can all be put toward education funding for 2019 and 2020.
“Pretty soon you’re talking about some real money,” Richards said.
But in an interview, appropriations committee co-chair Sen. Bruce Burns, R-Sheridan, balked at the description of that money as “extra.”
“We have less of a deficit than expected,” Burns said.
For the next budget cycle, which will cover 2019 and 2020 and be set during the Legislature’s February session, the state is still facing a combined $770 million shortfall across education and general government operations.
The $770 million gap comes largely from education as well as funding requests like payments to local governments, that while technically discretionary have become standard expenditures for the Legislature to authorize. It is imprecise because it represents educated guesswork by Richards based on past legislative spending and could become higher or lower depending on the spending priorities of lawmakers.
Richards estimated that agencies would request at least $50 million in exemptions to the standard budget to cover unanticipated expenses or one-time costs with such asks often coming in at 5 percent of the total state budget.
For both the education accounts and overall state government, Richards said that the improved revenue projections — based largely on a better climate for the oil industry in the state — don’t change any underlying problem with the funding model for state government operations.
“There remains a structural disconnect between current forecasted revenue and projected expenditures,” Richards said.
Next steps unclear
Members of the appropriations committee, which makes spending recommendations to the full Legislature, gave little indication Friday as to what they were planning to do with the uptick in revenue. But despite not sitting on the committee, Senate President Eli Bebout, R-Riverton, and Speaker of the House Steve Harshman, R-Casper, were both in attendance and made clear it was unlikely that they planned to leverage the rosier-than-expected CREG report to pull back on spending cuts.
Harshman praised the CREG policy that ignores unrealized capital gains as prudent.
“It’s important to stay conservative with that sound budgeting,” Harshman said. “I think people in Wyoming do that as well.”
Unrealized gains are increases in the value of investments held by the state that exist only on paper. In order to translate those gains to cash, the investments would have to be sold. While the accounts reliably earn money, the panel that composes CREG is wary of incorporating, say, an 8 percent gain in the value of investments that is apparent in March when the value might drop to a 5 percent gain by the time the investments are sold.
Were the committee to instruct CREG to account for unrealized gains in its projections, something Richards said has been done in the past but very rarely, the Legislature would have a significantly larger cushion with which to make decisions. But it would be an illusory one, he cautioned, because if lawmakers appropriated money from those earnings and then the market suddenly shifted, bills would be left unpaid.
Barring drastic action, then, Richards said the Legislature would have a series of options for making up much of the nearly three-quarter billion dollar shortfall without turning to reserves.
Millions of dollars in investment profits are currently returned to the corpus of a given fund to be reinvested. One option which the Legislature has opted for in previous lean years is to direct those profits to reserve funds that can be spent on state expenses. For example, roughly $80 million is currently set to be added to the Permanent Mineral Trust Fund, but those dollars could be shifted to general fund savings.
Harshman said that while the appropriations committee will have the first crack at figuring out how to spend the additional funds, some social services programs, like public health spending related to cervical cancer or addiction, might be spared more cuts or even see funding restored.
Overall he said it was most likely that the newly found revenue will simply mean the Legislature spends less from reserve accounts — rather than actually leading to higher spending in the budget that will be approved in March.
“I don’t think you’ll see an increase in spending at all,” he said.
Burns, the co-chair, agreed that the only responsible action for his committee to take would be using the $200 million to spend fewer reserve dollars.
Despite a large budget gap remaining, Harshman was encouraged by the relatively positive CREG report following almost three years of negative revenue projections.
“We’re not out of the woods yet by any means,” he said. “But boy it’s good news.”