Wyoming Liberty Group
The School Rainy Day Fund Raided
Current budget draws school Rainy Day Fund down to zero
All the hand wringing about the budget shortfall so far has focused on spend-as-usual government operations paid for with funds from traditional state spending accounts and augmented by a Rainy Day Fund raid. But the state has other accounts with an even bigger and more immediate problem: the K-12 education accounts. These accounts, just like the traditional accounts, are running short of cash. Governor Mead’s solution to the 2017-18 shortfall is to—wait for it—raid the school Rainy Day Fund!This is a cautionary tale for those still convinced that government can maintain spending levels bloated by years of booming minerals tax revenue with savings. As the situation with the education accounts shows, the state doesn’t have enough squirreled away in Rainy Day Funds to maintain the spending status quo.
The Consensus Revenue Estimating Group (CREG) forecasts revenue flowing into the School Capitol Construction Account (SCCA) and School Foundation Program Account (SFPA). According to CREG, these accounts face a revenue shortfall of $154 million for fiscal years 2016 to 2018.
The people we elect to run things have known for quite some time that the state would run out of money to fund school construction. School construction funds come from the School Capitol Construction Account (SCCA). School construction spending in 2015-16 totaled about $412 million and about $400 million of that came from coal lease bonus revenue. Coal lease bonus revenue falls to zero by 2019. Governor Mead reduced school capitol construction costs to $219 million in 2017-18 with just $144.5 million coming from the coal lease bonus and other payments. To balance the account, Governor Mead wants to take about $74.5 million from the PLF Holding account to cover the balance. The PLF holding account is the school Rainy Day Fund.
But it gets worse.
A School Finance Block Grant Funding Model funds Wyoming school district operations. About half of the funding for the block grant, about $1.5 billion in 2015-16, comes from the state’s SFPA, and the other half from local revenue sources such as property taxes.
The problem facing the SFPA is the same as that facing the rest of the budget. Much of its revenue comes, or came rather, from the minerals industry.
Falling oil prices that caused Wyoming’s revenue shortfall also hit the SFPA, which saw $80 million less in Federal Mineral Royalty (FMR) revenue in fiscal year 2015-16 than in 2013-14. FMR revenue is expected to decline a further $28 million in 2017-18 according to the October CREG report, to a total of $441 million.
Most of the rest of the SFPA comes from income from earnings from a savings account, the Common School Permanent Land Fund (CSPLF), which is similar to the Permanent Wyoming Mineral Trust Fund. It gets its income from state mineral royalties and payments from proceeds from lands designated to it under the Act of Admission when Wyoming became a state. The approximately $3.3 billion sitting in the CSPLF earned much more than expected in 2015, about $154 million more. However, investment revenue tends to be even more volatile than minerals revenue so it would be imprudent to expect an investment bonanza to bail bloated spending out into the future.
Total revenue to the SFPA for 2017-18 is estimated at $1.4 billion. The governor wants to spend $1.8 billion. Ooops, that math doesn’t work, so where will he get the difference? From – you guessed it again – a $400 million raid from the school Rainy Day Fund.
To make matters worse, being the nice guys and gals that they are, with your money, that is, the legislature gave school districts even more money than required under the block grant funding model.
School districts received an additional $52.7 million in the 2013-14 biennium budget outside of the model. Called “an external cost adjustment,” this could be spent on anything from pay hikes to pay hikes. But that’s not all. School district representatives lobbied the government for even more money. As a result, the legislature approved yet another inflationary increase for school districts in 2015-16, at $10.6 million.
Given all the extra cash floating to school districts one would think the external cost adjustments would come to an end. Well, they haven’t. Governor Mead’s budget adds yet another external cost adjustment of $72 million for 2017-18.
This will be a big problem in the future because the Committee on School Finance Recalibration declined to adjust the model over the summer. This means the legislature will not have the opportunity to bring K-12 spending down to match the revenue available to fund it. What is the governor’s solution to this? Do a study!
Using the school Rainy Day Fund to bail out a bloated budget provides a good indication of what will happen with the rest of the governor’s budget should the legislature permit another Rainy Day Fund Raid. The school Rainy Day Fund will be empty when the 2019-20 biennium starts. According to the Committee on School Finance Recalibration, the SFPA will have a $400 mm deficit at the start of 2019-20, and with an empty Rainy Day Fund, what then? Grab your wallet and run for the hills because your elected representatives will be looking for alternative revenue sources, and those only come by squeezing the private-sector economy and wringing more taxes from you.