"Draft Only - Approval Pending"

 

Summary of Proceedings

of the

Select Committee on Capital Financing and Investments

 

October 24, 2001

Capitol Building

Room 302       

Cheyenne, Wyoming

 

PRESENT:           Representative Fred Parady, Chairman;

 

                            Senators Hank Coe, Keith Goodenough, Bill Hawks, April Brimmer Kunz, Curt Meier and Jayne Mockler;

 

                            Representatives Mike Baker, Chris Boswell, Roger Huckfeldt, Doug Osborn and Wayne Reese.

 

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

 

                            Others:  Please see Appendix 1.

 

AGENDA:            Please see Appendix 2.

 

*  *  *  *  *  *  *  *  *  *

 

Chairman Parady called the meeting to order at 8:30 a.m.  The minutes from the August meeting were move and approved.

 

Consensus revenue estimating group

 

LSO staff, Steve Sommers, addressed October revenue projections.  He provided appendix 3, a revenue update for the various state sources and an updated forecast for FY 2002 through FY 2006.  He also provided a summary of the fiscal profile, attached as appendix 4.

 

Capital financing and leasing options

 

State Treasurer Lummis introduced Keith Curry, with Public Financial Management, a consultant retained by the state loan and investment board to discuss alternatives regarding capital construction bonding.  Mr. Curry presented two written documents, attached as appendices 5 and 6.  The objectives he presented after meeting with various state officials and groups were to: reform school finance to meet the State Supreme Court's decisions, provide a funding strategy to meet school capital needs, provide an adequate financing vehicle for state capital needs, permit the state to initiate a major state highway widening program, and create a vehicle for aeronautical expansion.  After reviewing the specific requirements of the Court in the school finance cases, he suggested the overall school capital construction spending requirement was $708 million, reduced by subsequent expenditures by the Legislature.  Using the $708 million figure, school capital construction would cost approximately $43.5 million annually over thirty years.

 

Mr. Curry reviewed school capital construction revenue sources, school capital construction requirements, and cash flows through 2009.  His recommended strategy was to increase the gas tax by 5 cents, with funds going to transportation and redirect $32 million (the approximate amount raised by the new gas tax) in federal mineral royalties from transportation to school capital construction.  School capital construction would be funded from these revenues, state mineral royalties and loan repayments.  Coal lease bonus funds currently directed to the school capital construction account would be used for state capital construction expenditures.

 

To implement his recommendations, a state financing authority would be created and authorized to issue revenue bonds.  The state would provide bond proceeds or cash grants for school construction, the current state subsidy of local mills would stop, as would the state local bond guarantee program for new financings.  A state school commission would oversee school construction and a state commission would oversee state construction.  The state transportation commission would be authorized to issue federal fuel tax backed "GARVEE" bonds.  The GARVEE bonds would be paid off in 15 years or less with an estimated cost of 4.25%.  Transportation funding would be increased $48 million in years 2003-2005.  The remaining $28 million in federal mineral royalties to transportation could be used to support aeronautics needs.  Mr. Curry's written materials contain specifics regarding the issuance of GARVEE bonds and the requirements for school finance.

 

The Committee discussed with Mr. Curry and Treasurer Lummis how the recommendations were developed.  Committee members also questioned whether other possible revenue sources were considered.  Mr. Curry explained why he was recommending a gas tax.

 

 

Lease options

 

Former Senator James Applegate addressed the Committee regarding leasing of capital assets.  He reviewed the history of the Wyoming Building Corporation and its use in financing the newest prison and associated buildings.  The arrangement involves the use of the Building Corporation to lease the building site from the state, issue bonds to build the facilities, lease the facilities to the state and use the lease payments to pay the bonds.  The arrangement has thus far proved advantageous to the state by gaining a greater return on investment earnings than the costs to bond. 

 

Senator Applegate suggested the arrangement could be used in the school finance context, on a project by project basis.  In response to Committee questions, he noted that if a considerable number of facilities were financed through the Building Corporation, it could result in the Corporation needing more administrative help.  The arrangement provides an option for the Legislature to consider.

 

 

Legislation - School and other capital construction financing.  02 LSO 0199.W4. (Appendix 7)

 

LSO staff reviewed  draft legislation with the Committee.  The first draft considered was: School and other capital construction financing.  Three suggested amendments to the bill were presented at the same time.  (Appendix 8)

 

The first part of the draft bill deals with "GARVEE" bonding authority for highways. The provisions were taken from Arizona's "GARVEE" bonding statutes, with some additional language from Wyoming bonding provisions in other situations. The highway bonds would be supported by future federal highway funds; they could also be supported by the remaining 14 1/8% federal mineral royalties (FMRs), plus coal lease bonus distributions to the highway fund.  FMRs to the highway fund which are required to be used for county roads are not affected nor included within the figure of remaining "FMRs".

 

The draft also authorizes bonding by the transportation commission for airports. Those bond proceeds would be used to fund airport grant and loan moneys as approved by the aeronautics commission to the local entities. The airport bonds would be supported by the "remaining FMRs" to the highway fund and coal lease bonus distributions, if the transportation commission determines to so use those funds.

 

Under the second portion of the draft, 16 ¼% of the FMRs flowing to the highway fund are redirected to the school capcon account. Before they are deposited in that account, amounts necessary for outstanding bonds (under current law), and for bonds to be issued for state obligations under the school capcon program would be deposited in bond repayment accounts.  Authorized bonding for school capital construction is increased from $100 million to $708 million.

 

Under the draft, gasoline and diesel fuel taxes are increased by $.05 per gallon.  This increase is with "exemptions on".  The full amount of the additional tax flows to the highway fund, with no distribution to local government.

 

The three amendments were drafted to reflect the recommendations of the consultant.  The first would remove one of the limitations on the amount of GARVEE bonds.  Since grant agreements are not always in place at the time of bonding, the existing language was too restrictive.  The second amendment provided for "stair stepping" of the shift of FMRs from the highway fund to the school capcon account in one quarter increments annually.  The third provided for coal lease bonus funds currently directed to the school capcon account to flow to a state capital construction account.

 

 

Capital construction financing – 02 LSO 0200.W4 (appendix 9).

 

LSO staff reviewed the next bill draft with the Committee.  This draft incorporated most of the draft outlined above, the amendments to that draft and also included the following aspects:

 

A new commission is created.  The commission assumes many of the bonding powers and duties in current statute, as well as duties of the state building commission which is repealed under the draft.  Certain bonding powers are unaffected, such as the state loan and investment board authority related to farm loans and water development loans.  Also unaffected are independent authorities, such as the WCDA and the Gas Pipeline Authority.  Staff noted that in this draft a number of policy decisions need to be made by the Committee, the draft merely reflected staff's best judgment for purposes of placing the issues before the Committee.

 

Chairman Parady asked Committee members for requested changes.  Senator Mockler asked that provisions for review along the lines of the Select Water Committee's oversight of water development projects be added for the capital construction functions in the bill.  The Select Capital Financing And Investment Committee would be the oversight Committee.  Representative Huckfeldt asked that the fuel tax provisions be rewritten with the total tax stated at the beginning of the statute as done in the recodification of Title 39.  Representative Osborn requested that the director of the department of employment be contacted regarding the worker's compensation bonding provisions in current law and that those provisions not be placed under the new commission.  Senator Meier asked that provisions for limiting bonding authority and cross collateralizing the revenue streams be added.  Chairman Parady asked that he work out the details of the request with Mr. Curry.  Representative Baker suggested removing the fuel tax provisions.  After discussion, staff was directed to keep the fuel tax provisions in the bill for the next meeting. 

 

 

State mill levy for school capital construction 02 LSO 0190.W1 (appendix 10)

 

The bill provides for a four mill statewide levy under the Wyoming Constitutional provision authorizing up to four mills for general revenues.  The revenue raised would be placed in the school foundation program, with an approximately equal amount ($42 million at today's assessed valuation) in FMRs diverted from the school foundation program to the school capital construction account in order to allow bonding against the capital construction account without a vote (i.e., since the pledged funds are not taxes, but FMRs, no debt is created and no vote required). 

 

Senator Kunz requested that a bill be drafted for a four mill levy, not under the state Constitutional limit of four mills according to the Supreme Court ruling, for school capital construction.  The bill would also include a provision for bonding directly against the revenues raised.  The imposition would be subject to a vote of the people.  The bonding would also, should the Constitution require such a vote.

 

 

Investment earnings - spending policy recommendations 02 LSO 0128.W4 (appendix 11)

 

The State Treasurer, Deputy Treasurer Garland and Becky Gratsinger, with RV Kuhns and Associates, addressed the proposals for changes to the state spending policies for the common school account and permanent mineral trust fund earnings.  The Treasurer's recommendations are summarized in a letter to the Committee.  (Appendix 12)  Charts showing projected earnings and the effect of changing the spending policy amounts from fixed dollar amounts to a percentage of the corpus were reviewed.  (Appendix 13)  After discussion, Chairman Parady asked that the Committee be presented with information at the next meeting setting forth the effect on funds available for appropriation by: 1. Changing the spending policy from a fixed dollar amount to a percentage of the corpus; 2. Making the change to the 5% goal over a longer period than suggested (over six years and over twelve years).  He also requested that the build up of the reserve accounts be shown under the two scenarios for changing to a percentage for the spending policy amount.  The Committee would review the draft bill at the next meeting.

 

 

Permanent fund investment earnings 02 LSO 0129.W1 (appendix 14)

 

Senator Meier explained the intent of his proposal to incorporate an inflation proofing provision in the constitutional provisions for the permanent Wyoming Mineral Trust Fund and the Common School Permanent Land Fund.  LSO staff explained the bill as drafted would cap the amount which could be spent from the funds at 2010 levels, plus inflation.  An amendment would be needed to correctly reflect the Senator's intent.  The Committee discussed the proposal and Senator Meier indicated he would work with LSO to redraft the proposal for the next meeting.

 

 

College Savings Plan 02 LSO 0126.W2 (appendix 15)

 

State Treasurer Lummis stated the bill could be taken up at the next meeting.  The Committee agreed.

 

The next meeting was set for December 12 in Cheyenne.  The meeting adjourned at approximately 5:15 p.m.

 

 

Respectfully submitted,

 

 

 

Representative Fred Parady

Chairman

 

 

All appendices referenced are on file at the Legislative Service Office.