Room 204 November 10, 2004

Capitol Building Cheyenne, Wyoming

PRESENT: Senator John Schiffer and Representative Phil Nicholas, CoChairmen;

Senators: Irene Devin, John Hines, Jayne Mockler and Rae Lynn Job;

Representatives: Alan Jones, Larry Meuli, Frank Philp, Ed Prosser, and Jane Warren.

Legislative Service Office: Mary Byrnes, Bill Mai, Dave Nelson, Steve Sommers, and Dean Temte.

ABSENT: Representative Pete Jorgensen

Supporting documents on file with Legislative Service Office

CoChairman Schiffer convened the meeting at 8:00AM and reviewed the agenda, see Attachment A.

Consensus Revenue Estimating Group October 2004 Report Discussion

Mr. Steve Sommers, Budget/Fiscal Manager, Legislative Service Office, presented the results of the Consensus Revenue Estimating Group’s (CREG) October 2004 meeting and subsequent report. Revenue estimates were increased substantially from the January 2004 levels forecasted by CREG. Income realized in fiscal year 2004 exceeded expectations by 11%, and projections for each of the fiscal years 2005 through 2010 also saw substantial increases. The strength of natural gas prices and corresponding production gains are the primary drivers of the forecasted increase, although increases to both oil- and coal-derived revenues were also substantial. Additionally, coal lease bonuses recently received by the Bureau of Land Management for sales that took place in June and August were included in this forecast. Sales scheduled for November and December may be distributed to the Minerals Management Service in time to be included in the January 2005 revision to these revenue estimates.

Revenue estimates from investments of the permanent mineral trust fund (PMTF) were revised downward, due to an anticipated restructuring of investments, according to Mr. Sommers. The State Treasurer’s Office submitted the reduced estimates based on their desire to protect the corpus of the fund by disposing of various fixed income investments, he said. Senator Mockler asked why cash makes up a large percentage of assets in the State’s portfolio. Mr. Sommers speculated that there is a need to have a certain amount of cash balance on hand in order to ensure the timely payment of the State’s obligations, and because historically a conservative approach to asset management has been undertaken. He noted that cash earns approximately 1.7% per year in interest.

Senator Schiffer asked Mr. Sommers if the fund balances carrying over from one biennium to the next would be better understood by members of the legislature if they were held in a separate account. Mr. Sommers responded by saying that separate accounts have been used in past biennium budgets, and that the current financial situation might be clarified by creating an account for the purpose of showing carryover monies. Representative Nicholas requested information regarding expected carryover levels based on revenue projections with varying energy price levels.

Mr. Sommers discussed the most recent fiscal profile. He pointed out that the positive balances in the general fund, budget reserve account, and school foundation program account are due primarily to strong natural gas prices. Taxes and royalties on natural gas production amount to approximately 70% of the income stream flowing into those accounts.

External Cost Adjustment Factor

Ms. Mary Byrnes and Mr. Dave Nelson, of the Legislative Service Office, discussed, the external cost adjustment for the school finance funding formula with the committee. They explained that the committee is statutorily required to recommend annually a cost adjustment, which then is considered by the entire legislature during the legislative session. Chairman Schiffer noted that other proposed increases in education funding would also be considered during the upcoming legislative session, and that any increase to the block grant formula funding to the school districts would be affected by the external cost adjustment factor, in effect compounding those additions to the block grant. Ms. Byrnes told the committee that much of the additional funding that will be requested centers on salary issues. Salary components of the model amount to approximately 85% of the funding model, she said.

The committee considered materials distributed by Mr. Nelson and Ms. Byrnes showing comparisons of the consumer price index and the Wyoming cost of living index. After considerable discussion, the committee voted to forward a 2.3% external cost adjustment factor for consideration by the full legislature in January 2005.

School Facilities Issues

Mr. Bubba Shivler and Ms. Teresa Kunkel presented information to the committee regarding changes made to previous appropriations for school facilities projects around the state. A chart showing the School Facilities Commission’s original five-year plan for construction and renovation of schools, and changes to that original plan, was distributed and discussed. Mr. Shivler told the committee that some of the projects in the plan are now estimated to cost more, and others less than originally estimated. Funding has been flexed between these projects, and he anticipates the need to continue to be able to make these sorts of adjustments. In addition, Mr. Shivler pointed out to the committee the need to separate planning costs and construction costs. CoChairman Nicholas asked if it would be better to fund the program with a block grant. Mr. Shivler responded that his intent in appearing before the committee was to answer the funding questions that would naturally arise from these transfers, and pre-empt the discussion of a block grant.

Select School Facilities Committee

Senator Devin submitted a letter for the committee’s consideration, in her capacity as co-chairman of the Select School Facilities Committee. The contents of the letter center on the issue of monies appropriated from the budget reserve account to the school capital construction account. The select committee suggests transferring that amount back to the budget reserve account since revenues to the school capital construction account currently meet anticipated expenditures. After discussion, the committee agreed to forward this provision in the supplemental budget bill.

Judicial Staffing Concerns

Chief Justice William Hill, Wyoming Supreme Court, discussed recent developments concerning the placement of district court judges in areas of need. Justice Hill pointed out that in the November elections, Natrona county voters elected not to support an additional judge, that Fremont county installed a new judge even though the position was to be left unfilled once vacated, and that Campbell county has enough caseload to justify another judge. Cochairman Schiffer asked Justice Hill if it would be possible to move the Natrona county judge to Campbell county to meet the caseload requirements up there. Justice Hill responded that it should be possible and that the committee would be provided with information from the Board of Judicial Administration and Policy, and other pertinent information regarding a move.

Judicial Retirement Issues

Ms. Holly Hansen, State Court Administrator, Wyoming Supreme Court, Mr. Thomas Mann, Director, Wyoming Retirement System, and Mr. Dave Slishinsky, Actuary, Mellon Bank of Denver, discussed with the committee a shortfall of contributions into the judicial retirement system. The problem arose when contributions were first calculated based on a retirement age of 60, and 20 years of service. The actual retirement rules were not set up based on 20 years of service. The net result is that the state’s contribution for judicial retirement will need to be increased by 3.1%, and $95,000 will be required in a separate appropriation to cover the unfunded liability that currently exists. In addition, statutory changes would be required in order to allow the additional retirement contribution on behalf of the judges. Upon conclusion of discussion of the issue, the committee directed Mr. Sommers to include both financial provisions in the supplemental budget process.

State Employee Retiree Health Insurance

Mr. Mike McVay, Budget Division Administrator, Mr. Ralph Hayes, Director of the Wyoming Group Health Insurance Program, and Mr. Brian Foster, Human Resources Administrator, Department of Administration and Information, discussed state retiree health insurance issues with the committee. Mr. Hayes explained that currently, the state group insurance program is an access only program. Once an employee retires, he must make an election to continue participation in the group health program, or decline continuing coverage. An employee who elects to remain in the state group health program must pay the entire premium, as there is no state contribution for this purpose. Employees who opt out of the program are no longer eligible for coverage in the state system.

Mr. McVay told the committee the governor is not recommending an appropriation for funding retiree insurance in this supplemental budget, but will be requesting funds for a comprehensive study of the issue.

Mr. Hayes told the committee that many retirees’ state retirement payments are very close to being equal to their state insurance premium. He indicated that some healthy employees are opting out of the insurance and that employees retiring with health issues are opting to keep the coverage. This situation has a tendency to raise the overall rates for the retiree group.

Mr. Norman “Skip” Roberts and Mr. George Krell of the University of Wyoming/State Employees Association gave testimony to the committee regarding their experiences with the state insurance system. They proposed a system whereby the state would pay a portion of the retirees’ insurance costs based on the number of years of service the employee had with the state prior to retirement.

Discussion of Budget Hearing Schedule

The Committee discussed upcoming supplemental budget hearing dates. Agency hearings will begin December 6, 2004, and continue throughout that week. The current committee intends to hear all agencies with budget requests, and make recommendations to the incoming committee for submission of a supplemental budget bill in the upcoming 2005 Legislative Session.

Adjournment

Having completed all agenda items, Cochairman Schiffer adjourned the meeting.

Respectfully submitted,

-------------------------------------- ---------------------------------------

John Schiffer, Cochairman Phil Nicholas, Cochairman