Wyoming PBS - Capitol Outlook Week One (2016)

Feb. 12, 2016 - CHEYENNE, WY

From the Wyoming Legislature's temporary home in the Jonah Business Center in Cheyenne, I'm Craig Blumenshine from Wyoming PBS. Monday, Governor Matt Mead addressed a joint session of the Wyoming Legislature and said that the state of Wyoming is strong despite significantly declining revenues. He asked the legislature to give him a budget that was forward thinking and one that sets Wyoming up well for its future. And that's where we'll start. The legislature's Joint Appropriations Committee since early December has been dissecting and cutting the governor's recommended budget. It passed a nearly $3 billion budget on Wednesday and now the Legislative Service Office will work through the weekend so that the budget can be considered by both the house and the senate beginning next week. We'll visit with the co-chairs of the Joint Appropriations Committee, Senator Tony Ross and Representative Steve Harshman, both republicans, as well as democrat, Senator John Hastert who is one of the two no votes on the amended budget bill. Then we'll visit with the leadership of the Wyoming Legislature. Senate President Phil Nicholas and House Speaker Kermit Brown. In addition to this broadcast, we'll have extended interviews on WyomingPBS.org with both the Joint Appropriations Committee and its Legislative Leadership. We'll ask leadership about their vision for Wyoming in this tough economic times. It's a new season of Capitol Outlook on Wyoming PBS starting now.

Gov. Mead: But make no mistake, all eyes are on the budget on us. During flash budget times our jobs are easier but that is the time that defines us. Budgeting should have long range perspective, it should not simply be an exercises in balancing revenue and expenditures one year at a time. Decisions should be based on a multi-year planning horizon because budgeting is about being consistent with the goals and plans of the state. What we do now, we either build or stagnate Wyoming. Let us step that up with courage, build Wyoming, take care of our citizens and provide a conservative yet positive path forward. It's a heavy lift that you all are going to undertake but as I started, it is this legislature, a citizen's legislature that is the best equipped to address these problems.

- Senator Hastert and Ross, Representative Harshman, welcome to Capitol Outlook.

- Thank you very much.

- Thanks, Craig.

Craig: Our viewers have just seen a clip of the governor talking about this budget process. He asked for a budget that was forward thinking and forward planning. What is your response? Have you delivered now to the body a budget that's meant the governor's criteria? Representative Harshman, let me start with you.

- Yeah, thanks, I've been on the committee 10 years. I've been in part of the budget cuts that are 8% budget cuts, 4% budget cuts. These budget reductions in our JAC budget are about 3% and so we're able to do that really because of the savings over the last 10, 15 years that we fought very hard for. I mean there are many members who want to spend every dime every session and we've fought hard to save some of those excesses in the good times. And so our plan on the JAC is to have a, what I'd call a burn rate or a spend rate. What if this occurs like what happened in the 80s where we have a longer rainy season? And so we think about an 8% or a six to 8% burn rate, spend rate each year of our savings and that allows us to slower grow it out. So that's what our budget's done in contrast that the governor had a good starting point for us. There were not very many cuts. Very few and so we had to do that tough work because part of our charge, we have five budget bills now and the one that everybody is most talking about now is really the general operations budget. And we're trying to get the expenses, the ongoing what our constitutional ongoing expense as a government down to our revenue. And not overspend what comes in for these general operations, and we're close, we got to about 36 million. And so what we couldn't get down to we're gonna take out of our reserves. The rest of the reserves are the rainy day fund, the 90 million for local government funding and then another 105 million that has to go on to the statutory reserve account. And then we set aside 80 million for school capitol construction because it's not just, you know, government worker jobs and keep in mind we haven't cut any jobs. I think one job was just placed now but these were all vacant positions that were removed out of the budget. There's not people in these jobs. So it's very important to realize that but so it's just those... What we're trying to do is just a slow draw down and we did that partially through the Penny Plan and then also through some cuts. And so our cuts total about 100 million out of a $3 billion number.

- Senator Ross, the Penny Plan is 1% this year, 2% the next. Is this budget cut enough? Is this a budget that sets Wyoming up for its future with declining revenues?

- Well, you know as Chairman Harshman said, you know, our goal was to try to avoid a structural deficit. And quite frankly we did not. I think we're about 30 some million dollars short of actually having our ongoing revenues meet or exceed our expenditures and we're short. So we're gonna have to take some money out of our rainy day fund. But we have made a better start on that than when we first started this whole thing. So we've done our best at this point in time to avoid that structural deficit. You know, the question is, is everybody happy with the budget? Absolutely not.

- Senator Hastert, you voted against this budget bill. You were one of two votes along party lines tended to as what the final vote was. What is it that concerns you most about this budget that you've worked on since December?

- Well, thank you for that. First of all, I want to say that, you know, there was a tremendous amount of work done to it on this budget and I appreciate all the work of the entire committee. I think we have some philosophical differences. I think that everyone's intent is to do what's best for the people of Wyoming and I think that we just kind of disagree on, on how we're gonna get there sometimes. And I'm kind of a people person and so, you know, for me the priorities was, were for items for the people. And I will respectfully disagree with my co-chair on the fact that no one lost their jobs. I mean, we fully, we removed the funding completely for the family literacy. And as the paper that I was shown there was 38 people that worked on that and if I missed, unless I'm missing a point there we're gonna have 38 people without jobs, you know? The primary things were the Medicaid expansion and family literacy and those kind of things that, I had issues with the budget.

- We're gonna get to Medicaid expansion in just a little bit but I'd like to turn to education. The governor said that this is one of the biggest challenges that this state has now because of the challenges to coal. Here's what he had to say in his State of the State address.

Gov. Mead: School funding, as for school operations and school CapCon there are hard choices to make. We see disagreement even now with what I propose on the ECA and where the JAC is now. This is the most serious, long term budget problem we have. It is long term because of President Obama's administration, what they've done to diminish rather than improve coal. The legislature has been a tremendous support of education and we don't want to lose that momentum.

- Have we right sized education with the funding now that you've presented that you've cut in the Joint Appropriations Committee?

- Well, I love to comment on that. I appreciate that the governor has finally publicly said that. I mean our committee's been saying that for the last several months. We're talking a lot and there's been a lot of press about 3% cuts to the general fund side of the budget. The biggest known problem we have in the state is K-12 school funding. And we've been talking about it for months. I finally heard it from the governor, I'm pleased that he said that and he as the bully pulpit can really spread awareness of this. His budget did not reflect that though however and we had to make major changes. There's two parts to the school budget. There's the capital construction, we have 21 main square feet across the state and the problem really with education in our state is it's funded by the most volatile revenue streams. It doesn't have sales tax or any of those more steady streams. The other part is surprise oil has really hurt us. Coal, I know the governor talked about it and coal lease bonuses are what have funded education construction, you know? About 2.4 billion over the last 15 years have funded that construction. They have dried up. But coal severance taxes, those kind of things will continue for years. The governor's proposal would have left a $450 million deficit in three years and that's spending all of our reserves. We have about 650 million saved on education side. Our plan is to spend all of our reserves but that deficit's gonna be down in the 100 million or less in three or four years. So our overriding plan was to not have a funding crisis on the operation side. The CapCon thing is, it's over after these two years and we put in the bill to have a conversation around the state, to have a committee of business and ag and minerals, people developed that but that's really the issue, there's two sides to that. I'm talking a lot here but the ECAPs was an increase that we granted last year. We didn't go into the model and mess with the model.

- ECA stands for External Cost--

- External Cost and Inflation Adjustment or cost to living raise or raise, and that was about 72 million over the next two years in this budget. Our proposal was to apply to Penny Plan to that and that would reduce that 72 million increase by 45 million so it would shrink the increase. There's a lot to this though because our school funding's made up by enrollment and some will tell you and rightfully so, it's self-correcting. If Wyoming loses students, you know, the price tag's gonna go down. And so I think we got a lot more conversation to do with that but I think this is the whole thing with this and I think we've all talked about it. You can't be Chicken Little and say that sky is falling and run around and put plywood on all the windows but you can't be an ostrich either and stick your head in the sand and say it's not happening. I mean we've got some real issues.

- Representative Harshman touched on a point of the ADM and self-correcting. I mean that's the kind of information that I'm getting from my school districts in Sweetwater County and that's the discussion we're having there. You know, in my mind that just felt like, in the governor's budget, he provided provisions for funding and fully funding K-12 along with the ECA and that's what I supported.

- Have we heard from superintendents around Wyoming based on your cuts, what are you hearing?

- Well, let me just tell you. I know that Chairman Harshman and I served on the school finance recaliberation committee. We had days and days of meetings and each and every school district and superintendent that came before that committee all said, "Look, we need to tighten our belts." But that's not what we did as a committee. We continued to fund the legislative model which was $50 million more than what the consultant said. Going forward is $50 million richer than what would be a cost-based model in their opinion and we hired them to do that model and they've done it before. So, just a moment and then you can have your say but that's a true story, that's true.

- Yeah.

- So, when we talk about the external cost adjustment that's really outside the model. So the--

- [Craig] Senator Hastert.

- [Sen. Hastert] Well, you know, when you talk about models and you talk about consultants, there really only is the legislative model and yes, we've funded over what the consultants have but that was a choice by the legislative body. So that makes it the legislative, you know, model. That's what we chose to do and I think that you know, when you make those commitments you have to follow through with them to an extent. Yes there is the downturn and we have to adjust for that but I think the governor in his budget had the proposals to support that.

- So this is not an easy thing to do but let's keep this in perspective. This is a 1% cut, you know? This is a 1% reduction in the increase. We didn't go into the model and cut the model in doing that and then our figures show that after these enrollment increases are based on last October, up a thousand students statewide. The actual reduction is gonna be in the whole system of 2/10 of 1% next year. And don't get me wrong. There are some districts that will lose enrollment that will go down farther. My district in Natrona County as well but what I've heard from superintendents is don't go in and mess with the model. Give a set percentage reduction and we can adjust.

- But the feeling out there is that the fact that the enrollment will be dropping off and then we made the cut. So it's kind of a double whammy and that's the feeling on it, so.

- Want to turn the page to Medicaid, also has been talked about a lot, really not just this year but for the last several years. Here's what the governor had to say in his State of the State address about Medicaid.

Gov. Mead: Medicaid expansion. As we move forward even with the available AML dollars tough choices are gonna be required by all of us. And I wonder, are we willing to cut more than 33 million from literacy, tourism, local government, senior centers and early childhood development just so we don't have to expand Medicaid? Five years I go I stood before this body and I told you I would fight against the Affordable Care Act, Obamacare. I kept that promise. Wyoming was leader, a leader in the nation and standing against this ill-advised law. We fought, took it all the way to the U.S. Supreme Court and despite our best efforts, the ACA was upheld as the law of the land. We lost a legal battle and today we've lost the political battle. I've urged you to move forward with a solution. In a previous State of the State I said my plan or yours or something better. We have fought the fight against the ACA. We've done our best to find the fit for Wyoming. We are out of timeouts and we need to address Medicaid expansion this session.

- So the discussion on Medicaid is ongoing, Senator Hastert, you support Medicaid expansion in Wyoming.

- Yes I have and I've supported it all along. I think what the governor did in the budget this year in asking the Department of Health to present us a budget with that, those with the expansion of Medicaid in it, providing us with some $32 million in cuts to the Department of Health was a healthy thing to do. I believe that our director of Department of Health put an awful lot of work and an awful lot of time into providing us with sound numbers as far as those that would be getting unto expansion of Medicaid. I know other states have missed the mark by somewhat, by a large percent but I think our director did an excellent job in the comparisons. I also am, you know, it's the, not only the 33 million or 32 million end that we would save in Department of Health but then the $263 million that's anticipated to be infused into the state's economy. That's our tax dollars. We send those tax dollars to Washington. I say bring them home. Bring them in to all men who work for the state of Wyoming and provide healthcare for people. My frustration was we didn't accept this and we didn't provide an alternative so that's very frustrating. And the number of individuals and groups that support it is growing by the day. One of the biggest criticisms we had was that 5,500 people would be coming off a private insurance. Well, Blue Cross and Blue Shield who's virtually our only in state healthcare carrier supports the expansion of Medicaid. And if they're fine with it, why shouldn't we be?

- The governor also said that perhaps hospitals might be at risk. There could be citizens around Wyoming that may have less access to healthcare if Medicaid's not expanded. What are your thoughts about that?

- Rep. Harshman: Well, I think you know, Medicaid only pays about 20% of the bills to hospitals so, and I know 20% is probably better than zero if that was the first. But I think it's important to understand what Medicaid expansion is. I mean we have Medicaid in this state for children, parents with children, for elderly, for disabled. Those populations have always been included in Medicaid and then all of our waivers with disabled people and acquired brain injury. But the expansion is that, is they ask to expand insurance to able body adults and I think that's the rub, that's why it received only 20 votes out of 90 legislators last years. I think when you get down to it we did not cut senior centers. The governor requested 4.4% increase, 500,000, we granted 250,000, a 2.2% increase for senior citizen on top of the 4.8% increase in the last budget. We did not cut locals, we granted the 90 million that was asked for. And so I think when you get into some of these sound bites it's important to kind of go into the real details. So in the end then we all balance the budget and do those things but the Department of Health was not cut 33 million. We actually increased their budget by $3 million and we exempted them from all the Penny Plan, travel restrictions. In the Department of Health we say you have the ultimate flexibility director because if a nursing home closes in Saratoga we know you got to move funds to deal with it. If something happens with title 25 commitments and we have a $10 million bill we didn't count on, he has a billion dollar budget. And we give them authority to flex that around to meet these challenges and serve our people.

- Senator Ross I want to give you the last word on Medicaid.

- Well, you know, that was a tough, tough call. I've historically opposed Medicaid expansion. I can only speak for myself as to why I voted for it. There was a seven to five in committee. The reason I voted for it at this point in time was one, it was in the budget. So it only last for two years. Secondly, we have a letter from the head of HHS telling us you can opt out. So it was only good for two years and I was more concerned with making sure that we got, that we eliminated that structural deficit. And so for me taking my role as chairman of appropriations that's the reason that I voted for it. And when you look at for instance the literacy thing, literacy program, that was, it started out as a federal program. The federal money is gone. That's a prime example of why there's people that oppose Medicaid expansion. So, for me it was a choice that I made based solely on making sure we have a balanced budget.

- Chairman Harshman's right in how you know, you structure the budget and as far as how you go through that. However, one of the first things that we did was was you take that, the total dollar amount that we were underwater. Now in my opinion, if you're $465 million underwater to start with but if we had included the expansion money, the savings there then you're only $432 million. That's my way of looking at and the biggest thing is is you look at, and I want to put a dollar figure to this. When you're talking about 138% of poverty level, that individual is only making $16,000 a year, $16,000 annual salary. You divide that by 12 and you know, and then take out rent, food and utilities, you know, just the bare essentials and they only have a few hundred dollars of disposable income.

- Senators Hastert and Ross, Representative Harshman, this will conclude our broadcast portion of this discussion. We still have a lot to talk about and viewers can go to online at WyomingPBS.org and we'll continue this discussion. But for now, thank you very much for joining us.

- Thank you, appreciate it.

- Thank you.

- Thank you.

- We're joined now by the leadership of the Wyoming Legislature, Senate President Phil Nicholas, House Speaker Kermit Brown. Gentlemen, welcome to Capitol Outlook. You both had the privilege of sitting right behind Governor Matt Mead during his State of the State address. He said the eyes of the state are on us implying the executive and the legislative branches of our state's government. You were watching both of your bodies. I don't think there's any debate that this is a watershed moment for Wyoming there's a lot of issues that had been discussed. Revenue shortfalls, Medicaid, education, prisons the list goes on and on. So it really comes down to leadership now for the next three weeks. How are you guiding your respective chambers in this really tenuous time so to speak in our state's history?

- People have to remember that we forecast revenues to the, our various accounts for six years. And what's becoming evident is looks like most of the economists that we talk to believe that the revenue profiles, the revenue levels that we're seeing now are likely to be held out for six to 10 years. And in fact, that's what the CREG report said. So a part of what we do is truth test that CREG report a little bit, you talk to experts. And when you settle in that those are your numbers the guiding principle is, is those are who you're gonna be stuck with. Now you can add in investment earnings because investment earnings from the Permanent Mineral Trust Fund and the Common School Permanent Land Fund are not within those CREG estimates. But we said go ahead and add in the entire 5% of earnings we expect to get or we would like to see to get and then see, do your budget's balance and can they balance for six years. If they can't, if you create a massive cliff in the order of $400 million to $900 million, we simply do not have the tax base to recover from that type of a cliff. So you have to plan this budget consistent with the six year look forward. And then finally as part of that you also have to look at your one time projects and one time revenues and make sure that you're not creating another type of cliff and that would be a cliff of deferred maintenance. Where you're say we're gonna ignore everything for two, four, six years and at the end of the day we'll take care of it then. If you do that you create another cliff and that's a cliff of liability and all of this, the guiding principle overall is that we have to balance. We have to balance between the interest of state employees, your projects, your one time projects and make sure that you are planning for at least a six-year period.

- And I want to emphasize one point there and that is you can manufacture a cliff by setting one category off against another. And if you fall into a trap of continuing with ongoing expenses without any recognition of a decrease in revenue, and you fund that difference between decreasing your revenue and continuing expenses with one time money then you are setting yourself up for a big tumble at the end when that one time money runs out and you haven't done anything about reducing expenses. And so, what we need to do is on an ongoing basis or ongoing expenses have to track and have to be sympathetic to the revenue, to the ongoing revenue stream that's available. And if it's funded by one time money you're setting yourself up for the day when the one time money stops and you just fall off an abrupt huge decrease that there hasn't been any preparation for.

- Give us a sense of history from your perspectives. Wyoming some will say has been here before. Is that what you perceive now or is this different? These revenue options to many who are new in the state are new. Maybe the first time in a generation that they've seen revenue shortfalls like this.

- We've been there before and you have to understand that in this state, more than anything else, we live off the land. And that means we're a commodity-based economy. In economy, commodities go up and commodities go down and we're just through a cycle right now. And so, people that have only been here the last 20 years or so have enjoyed all these and think it's normal. And those of us who has this more historical perspective have been grinning like a Cheshire cat and saying, "It's still going, it's still going. "We're gonna get what we can "because we know the end's coming at some point." Well now it's here and so to those of us that have that historical perspective it's no surprise. It's just another in the cycles that Wyoming goes through. We've been there before, we know how to handle it and we know that there's light at the end of the tunnel. But for those that haven't been here that long they're seeing it from a totally different perspective.

- Mr. President, do you agree with that?

- I agree and I would draw a little bit further than that as we know from studies, we've hired The Pew Charitable Trust or engaged them and worked with them to look at our economy and break it down. And our, what we're calling these cycles. What we know is that Wyoming has among our states, all 50 states, the most volatile revenue profile. So we go to the highest ups and down and we know the reason to this is because of commodity prices. But there are differences between the ups and downs and I would draw on two significant different characteristics. When I came to the legislature in the 1990s, late 1990s we had a revenue shortfall and we believed, we went out. There was no place to cut the budget, we couldn't find anything else we wanted to tax and we began to look at what was then described as tax 2000 to come up with a solution which was probably gonna be a, an income tax. What is different at this time is unlike the late 1990s, we know we have massive amounts of commodities for production. Coalbed methane came in after Tax 2000 and then we developed a deep gas wells in the Jonah, the Pinedale Anticline in Southern Wyoming. So now through modern drilling techniques and CO2 recovery, those types of technology and you look at, even the massive amount of coal. We know that we have an ample commodity tax base, tax that it's ready to produce. What's killing us is an environment that's driving down the cost of natural gas which was both political within the United States, with the current administration and it's partly influenced by oil production and the Saudis and what they're doing for their internal policies, which are outside of our, well outside of our coal. But we do see a commodity-based tax and that is what makes us different. So when you talk about a rainy day policy what we're seeing is on each one of these cycles the events are different. And when you hit there, arrive at that point you have to on ad hoc basis look and say, what are the characteristics of this event? How long is this event gonna last and how do you plan.

- Mr. Speaker and Mr. President, we're ending this segment here but we're going carry on this conversation on the web. So if you'll bear with us for just a moment.

- [Sen. Phil] Okay.

- [Craig] We'll continue the conversation with the leadership and the rest of our interview will be available at WyomingPBS.org. We want to thank our viewers for visiting with us today on Capitol Outlook. Want to also remind our viewers that we'll continue the discussion with members of the Joint Appropriations Committee next week and we'll also meet the new president of the University of Wyoming, Dr. Nichols. Again, thank you for joining us.