The Problem with the Santa Claus State

An accidental step towards real reform may benefit the charitable sector.

Wyoming government revenues will not meet projections for the 2017-18 biennium. With a projected shortfall of between $240 and $510 million, Governor Mead responded by cutting the 2017-18 biennium budget by $248 million, or about 8-percent of the 2-year general fund budget of about $3 billion. Although this is budget cut by half, the governor may have unwittingly opened the door to real reform that will benefit patients and taxpayers alike.

During the past budget session, the legislature balanced the 2017-18 budget based on an overly optimistic revenue forecast from the State's Consensus Revenue Estimating Group (CREG). For example, sales and use tax revenue sit about 20 percent below 2015 collections, a $22 million shortfall for fiscal year 2016 alone.

The current drop is due primarily to trouble in minerals industry, and the future looks just as grim. Rig count is an important measure of future production. Only three oil rigs pumped in April 2016, down from 12 at the same time last year. Gas rigs were down to 5, from 13 at the same time last year. According to CREG-Co Chairman Don Richards during his presentation to the Joint Appropriations Committee, sales and use taxes won't rebound until the rig count increases.

With a grim revenue outlook and a pre-election commitment by many legislators to say no to tax increases, the governor responded with a reduction in general fund spending. Some of the governor's actual cuts seem designed to generate controversy, but perhaps unwittingly, the governor may have started the process of unwinding government's crowding out of the charitable sector.

When it comes to general fund spending, the Departments of Health, Corrections, and Family Services are the big spenders and reasonably, the focus of the 8-percent cuts. However, the entire Department of Corrections cut came from defunding 125 unfilled government jobs. Governor Mead also defunded, but did not eliminate, positions when he reduced 2016 spending in the last budget. As we can see, this type of spending reduction does nothing to shrink the gap between revenue and spending in the long term.

In fact, the governor defunded about 300 unfilled positions, cutting only seven filled jobs. Compare that to 5,500 people losing their jobs in the minerals industry to date. Temporarily spending less while maintaining the government status quo will leave the people of Wyoming with a legacy of debt and higher taxes.

But there is some light on the horizon.

The Department of Health spends about $975 million in general funds from a $2 billion biennial budget. Governor Mead cut $90 million from that department, or 9-percent from its general fund budget, but 4.5-percent from its total budget, with 27 defunded positions and one filled job cut. The governor claimed there would be 677 private sector jobs losses, but made no mention of a subsequent reduction, if any as a result of these loses, in patient care or how successful, not to mention accountable, these contracted organizations are. Moreover, this number comes not from the Health Department, which provides block grants to these contractors, but rather the state's budget office.

Furthermore, is the money well spent or is government merely crowding out the charitable sector, engaging in expensive and duplicative programs, to the detriment of both patients and taxpayers? For example, last session the legislature eliminated an adult literacy program, formerly funded under the federal government's Even Start program, for a $3.3 million biennial savings. This was an expensive duplication of a number of other programs.

Back in 2010, Governor Dave Freudenthal recommended eliminating that program. In the 2011-12 biennial budget, Governor Freudenthal's recommendation said:

According to the US Department of Education, the Even Start Program is among 12 other federally funded programs being considered for elimination or consolidation – if national evaluations indicate the program is ineffective or duplicative. Three separate national evaluations of the Even Start Program reached the same conclusion: children and adults participating in Even Start generally make no greater literacy gains than non-participants.

Governor Mead was right when he said, "they must now work with the reality of a revenue shortfall" and, in his apparent effort to create an outcry against cuts, he may have stepped into the realm of real reform. This has opened the door to a fundamental rethink about what government should be doing, and the effects of encroaching on areas outside the fence of proper government action.