Thursday, March 9, 2017

Wyoming Other Funds Spending Up 180%

Remember Governor Mead's "bare bones" speech? Back in January he told the state legislature and all us taxpayers that there was nothing left to cut in the state budget. 

As the 2017 legislative session opened, the statists rode in on the same bull, confidently peppering the bill roster with proposals for tax increases. The fiscal conservatives were able to eke out a victory and stop all of them, but only after a down-to-the-wire fight against the last remaining half-percent sales tax increase. 

Kudos to our fiscal conservatives. That was a job well done.
As I explained earlier this week, now it is our turn to ramp up our efforts and bring about sound reforms to state spending. But there is also some work to be done for our legislative fiscal conservatives.

In the last five years there has been a fundamental shift in state spending, a shift that has gone completely unnoticed by our lawmakers and that - to the best of my knowledge - Governor Mead has not spoken a word about. 

Consider these numbers over Wyoming state spending in 2011, as reported by the National Association of State Budget Officers (NASBO):

General Fund: $2,726,000,000
Federal Funds: $1,547,000,000
Other Funds: $1,760,000,000
Total spending: $6,033,000,000

Now compare these numbers to NASBO's estimate for Wyoming for 2016:

General Fund: $1,663,000,000
Federal Funds: 1,308,000,000
Other Funds: $4,920,000,000
Total spending: $7,891,000,000

In 2011, 45 percent of total state spending was routed through the General Fund, which is the budget that we all talk about during the legislative session. Federal Funds are technically not part of that budget, but counted into it as a gift from 535 generous men and women in the nation's capital. 

Furthermore, in 2011 29 cents of every dollar the state spent was classified as "other funds". These are expenditures that are not reported in the state budget but still cost us taxpayers money, one way or the other. 

Originally, Other Funds was supposed to be the kind of state spending that is entirely paid for with fees. Driver's licenses is a good example, the fees on which are supposed to pay for the administration of the driver license registry as well as all the parts that go into the renewal process. However, over the years the boundary between the General Fund - which was supposed to be the tax-paid part of state spending - and Other Funds has been blurred. 

Colorado is a good example. In the early 1990s the state legislature passed a spending-control measure called TABOR (Taxpayers Bill of Rights). It was supposed to curtail spending increases and protect taxpayers against frivolous legislative promises on their tab. TABOR did have a visible effect - but not as its supporters intended. Clumsy as they were (or clever, perhaps?), the lawmakers in the Centennial State confined TABOR to the General Fund only. Predictably, as General Fund spending slowed down, Other Funds spending increased instead. In total, Colorado state outlays kept growing at roughly the same pace after TABOR as they had before.

The Wyoming state spending numbers reported above are suspiciously reminiscent of the Colorado experience. Here is a year-to-year account, again courtesy of NASBO:

Millions of dollars
General Federal Other  Total
2011  2,726  1,547  1,760  6,033
2012  2,455  1,547  1,748  5,750
2013  3,709  2,354  3,069  9,132
2014  1,951  1,343  4,252  7,546
2015  2,100  1,415  5,325  8,840
2016  1,663  1,308  4,920  7,891

Here are the year-to-year increases:

Millions of dollars
General Federal Other  Total
2012 -9.9% 0.0% -0.7% -4.7%
2013 51.1% 52.2% 75.6% 58.8%
2014 -47.4% -42.9% 38.5% -17.4%
2015 7.6% 5.4% 25.2% 17.1%
2016 -20.8% -7.6% -7.6% -10.7%

In other words, while the General Fund reportedly has decreased by 39 percent, Other Funds has tripled - tripled - in size. In total, annual state outlays have gone up by almost 31 percent in five years.

Here is the question for our fiscally conservative state legislators: what exactly is the state spending an extra $3 billion on through Other Funds in 2016 that it did not pay for in 2011?

The numbers above also give rise to another question. Notice the biannual switch between increase and decrease: every even year, the first year in a biannual budget cycle, when the legislature holds a "budget" session, spending decreases. Then, in the next "general" legislative session, spending goes up again. 

I am not going to accuse our elected officials of budgetary window dressing, but this odd pattern certainly raises some pertinent questions regarding the honesty of their commitment to "spending cuts". It remains to be seen what the actual outcome will be of the 2017 session, but if recent history is any guide we can expect another increase, probably concentrated to Other Funds. 

The funneling of state spending from the General Fund to Other Funds is conspicuous, not only when analyzed over time, but also when put in a national context. Thanks to the major increases in Other Funds spending in 2013, 2014 and 2015, Wyoming now stands out as the state that runs the largest share of its government spending through Other Funds:

Other Funds share of total state spending, top ten states
2014 2015 2016
1 Wyoming 56.3% 1 Wyoming 60.2% 1 Wyoming 62.3%
2 West Virginia 50.8% 2 Oregon 52.7% 2 West Virginia 52.9%
3 Oregon 50.0% 3 West Virginia 52.1% 3 Oregon 47.6%
4 Arkansas 49.2% 4 Arkansas 48.1% 4 Arkansas 47.2%
5 Colorado 46.1% 5 Colorado 46.8% 5 Colorado 46.3%
6 Michigan 43.7% 6 Wisconsin 42.7% 6 Wisconsin 42.8%
7 Wisconsin 42.9% 7 Michigan 42.3% 7 Iowa 40.0%
8 New Hampshire 41.4% 8 New Hampshire 40.4% 8 North Dakota 39.4%
9 Vermont 38.0% 9 Virginia 38.4% 9 Michigan 39.2%
10 Arizona 37.8% 10 Iowa 38.0% 10 Arizona 38.2%

There are two important practical implications of running large parts of state spending through Other Funds. The first one has to do with budgetary measures: the more money that is spread out over the intricate programs under Other Funds, the easier it becomes for the government agencies that benefit from them, to continue to increase their annual appropriations. In Wyoming, roughly half of all state employees are not accounted for through the official books - even some former and current legislators still believe that the State of Wyoming only has some 7,500 employees when the real number is about twice that - which creates a convenient business-as-usual appropriations atmosphere.

The second implication is that transparency does not matter. Legislators vote on the General Fund budget and recognize the federal funds. The rest is, at least in theory, left to the gubernatorial administration. Since the General Fund is what is being deliberated, media and the voting and taxpaying public put all their focus on that part of the budget. 

With almost two thirds of all state spending taking place elsewhere, the power of oversight granted the people in our constitution is reduced to a fiscal farce.

The rapid rise in Other Funds spending is a matter of great concern that demands further investigation. However, it has also had one positive effect, at least relatively speaking. Our state's dependency on federal funds is one of the lowest in the country: in 2015 and 2016, federal funds paid for, respectively, 16 and 16.6 percent of total state spending. Only Massachusetts has a lower share: 15.7 and 16.1 percent, respectively.

Lastly, let us also note that according to NASBO, from 2012 to 2016 Wyoming took fourth place in increasing its state spending:

Total, 2012 to 2016
1 Oregon 118.5%
2 California 59.3%
3 Arizona 44.7%
4 Wyoming 37.2%
5 Texas 36.8%
6 North Dakota 33.8%
7 Nevada 29.1%
8 Kentucky 27.5%
9 Idaho 26.7%
10 Minnesota 26.5%
11 New Mexico 25.7%
12 Colorado 25.1%
13 Florida 24.5%
14 Mississippi 23.8%
15 New Jersey 23.0%
16 Rhode Island 22.2%
17 Iowa 20.3%
18 Indiana 19.9%
19 Maryland 18.1%
20 Nebraska 17.6%
21 Ohio 16.4%
22 New Hampshire 16.3%
23 Utah 15.9%
24 Michigan 15.6%
25 Georgia 15.4%
26 Arkansas 15.2%
27 Delaware 14.5%
28 Virginia 13.3%
29 Connecticut 13.0%
30 New York 12.9%
31 Washington 11.4%
32 Vermont 10.9%
33 Wisconsin 10.5%
34 South Dakota 9.8%
35 Louisiana 9.3%
36 Oklahoma 8.5%
37 Tennessee 8.3%
38 Kansas 7.9%
39 Montana 7.9%
40 Alabama 7.6%
41 Massachusetts 5.8%
42 Missouri 5.4%
43 South Carolina 4.5%
44 Maine -0.6%
45 Illinois -6.5%
46 Pennsylvania -7.9%
47 North Carolina -11.1%
48 Alaska -13.2%
49 West Virginia -26.1%
50 Hawaii -67.1%

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