"The Voice of Wyoming's Construction Industry"
State Budget & School Facilities Project Priorities Update
State Revenues Down; Number of Construction Projects to Gradually Reduce
The Wyoming Legislature’s Joint Appropriations Committee met in Casper in October to review the Consensus Revenue Estimating Group’s (CREG) report for state revenue for the current biennium, the 2017-18 biennium and beyond.
There has been much discussion about declining state revenue, largely due to declines in oil and gas prices and coal production. There is a projected shortfall of nearly $160 million for the 2016 fiscal year, which means that if no other sources of funding are found or utilized, state expenditures will need to be cut by roughly 15% before the end of the 2016 fiscal year, June 30.
Revenue for the 2017-2018 biennium is projected to decline further from 2016, projected shortfalls of $208 million in 2017 and $224 million in 2017.
Perhaps the single biggest reason sagging mineral prices are not impacting the state’s budget as dramatically as in the past is due to state investment accounts, different accounts amassing billions of dollars, the interest earnings from these accounts helps to fund state government operations.
And while these accounts certainly help the state from immediate cuts as soon as mineral revenues decline, some say that the state needs to stop putting any money into savings, at least temporarily as we are now in leaner times. Some income flows have been directed away from savings already, but not all.
Others question if now is the right time to suspend all savings activity. After all, Wyoming’s state government has experienced robust growth over the past 10 to 15 years, and there are reserve funds that can be utilized to offset much of the revenue shortfalls. When reserve funds are coupled with modest cuts to state government expenditures, the current gap can be completely closed without touching continued investment in permanent funds, or seeking increased revenue streams.
What does this likely mean for Wyoming’s building construction industry?
When revenues drop, big ticket items, such as large construction projects, get cut. What will make this time different, at least in the foreseeable future, there will be funds for building construction, for schools if nothing else.
As far as the state budget goes, it would be safe to assume that major projects not already underway for the University of Wyoming, Community Colleges and the state in general will be reduced, but it is unlikely that all projects will be shelved. The Capitol renovation project will continue, although costs will be watched closely. The Herschler building remodel will also likely proceed, although the scope of that project is not clear, and may be scaled back. Proposed State office building projects will be up for debate, and there will be a solid push to move forward with a state office building for Casper.
The Legislature has strong support for major maintenance to be fully funded, protecting the investments the state has made in buildings. Obviously, major maintenance will mean upkeep of systems and items that many of our members specialize in. Major maintenance may also make funds available for renovation, remodel and addition projects as needed by agencies.
A larger problem on the horizon is funding for education, and education construction in the state. Education will have projected shortfalls in the 2017-2018 biennium of about $63 million, which again, could likely be covered by reserves, minor cuts and creative funding. However, the worst storm clouds will likely gather for the 2019-20 biennium when the shortfall is projected to reach $799 million.
There are few reasons for this looming shortfall, not the least of which is the decline of mineral revenues from education lands and the total loss of coal lease bonus monies after the 2017-18 biennium; all the while, education costs rise, including increased enrollment and employee expenses.
In the short term, for the 2017-18 budget, school construction is going to take a hit, but how large of a hit remains uncertain, and will remain so until the school construction budget is passed.
The School Facilities Commission, and the Select Committee on School Facilities have approved a budget request of over $360 million, which is a decline from the 2015-16 request of $418 million. There is a caveat in this budget request, that if Laramie County School District and the Governor so choose to move forward with replacement of Carey Junior High, the school district will abandon current plans for an elementary school and request another $26 million interim appropriation during
the 2017 General Legislative Session.
The entire budget request will now be worked by the Governor, then the Appropriations Committee before going to the whole Legislature for final approval during the legislative session, so there will be changes.
The School Facilities Department has been releasing approximately $25 to $30 million per month to projects and major maintenance throughout the state for the past 18 months or so. These are some of the highest rates by month the Department has ever done.
Due to a backlog of projects that the SFD is responsible for, there is a small wave of funding available that will help smooth out the coming decline in projects. However, even if the current budget request is fully funded, the monthly expenditures of the School Facilities Department will fall to half of what they are now in the next 18 to 24 months, to roughly $14 million per month, this is major maintenance, capcon, component, etc. Remember, this number will change with the school construction budget bill.
As stated previously, the Legislature maintains a strong commitment to maintain the current buildings they have built, and will be fully funding major maintenance. Schools will have to be built to keep up with increasing enrollments, about 1% (900 students, statewide) per year, even in spite of lower energy prices and mineral production.
Some legislators are considering a system that would always fully fund school major maintenance, a cost of about $120 million a biennium, and working out ways to ensure a consistent flow of roughly $100 million annually for capital and other construction, even during lean times, that would equate to $320 million a biennium for school building maintenance and construction. Many details of such a system, including increased revenue streams, will be proposed, discussed, and studied in the next 3 years.
During the 2018 Budget Session, unless there is a major turnaround in coal, oil or gas, the Legislature will need to get creative, not only with funding for school projects, but education, and funding as a whole, everything will be on the table.