House and Senate leaders reach budget compromise

A conference committee negotiating deep differences between the House and Senate’s budget plans cut an unusual deal Thursday by proposing to give each plan one year to work in the coming biennium.

The deal will take effect if a majority of the members of each chamber approve it.

After nearly three full working days without a public meeting, the budget conference committee convened Thursday morning and reached a compromise on government funding for public education, and on school construction and maintenance projects. The plan calls for using a House plan to finance state schools and construction in fiscal year 2019; then switching to the Senate’s approach in fiscal year 2020.

State Treasurer Mark Gordon said the compromise would be complicated to implement. Moreover, he expressed concern that both chambers have begun “mining” the state’s inviolate trust funds to meet immediate needs.

Core to the budget agreement was a compromise on whether the state would make more significant use of capital gains and reserve accounts to help pay for K-12 school operations and construction. Speaker of the House Steve Harshman (R-Casper) and Senate President Eli Bebout (R-Riverton) have remained consistently far apart on this question. Bebout and many senators prefer to spend cash out of the state’s savings accounts to keep the Legislature’s focus on cutting budgets. Harshman wants to make more use of investment earnings on the state’s $7 billion Permanent Mineral Trust Fund and other state trust funds to protect education funding.

Unable to bring its leadership together despite their respective philosophical positions on funding Wyoming’s public schools, the conference committee came up with a split.

For the 2019 fiscal year that begins in June, the state would use the House’s funding plan. Reserve accounts would be used to guarantee investment earnings before they came in, and that money would be slotted to cover school construction. Other funds, like an extra one percent portion of the state’s severance tax, money from online sales taxes, and federal mineral royalties all will go to cover educational operations.

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Then, in the second of the two fiscal years governed by the budget bill, the arrangement would flip. The Senate plan would get its turn. Most of the revenue diversions and the use of investment earnings would end. Education would be funded out of the state’s chief savings account, commonly called the “rainy day fund.”

Both Harshman and Bebout attended the Thursday morning meeting of the conference committee, according to Rep. Lloyd Larsen (R-Lander) a conference member.

The conference committee is made up of five members from each chamber. All are members of the House and Senate Appropriation Committees.  

While Larsen could not speak for the senators on the committee, he said the House side has been working with Harshman on compromises they might offer the other chamber.

“We’re saying ‘Speaker, are you comfortable with this?’ — the speaker has suggestions, then we’re trying to mold that into something that is palatable to him,” Larsen said.  

The compromise budget includes money to build a new Carey Junior High School in Cheyenne, a goal long sought by Cheyenne lawmakers including House Appropriations Committee Chairman Bob Nicholas (R-Cheyenne). Another point of contention — how much money the state would provide to construct the University of Wyoming’s science initiative — remained unresolved Thursday, having been pushed into negotiations over the state’s list of capital construction priorities.

There was little disagreement over Gov. Matt Mead’s ENDOW initiative, which will cost $41.5 million over the next two years.

Giving each side a chance to enact its preferred funding mechanisms for one year was the clearest compromise in order to reach agreement and pass a budget bill without extending the session beyond Saturday, Larsen said. It would be difficult to test the value of the House’s revenue strategies, which were based on the idea of providing long-term sustainable funding, without the one-year trial, he said.

“I think that’s a fair question and one that I don’t think we have the answer to,” Larsen said when a reporter asked if one year would be enough time to test the House’s strategy.  

“The one thing that it might tell us is how the mechanics of it works,” he said.

State Treasurer Gordon has been tracking the budget compromise. It “will be complicated to implement at our level and at the auditor’s level,” he said. In February, Gordon confirmed his plans to run for governor in 2018, according to a report in the Casper Star-Tribune.

The decision to turn to trust fund investments to address current needs is Gordon’s “biggest concern” about the Legislature’s budget efforts, he told WyoFile Wednesday afternoon.

“We are eroding the buffer that we depend on to ensure a steady stream of income,” he said.

The Treasurer’s Office in recent years adjusted the state’s investment portfolio and has “tilted the funds to throw off more income” to help meet the current financial needs. The change “comes at the expense of future generations,” the treasurer said.

The theory behind the state’s creation of the Permanent Mineral Trust Fund was to ensure that future generations benefit from the one-time production of minerals in the present. Gordon said the state wants the PMTF to grow over the long term so it can become a bigger contributor to general fund revenues. Income from the fund helps dampen the volatility of the fossil fuels and other minerals markets, he noted.

Now Gordon is seeing early signs of “mining the Permanent Mineral Trust Fund” to pay for today’s needs. He noted HB-194 State funded capital construction uses the fund to finance loans to pay for college dormitories and “very low interest loans” to communities for street and road construction.

“It’s a way of mining the inviolate funds,” he said.

The Senate accelerated its consideration of of HB-194 Thursday, and passed it 23-7 on final reading.

Also in flux is whether the Legislature will cut the K-12 public school spending model, and by how much. The Senate added language cutting around $75 million in education funding over the next two years in a budget amendment. In the compromise, that was cut out.

Debate over education cuts will likely occur through House Bill 140, the last remaining bill addressing education finance. That bill was originally estimated to cut $27 million. The Senate passed that bill today, after amending it to place a cap on special education — adding an additional $8 million cut in fiscal year 2020, but no cut in the coming year.

When explaining the budget compromise on the Senate floor Thursday morning, Senate Appropriations Committee Chairman Bruce Burns (R-Sheridan) said negotiations over education continued between the two chambers’ leadership.

The conference committee will meet tomorrow morning to review and vote to approve the compromise. From there, it will need a vote of concurrence from both chambers before going to Mead’s desk. The session will likely last at least into Saturday as lawmakers wait for a chance to override any vetoes that come from the governor.