CHEYENNE, Wyoming — Wyoming leaders must weigh budget cuts and consider dipping into reserve funds to maintain state government in coming years, officials said Monday in response to a new report that sharply cut state revenue projections in the face of slack energy prices.
The state's Consensus Revenue Estimating Group, a team of state financial experts, released its annual report Monday.
The group projects state general fund revenues will drop from nearly $3.5 billion in the two-year funding cycle, called a biennium, that runs through next June to just under $3 billion for the following biennium, covering fiscal years 2017-2018.
Wyoming schools also face lower funding as a result of falling property tax valuations and the mineral production slowdown.
Sen. Tony Ross, R-Cheyenne, is chairman of the Senate Appropriations Committee. He said Monday that the state's school funding could face an additional shortfall of over $700 million in the two-year funding cycle that starts next summer. The decline in school funding comes as a result of lower property tax valuations and reduced energy production.
"It's a tough, situation right now," Ross said. "I don't know that I have great answers for you."
Lawmakers are set to gather in Cheyenne on Feb. 8, 2016, to kick off a 30-day session to craft the state budget for the biennium that starts next July. Ross said lawmakers first of all will wrestle with how to cut state agency budgets.
Ross also said lawmakers will likely consider changing state law to end the statutory diversion of 1 percent of state mineral tax revenue — currently about $100 million a year — that goes into state permanent savings. Finally, he said lawmakers will also consider whether to spend down the state's so-called "rainy day fund," a pool of about $1.8 billion in readily available cash.
Sen. Drew Perkins, R-Casper, serves on the Senate Appropriations Committee.
"What's going to happen is we're going to have to tighten our belts," Perkins said Monday. "Folks are going to have to look and establish priorities and we're going to have to live within our means. Wyoming has to have a balanced budget, we have to live within our means."
Gov. Matt Mead earlier this month warned the state's budget picture had soured significantly since the last full set of CREG estimates were released in January. He announced that he was imposing a state hiring freeze and calling on state department directors to review all aspects of their spending.
Mead, who's traveling abroad on a trade mission, issued a statement Monday in response to the CREG figures.
"We have worked on fiscal policy that grows Wyoming's economy, creates opportunities, and allows us to move steadily forward in all revenue climates," Mead said. "We have established and grown savings and permanent funds. We must steer a steady course now as we navigate a period of diminished revenue."
The CREG group had projected in January that natural gas would average $3.80 per thousand cubic feet. Prices have failed to meet that level and gas recently has been trading at just over $2. Each $1 decline in its price costs the state roughly $100 million annually.
And while Wyoming is the nation's leading coal-producing state, the report notes that production has dropped in four of the past six calendar years. The CREG report predicts production continue to slip, dropping from 375 million tons this year down to 360 million tons in 2020.
Despite efforts by Mead and other Wyoming officials to find a way to export Wyoming coal to Asia, the CREG report states that coal faces challenges including increased federal regulations and new power plants switching to other fuels.
Lower oil prices are also undercutting state revenue forecasts, the report states.
One bright spot in the state's financial picture has been return on state investments. The state has about $19 billion in various reserve funds, and capital gains from investments exceeded projections by nearly $350 million in the first half of this year, the report states.
Alex Kean, head of the state's Economic Analysis Division, serves as CREG co-chairman. He said Monday that while the state has experienced volatile energy markets in the past, the current situation is different because all major segments of energy production in the state are experiencing oversupply.
"Wyoming's not resource limited by any means," Kean said. "But without an improved price environment, the CREG group just doesn't see production increases occurring during this projection period."