Sen. Tony Ross (R-Cheyenne) went to the Capitol Friday and heard the news he knew was coming, but it still wasn’t easy to accept: State lawmakers are beginning their work suddenly $222 million in the hole.
“The picture isn’t necessarily pretty,” the Senate Appropriations Committee (SAC) chairman told the other 29 members of the chamber. But he let them know it’s not the end of the world, either.
“We expected there was going to be a hit to the General Fund and on the school side, given the price of oil,” Ross said.
Last October, when the budget analysts who comprise the Consensus Revenue Estimating Group (CREG) issued their report on state government revenues, oil was selling for $80 a barrel. On Friday, it was about $45 per barrel.
“You don’t have to be a rocket scientist to realize that every decrease of $5 in a barrel of oil means [a loss of] about $35 million to us,” said Ross, who served as the Senate’s president for the past two years before taking over the SAC.
“It’s not like we’re broke, because we’re not,” he explained in an interview after the Senate adjourned shortly before noon Friday. “We have reserve accounts, and it’ll be up to the body as a hole to figure out how we fill that hole and what projects we want to move forward with in the future.”
“Severance tax projections were revised downward to reflect the continued pressure on energy commodity prices,” the report stated.
Those negative changes, when combined with slight increases in the production of crude oil and surface coal, led to a $151.8 million decrease to Fiscal Year 2015-16 projections of severance tax revenue to the state’s General Fund (GF) and Budget Reserve Account (BRA).
The latter account also saw a reduction of $98.4 million for the biennial budget due to lower federal mineral royalties.
Lower energy prices led to changes in CREG’s sales and use tax revenue, which was revised upward $18.8 million for FY 2015 because of robust collections during the first half of the year before oil prices plummeted. But for FY 2016, the forecast was revised downward by $10.2 million.
On the plus side, CREG said the retail trade and tourism industries are expected to drive growth in the state “and to some extent, help offset the drag that could be experienced from the projected slowdown in crude oil exploration and drilling.” These sectors will add an estimated $8.6 million to the GF in the next two years.
Higher investment income through dividends and interest payments for the Permanent Mineral Trust Fund and Pooled Account was projected.
The bottom line, CREG reported, is a reduction in total traditional funds available for the Legislature to appropriate for FY 2015-16 is $217.6 million. When the 63rd Wyoming Legislature convened on Monday, it was already $4.4 million in the hole, making the total revenue drop $222 million.
Before lawmakers can even begin to address Gov. Matt Mead’s supplemental budget requests of more than $135 million, it must fill in the hole.
Despite the fiscal challenge that lies ahead for the Legislature, Ross said Wyoming’s revenue picture is better than other energy-producing states.
“We’re not like Alaska,” Ross said. “They’ve got a billion-dollar deficit. We don’t, because we’ve been frugal along the way. We’ll have reversions and budget accounts and other sources of revenue we can tap into.”
Those reversions account for $184 million. Ross said there’s still $21 million available in the Strategic Investments and Projects Account (SIPA) and a total of $1.8 billion in the Legislative Stabilization Revenue Account (LSRA), better known as the state’s “rainy day account.” A total of $184 million is scheduled to be swept directly into that account during the final half of the fiscal year, but lawmakers could decide to use it instead of automatically putting it into savings.
“I’d prefer not to go into our LSRA at this point in time, because we’re going to have a study about going back to our original spending policy, and if we do that we need to have that reserve account when we’re not in session in case we have to tap into it to continue funding our operations,” the SAC chairman said.
The spending vs. savings issue has pitted Republicans against Democrats for several years. The GOP’s conservative leaders have insisted on socking money away, while Democrats and more moderate Republicans have advocated using some of the rainy day fund to pay for state infrastructure, including highways.
The state’s budget analysts believe oil prices will eventually recover, but are not as confident about natural gas prices. However, their forecast was not as bleak as it might have been, thanks to projections that the demand for Powder River Basin coal will increase during the biennium.
Still, if oil and natural gas prices do not recover soon, significantly lower revenue projections will continue to face state legislators for the 2017-18 biennium and beyond.
“It is so unpredictable. Two months ago nobody could have predicted we’d be in the position we are right now,” Ross said. “It could turn on a dime. But we’re really little fish in the big sea regarding the international market for oil. The Saudis are basically gaming us at this point. But nobody knows when those oil prices will rebound.
“It could be tomorrow, but I doubt that,” he concluded.