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Wyoming State Budget: Using the Past to Inform the Future

Wyoming State Budget: Using the Past to Inform the Future. Prepared by LSO Research Staff October 12, 2005 05IP001R. Setting the Groundwork: Definition I.

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Wyoming State Budget: Using the Past to Inform the Future

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  1. Wyoming State Budget: Using the Past to Inform the Future Prepared by LSO Research Staff October 12, 2005 05IP001R

  2. Setting the Groundwork: Definition I • “Type 3 Funds” include all discretionary revenue that is deposited into the General Fund or other funds and accounts traditionally used to support the general operations of Wyoming state government, e.g., Budget Reserve Account (BRA), Legislative Royalty Income (LRI), etc.

  3. Definition II • “Boom Years” includes all fiscal years after, and including FY01, i.e., FY01-06. “Pre-boom” years are defined as FY94-00. • Technically, the state experienced a substantial reduction (33%) in mineral severance taxes in FY02 from FY01 levels; however, for purposes of this presentation all years after FY00 are included as “boom years.”

  4. Historic Budget Trends: Current Dollars

  5. Historic Budget Trends: Constant Dollars (inflation adjusted to 1993 dollars)

  6. Where Does It Go? (BY05-06 Breakout of “Type 3” Budget)

  7. Category Growth (in millions of dollars)

  8. Category Growth: Percentage Change Over Prior Biennium

  9. Investment Earnings

  10. PWMTF Corpus and Anticipated Growth

  11. What Factors Impact the Future Revenues, Budgets, and Related Analyses? • Energy prices remain strong and have outpaced January 2005 CREG projections. Estimated revenues for FY07-08 will increase. (Therefore, this analysis will change after the October 2005 CREG update.) • Potential changes to the severance tax and federal mineral royalty (FMR) distribution formulas • Growth of appropriations • Investment performance

  12. Analysis #1: Investment Earnings and PWMTF Corpus • In order to estimate whether historical contribution levels of PWMTF investment earnings as a percent of the Type 3 budget will continue, three variables are present: • Investment earnings – assumed to be constant at five percent. • Level of appropriations growth – assumed to be (a) no growth; (b) BY94-06 average growth, 16.6%; or (c) “boom years” average growth, 28.7% • Ratio of PWMTF earnings to budget – assumed to be (a) BY94-06 ratio, 14.7% or (b) Pre-boom ratio, 18%.

  13. Scenario #1: No Budget Growth; PWMTF Income 14.7% of Budget

  14. Applying the Same Methodology:

  15. Analysis #2: Mineral Taxes • The previous analysis considers the rate of growth of the PWMTF investment earnings (and associated corpus size) needed maintain historical levels ratios, given various levels of budget growth. • The same methodology can be applied to consider the rate of growth needed in severance tax and FMR collections necessary to maintain similar historical ratios to total appropriations, given various levels of budget growth.

  16. Severance Taxes and FMRs as a Percent of Type 3 Budget

  17. Scenario #1: No Budget Growth; Mineral Tax Component = 33.4% (BY94-06 average)

  18. Applying the Same Methodology: • In other words, all January ’05 CREG projections provide for sufficient mineral tax growth to maintain the prior 12-year average contribution of mineral revenue to the budget, under multiple budget growth projections.

  19. Notes • Presentation does not consider dedicated or earmarked revenues such as those flowing to the School Foundation Program (SFP) or School Capital Construction Account (SCCA); that is not to say these are unimportant (see next slide.) • Recent appropriations to local governments inflate the growth in “general government” as a percent of the budget in recent years.

  20. K-12 Guarantee Plus Enhancements (in $/ADM) vs. 1/2K Enrollments

  21. Potential for Structural Deficit • The Rockefeller Institute of Government (a state fiscal policy think tank) projects substantial structural deficits for states with a heavy reliance on federal funds in future years. • Assuming a projected decline of an average of 3.3% per year in real per-capita federal revenue, the Rockefeller Institute projected a 12.9 percent state & local shortfall after 8 years as a percent of revenue for Wyoming. • [LSO Note: if projected federal revenue cuts do not fall proportionally across states, the Rockefeller Institute model will not be accurate. Wyoming’s low current Medicaid reimbursement (FMAP) rate and revenue from the extraction of federal minerals could be cause for the significant shortfall; however, the researcher from Rockefeller Institute has not responded to LSO inquiries.]

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