Wyoming Liberty Group
Wyoming Budget Legacy: Debt and Higher Taxes
Most homeowners seem to understand that if they make long term spending decisions based on windfall revenue, they could lose their homes. Most politicians seem to understand that if they make long term spending decisions based on windfall revenue, they’ll get re-elected. In Gov. Mead’s something for everyone 2015-16 biennial budget, most of the revenue used to fund spending increases is coming from capital gains.
It is folly to fund long term spending with here today gone tomorrow revenue.
The Consensus Revenue Estimating Group (CREG) makes official revenue estimates for Wyoming that both the governor and legislature use when making spending decisions. Actual FY 2013 General Fund revenues exceeded the January 2013 CREG forecasts by $333.3 million. The difference, or $232.4 million, was almost entirely due to realized capital gains. These capital gains have created illusory spending room in Wyoming’s budget. Illusory because a capital gain today can turn into a capital loss tomorrow. This has, in fact, already happened.
During Wyoming Gov. Mead’s budget presentation in December 2013, he recognized that most of the extra revenue in state coffers was due to capital gains. Practically in the next breath, he set out a plan to spend the money on pre-election goodies, such as bureaucrat pay hikes, which represent long term spending commitments. However, with the forecast for falling severance tax revenue and uncertainty about federal funds, the last thing the governor should do is make long-term spending commitments with windfall revenue.
During the CREG January 2014 update, CREG Co-Chairman Don Richards revealed that although the State Treasurers Office has not changed its October-13 revenue projection for the forecast period, the first five months of FY 14 have been “particularly challenging for the fixed income portfolio.” Put plainly, the fixed income portfolio had a capital loss. So already, one state account is in a revenue hole.
As Mr. Richards confirmed, “after June 2013 we have capital losses, [and] we don’t set losses off against previous gains, but against future gains. We are now in a holding pattern until the next gains accrue. And in an increasing interest rate environment on a fixed-income only portfolio, we could be waiting a while.”
In that same meeting, Senator Meier (R-Goshen) said they were gambling unnecessarily because the gains to offset the losses were already in hand. “We are not meeting the spirit of the constitution as far as holding our corpuses inviolate. We wanted to create a holding account so that when losses occurred, we could take that out of the holding account instead of just betting that the next roll of the dice over the next few years was going to come up in our favor. I have a bit of heartburn if we continue down this road. Call it what it is — gambling on a future possible profit.”
The governor proposed almost $50 million for state employee pay hikes over the next two years, 2.5 percent for both 2015 and 2016, including a $2.91 mm one time merit pay. Even with fiscal trouble on the horizon, some of the usually more fiscally responsible legislators say bureaucrats need a pay raise, as they haven’t had one for five years.
If these pay hikes are inevitable, even though revenues are on the decline, how should the hike be funded?
UPDATE: Wyoming’s Appropriation Committee reduced the state employee pay increase from 2.5 to 2 percent for each of the next two years and reduced funding for the one-time merit pay from $2.91 million to $2 million. Stay tuned for future updates.
If the legislature raises pay for state workers, it must find the funding from savings in existing budgets, not from temporary gains.
Taxpayers are already tapped out and black clouds are forming on the horizon. If Gov. Mead and legislators want to reward bureaucrats with other people’s money, spending reductions in existing budgets must fund the pay hike. Otherwise, they risk leaving our children and grandchildren with a legacy of debt and higher taxes.