Rep. Steve Harshman, standing, talks with (from left to right) Reps. Albert Sommers, Tyler Lindholm and Art Washut in January. Wyoming's reliance on federal funds could mean trouble down the road for the state, given President Trump's proposed budget cuts.

Wyoming is bound to its citizens to produce a balanced budget every year.

According to Article 16, Section 2 of the Wyoming state constitution, the state shall not create any debt “in excess of the taxes for the current year” unless by a referendum submitted to the voters of the state. It’s a guiding principle of the state’s finances that, over generations, has become a point of pride for many of the state’s fiscally prudent lawmakers.

“That’s what we do in a conservative state — we pay our bills,” Speaker of the House Rep. Steve Harshman, R-Casper, told reporters in a conversation about Wyoming’s budgeting process during the 2019 session.

However, Wyoming, like most of the country, relies on a significant amount of funding from the federal government in order to keep the lights on.

According to new research released by the Pew Trusts on Thursday, federal grants to states have increased 42 percent since the start of the Great Recession in 2008, increasing the average state budget’s share of federal funding from around 28 percent a decade ago to more than 33 percent today.

Though the brunt of the increase has been due primarily to the expansion of Medicaid nationwide, those funds still play a critical role for balancing the budget in states like Wyoming, where the state’s share of federal funding has hovered well above the national average for the past two decades, according to Pew’s analysis.

“The story we try and tell in our analyses is that federal grants are an important part of states’ budgets,” said Rebecca Thiess, an associate manager at The Pew Charitable Trusts.

The share of Wyoming’s budget made up of federal funding — due to its choice not to expand Medicaid — has remained relatively stable over the past decade. However, the state’s continued reliance on federal funding could potentially create problems in the future. Over the past several years, Wyoming has cut state spending in order to balance its budget. At the same time, it has neglected to find ways to diversify its revenue streams outside of its longstanding reliance on energy, leading to talk of future budget cuts and Gov. Mark Gordon proposing a thorough re-examination of the state’s tax structure.

Meanwhile in Washington, the conversation between congressional Republicans and President Donald Trump around Trump’s proposed budget for 2020 has focused on decreasing domestic funding by 10 percent, with the lion’s share of those cuts coming to social services like the Supplemental Nutrition Assistance Program (often referred to as food stamps) and funding for state-level environmental projects.

Though the president’s budgetary aspirations fizzled with the same degree of impassivity from Congress as his last two budgets, the subject of domestic spending will continue to be an important one at the national level. Discussions now begin on the budget proposed by Wyoming Sen. Mike Enzi on Friday, which keeps some of Trump’s domestic cuts intact.

“The line we repeat over and over is that decisions that happen at the federal level affect state governments and state budgets all the way to local governments and local budgets,” Thiess said. “So we’re just hoping that federal policy makers keep that in mind. The decisions that are made in Congress impact what states receive in federal grants.”

How reliant are we?

Throughout the past 20 years, Wyoming has counted shares between roughly 33.5 percent (2015) and 48 percent (2003) of its revenues from federal dollars, outpacing the national average by 7 percent since 2000.

Part of this is natural. According to a recent article by the Tax Foundation on the subject, states with a heavier reliance on federal aid “tend to have sizable low-income populations and relatively lower tax revenues,” while states with lower levels of reliance raise more of their revenues through taxes — something Wyoming has traditionally shied away from — and maintain smaller low-income populations.

Without Medicaid expansion and with a high reliance on revenues from sources like federal mineral royalties, it is difficult by any metric to compare Wyoming’s share of federal funding to other states. However, a quick review of the state’s budget shows the relationship is a significant one. In the 2019-2020 budget, nearly 90 percent of the state Department of Education budget comes from federal funding (though the state foots most of the bills for school facilities).

Some agencies, like the Department of Health, account for larger shares of federal funds than others. According to the 2019-2020 budget, the Department of Health accounted for 48.8 percent of all federal funds appropriated during the 2018 budget session.

Though all the funds go to the same place, the actual percentage of Wyoming’s budget made up of federal funding can vary, making Wyoming the most or least dependent on federal funding depending on who you ask.

The Pew Trusts — which pegs that share at 38 percent — counts the state’s federal mineral royalties and coal lease payments as federal funds, making Wyoming among the nation’s most reliant states on federal funding. The National Association of State Budget Officers, meanwhile, pegs that number closer to 20 percent by excluding funds related to the state’s energy industry.

The reason for this, according to Don Richards, administrator of the Budget and Fiscal Division of the Legislative Service Office, lies with the different definitions each agency uses to define “federal funds.” The Census Bureau — which Pew bases its analyses on — considers Wyoming’s federal mineral royalty payments as federal funds, while the state — and the NASBO — would consider them state funds the federal government collects from the state and subsequently distributes back.

“A similar example might be the local optional sales tax in Natrona County,” Richards wrote in an email. “Is that a ‘local revenue’ or under the Census Bureau definition is it a ‘state revenue’ since technically, the state collects it and distributes it back to the county? This is not a perfect corollary, but it should illustrate how definitions matter.”

What happens if the feds cut spending?

As the national deficit has ballooned over the past several decades, both executive and legislative branches alike have declared a need to find a “more sustainable fiscal path,” as Enzi described it in a recent press release.

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“It is no secret the federal government spends more than it takes in and will soon produce annual deficits exceeding $1 trillion,” Enzi said. “Make no mistake, both sides share in the blame of rising deficits and debt, and both sides must work together to address these issues.”

Ideas on how to address that problem, however, have been highly varied among members of Congress. While Democrats pointed to tax cuts passed under Republican control that are anticipated to increase the national budget by $1 trillion to $2 trillion over the next decade, Republicans in Congress maintained that there remained some fat to be trimmed from the federal budget.

“It’s really interesting to note this idea that more must always be better, that the bigger the dollar sign is, the bigger your heart is,” Rep. Dan Crenshaw, R-Texas, said in comments during the House Budget Committee hearing nearly two weeks ago. “There’s this notion that if we want to cut back on programs (…) just because you might want to cut down on something that isn’t benefiting the American people, that you’re now anti-science or anti-health care … that’s a moral accusation. That’s an accusation against our intentions. And that’s not right. We have different views on how we should spend this money.”

For states with volatile balance sheets, appropriations from the federal government — which can oftentimes be more predictable than state budgets — are critical. According to USASpending.gov — a government database of federal expenditures — numerous agencies like the departments of Transportation, Family Services and the military received tens of millions of dollars in federal grant funding, much of which was earmarked or “conditional” funding intended for specific uses.

In the Department of Health, these federal funds can finance things like Wyoming’s Kid Care CHIP program, which provides health care for children, and WIC funding, which comes from the United States Department of Agriculture. Almost all of this funding, Wyoming Department of Health spokeswoman Kim Deti said, comes with strings attached.

“It can vary by the program,” she said. “Sometimes it’s a specific grant you apply for, and they are very specific.”

“We’re not just handed a blank check,” she added. “A lot of this funding is prescribed, and we work to be responsible with those funds, whether it’s state or federal funding.”

A complex relationship

While federal funds offer the state a fair amount of predictability, actions in the Wyoming Legislature have actually had an impact on the amount of federal funding the state receives due to conditions the federal government outlines for states to adhere to in order to receive those funds.

“They’re interconnected,” said Deti. “When we had significant reductions at the state level, then we also lost federal funds, since it’s a matching situation.”

The perfect example was illustrated in 2016, when the Legislature slashed the Department of Health's budget by approximately $90 million. Because so many of the federal funds received by the state were conditional on the state contributing a share of the funding, Deti said, that $90 million in funding cuts actually resulted in a total reduction to their budget of approximately $140 million.

“When it comes to those matching grants or maintenance of efforts funds, states certainly can make those decisions that can impact what they’re getting from the federal government,” Thiess said. “I’m always shocked when I hear states are making those decisions, because it just seems like you’re leaving money on the table.”

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Politics Reporter

Nick Reynolds covers state politics and policy. A native of Central New York, he has spent his career covering governments big and small, and several Congressional campaigns. He graduated from the State University of New York at Brockport in 2015.

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