The boom & bust life cycle

Most people around the country have taken advantage of the large drop in oil prices from the past year — cheaper gas can mean more vacations or more money to spend on other luxuries. While Wyomingites can still enjoy the lower costs, the state’s pocketbook can’t — possibly affecting Laramie residents.

The energy business is nearly non-existent in Albany County. A large portion of the city of Laramie’s funding comes from taxes. This could be considered a positive, more stable employment rate — the city doesn’t rely on the energy market.

However, intergovernmental revenue includes a large amount of state funding, such as state supplemental distribution — cigarette or fuel taxes.

State grants for capital projects are also important to the city budget.

This accounted for about $51 million in the 2015 fiscal year — from July 1, 2014-June 30, 2015 — and was the largest revenue stream of the year. That line item is slated to drop to about $20 million for fiscal year 2016. However, capital construction projects should be completed, which would drop the budget with or without state funding problems.

Regardless, state money — decided largely by oil, natural gas and coal prices — plays a large role in Laramie’s functioning.

Wyoming vs. world energy market

Any trouble Laramie could experience begins with the cost of minerals and energy resources, said Sen. Phil Nicholas, president of the Wyoming Senate. Sixty percent of Wyoming’s revenue comes from minerals, a majority of that from natural gas. Although energy prices can vary, gas prices are currently down nationwide after a sudden drop in price summer 2014.

“I don’t tend to get really worked up over the ups and down (of energy prices) in months,” Nicholas said. “What I do get worried about is the prognosis for … pricing for the next five-six years.”

It’s unlikely Wyoming faces severe budget cuts in the near future — instead, the states’ revenue could plateau — a problem unto itself.

“The difficulty for plateaus is there’s no room for growth,” Nicholas said.

The term “plateau” might seem like the budget will flatten and nothing will change, such as the number of capital projects or employee wage raises. However, underlying inflation in some parts of the budget could leave less money elsewhere.

“Our revenues are kind of holding their own,” Nicholas said. “But our Medicaid budgets, our medical expenses for our employees (have risen).”

Even if wages have not increased significantly, employee benefit prices are up by double digits, leading to larger and larger costs for every state employee — those included employees of Wyoming Department of Transportation, judiciaries, school teachers and staff and faculty at the University of Wyoming.

Benefits such as Medicaid could continue to raise operating expenses in the state. Operating expenses are recurring costs which require funding every year. The state cannot pay for medical insurance one year and eliminate it the next.

The second-largest portion of the budget is used for one-time or non-necessary functions for the state, such as building a new fire station, Nicholas said.

“That’s what we’re using to address our capital construction; that’s what we’re giving to cities, towns and counties — because we’re giving them money out of our surpluses — and that’s what we’re giving to major maintenance,” he said.

With the expected plateau coming in the next few years, these two broad sections of the budget, operating vs. non-essential, will likely be compressed, Nicholas said.

Sen. Michael Von Flatern (R-Gillette) said one-time projects will have a large drop in funding.

“In the past, we concentrated on one-time expenditures,” he said. “We had some extra, unexpected funding. Those one-times are probably going to go away for the next two-four years.”

Effects on Laramie

One of the funds incorporated into the budget that could be at risk from compression are hardship funds. Hardship funding is set aside for communities struggling to sustain themselves by normal means, such as sales tax revenue.

“Sales tax is what cities live and die by,” Laramie City Manager Janine Jordan said. “And our sales tax revenue is one of the lowest in the state.”

A formula for divvying out hardship funds takes low sales tax revenue, a community’s population and other factors into account to determine where the fund’s money goes. Laramie happens to receive more of those funds than other Wyoming municipalities, Nicholas said, usually around $1.5 million

While this is only a fraction of the city’s income, it is placed in the general fund, which is used to pay the Laramie fire and police departments, Parks and Recreation, city administrator and public works, among other things.

An added weight to the city’s shoulders is the amount of infrastructure needed in proportion to the amount of permanent residents, said former state senator and current UW Trustee Mike Massie.

“There is a dynamic in which the city of Laramie must supply infrastructure for a larger amount of people than what would normally be there.”

University of Wyoming students move in and out throughout the year while permanent residents pay most of the tax money, Massie said. Fewer streets, water and sewer lines would likely be required if the university were eliminated, allowing tax revenue from permanent residents to be used in other areas of the city, such as capital construction projects.

The city receives tens of millions of dollars in state funding in ways other than the hardship fund. Grants are often used to assist large purchases or projects — the Cirrus Sky Technology Park and the Underwriters Laboratories building are partially funded by grants. The large increase in the fiscal year 2015 budget was partially because of those capital construction grants — about $50 million in intergovernmental revenue in 2015 compared to the estimated $20 million in 2016.

The State Loan and Investment Board — or SLIB — handles most of these grants. City Councilor Klaus Hanson is worried some of the SLIB funding available in the past could be more difficult to obtain.

“The regular budget is probably not being affected much (by reduced state funding),” he said. “What is affected is any kind of project that is grant-funded, because they usually come from the state.”

While the city can submit multiple grant applications to the SLIB board, the city can begin to assume only one will be approved, Hanson said. Regardless, he said the state’s funding worries won’t largely affect the city.

“I’m still cautiously optimistic,” he said. “Our flow of funds is usually a trickle, but it is usually consistent.”

Massie was less optimistic about grant possibilities even in light of the city’s past success, warning of increased competition in the coming years.

“The city has done a marvelous job in the past with the SLIB board,” he said. “Where the bottleneck comes is that cities and towns are not going to bet on as much money from the Legislature as an outright appropriation, so that funding SLIB offers will be so much more competitive.”

If the city comes into a position where, because of lost revenue, funding begins shrink, the university could also be affected in a negative way, Massie said.

“In reality, the University of Wyoming is a part of Laramie,” he said. “When one is underfunded, it hurts the other.”

While the city could be on the state’s reduced funding list, the university is not immune either, Nicholas said, referring back to the compression of the state budget through the use of a possible Legislative scenario.

“(A senator) says, pretty much I want my money in creating infrastructure, because that’s what keeps my contractors billed,” Nicholas said. “And every dollar I give to the university is money I’ll never see back in my community.”

Von Flatern said funding for the UW operating budget is one of the last things he’d cut, but some of the recent capital construction projects were unnecessary.

“Some days, we get a little excited about all the money that’s poured in there the last few years in buildings,” he said. “With other projects we’d all like to see done up here, like roads, that discretionary money up and above operating, that’s been a little tough to eat.”

About 18 percent of people in Wyoming work for the state government, making it the largest employer in the state, Nicholas said, which plays into some of the legislative disagreement.

However, other areas in the state do not have a large government-based workforce. Representatives of those areas would rather keep funding available in the one-time portion of the budget to keep its construction workforce busy and paid.

To lower operational costs, legislators would have to analyze the different organizations paid by the operational costs and determine the best areas to cut or reduce finding, Nicholas said. UW and community colleges take up nearly 25 percent of these operational costs. Health care, entitlements and small agencies fill up a majority of the rest.

Divvying up funding between these areas can be difficult, Von Flatern said.

“It’s like, would you take (funding) from mental health and substance abuse to fund the university or cut some for the university to give to them?” he said. “It’s hard to say — everything is as important as the other.”

The Legislative Stabilization Reserve Account, or rainy day account, has about $1.8 billion available to legislators. While the funds could be used for almost anything, Nicholas said he created the fund specifically for a dire situation where the university could encounter budget cuts.

While some see UW as a potential to lower costs, Massie said a majority of legislators are behind a strong university.

“Most legislators understand the importance of the university,” he said. “For a large share (of legislators), the University of Wyoming would be one of the higher priorities to fund.”

Even with the university placed in a position of importance, a recent $11.7 million budget cut from the Legislature and another expected cut has interfered with University functioning, said Chris Boswell, vice president for governmental and community affairs.

“My guess is that, what we’re going to be looking at is a continuation of not much flexibility in resources and very limited growth in the university’s budget,” he said.

These prospective reductions are going to be taken into account during the upcoming UW Board of Trustees budget meetings, Boswell said.

Some university projects already in the works won’t likely be eliminated, he said, such as the engineering initiative.

“The request will be quite large, in part because we’ve been asked to, and will follow through with, a new building associated with the engineering initiative,” Boswell said.

To help stymie some of the governmental revenue losses, a 4-percent increase in student tuition will likely be integrated during the next four years, Boswell said, expected to raise about $2 million in revenues.

“We’re mindful of the burden on students, but it is probably the most likely option in terms of revenue increase,” he said.

Redistribution of resources in the university is a second option, he said. There are several different departments and areas within UW, and taking funds from one to give to another is feasible to help account for revenue loss.

Regardless of any possible losses, hiring and keeping top-tier staff and faculty are of top importance to UW, Boswell said.

“The university has an interest in increasing salaries on campus for faculty and staff,” he said. “To attract top-quality staff and faculty, the university has to offer competitive salaries. It’s not uncommon for folks to test the market. When attractive offers come and they might take that step, the university needs to be able to counter-offer.”

The Trustees recently submitted a budget request to the state legislature with key employee recruitment and retention listed second.

What budget cuts mean for Laramie

All of these budget reductions and cuts could eventually trickle down to Laramie residents. Less university funding could mean less sales tax to the city, such as through possible cut positions. Less city funding could mean fewer construction projects. These cuts are nearly all based on the changing price of oil, natural gas and coal. Diversifying the economy is a large way of reducing the dependence on energy prices, said Anne Alexander, associate vice president of academic affairs.

“We need to begin discussion about what to do when the energy boom is over in the future and how we’re going to deal with it,” she said. “The idea is to buffer ourselves — more agriculture and production. It’s a slow process, but it needs to happen.”

Laramie could be considered ahead of the curve. The city remained mostly stable for decades without the support of the energy boom, which began about 15 years ago. While state funding could decrease, local taxes and the University of Wyoming won’t disappear anytime soon. New business opportunities — the Underwriters Laboratories building, for example — could keep recent college graduates in Laramie and bring in other experts in their field.

“For a long time, Wyoming and Albany County was doing really well,” Alexander said. “The biggest tax payer and employer was the Union Pacific (Railroad). But then one day we weren’t — they switch from coal to diesel hurt us. But we changed. Things shift, and we can plan for it.”

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Wyoming’s safety deposit box

The Permanent Wyoming Mineral Trust Fund is a more than $6.5 billion savings account in the state of Wyoming’s name. Started in 1975, the fund takes a portion of the severance taxes paid to the state by energy companies.

Tens of millions of dollars continue to pour into the account every year, but it cannot be directly taken out. Unlike the “rainy day account,” the Mineral Trust Fund requires an amendment to the Wyoming Constitution to remove large portions of money or to divert any incoming severances to the fund.

The fund still provides more than $200 million in revenue every year based on an equation, drawing 5 percent of the averages of market values of the fund across the last five years.

(1) comment

waitasec

Every year, it's the same story. "Poor us, there's no money. Guess we'll have to cut funding and programs. And there's no money for raises."

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