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September 26 and 27, 2002
Student Union, University of Wyoming
Laramie, Wyoming
Senators Hank Coe, Keith Goodenough, Bill Hawks, April Brimmer Kunz, Curt Meier and Jayne Mockler; Representatives Fred Parady, Chairman; Chris Boswell, Roger Huckfeldt, Doug Osborn and Wayne Reese.
Mary Byrnes, Dave Gruver, Dave Nelson, Jason Raymond, Steve Sommers
Please refer to Appendix 1 to review the Committee Sign-in Sheet for a list of other individuals who attended the meeting.
Representative Mike Baker
All meeting materials and handouts provided to the Committee by the Legislative Service Office (LSO), public officials, lobbyists, and the public are referenced in the Meeting Materials Index, attached to the minutes. These materials are on file at the LSO and are part of the official record of the meeting.
Chairman Parady called the meeting to order at 8:30 a.m. The following sections summarize the Committee proceedings by topic. Please refer to Appendix 2 to review the Committee Meeting Agenda.
LSO staff reviewed committee sponsored legislation in the past session. A summary of each bill sponsored was provided to the Committee. (Appendices 3 through 6). Passed legislation included: Investment earnings – spending policy – SF45, and Family college savings program – HB98. Failed legislation included: Capital construction financing - HB103 and Transportation commission – bonding authority – HB99. In regard to HB 103, the Committee requested a list of the projects for which state revenue bonds have been issued under W.S. 9-4-605.
LSO staff provided information regarding school capital construction spending. Four items were distributed to the Committee: 1) School Capital Construction Program - 2002 Transition Process; 2) School Capital Construction Account - FY03-04 projections; 3) School Capital Construction Spending, FY99-03; 4) A letter from counsel for the State in the school litigation regarding compliance with the Supreme Court mandate on school capital construction. (Appendices 7 through 10). LSO staff explained that the Joint Appropriations Committee is still involved in reviewing school projects in the transition period, which includes the Sheridan and Powell projects for this year. Staff noted that the Powell project was delayed as a result of the school district's request to review the remedy needed. The new school capital facilities commission would be responsible for review and recommendations regarding the remaining projects specified on appendix 7.
A summary of the school capital construction account was reviewed by LSO staff. The account balance as of July 2002 is approximately $19 million. Projected revenues to the account for FY03-04 are approximately $149 million. Projected expenditures for the same period are approximately $85 million. Those expenditures include only planning funds for the Powell and Sheridan projects at this time and do not include other projected pipeline projects for FY03-04 (estimated in rough terms for place holding purposes only at approximately $42 million). Nor is the cost for needed seismic remedies currently being studied included within the expenditure figure. (See appendix 8).
LSO staff also reviewed appendix 9, a summary of school capital construction and major maintenance payments from FY99 through FY03. Staff explained that the $258 million expenditure figure could not simply be subtracted from the dollar figures the Supreme Court had used; the Court compiled that figure using a building list which was acknowledged as outdated, and not all expenditures have been directed to those same buildings. The point to remember is the goal set by the Court of buildings needing only routine maintenance. Senator Irene Devin explained that the increase in major maintenance funding formula over the past two years was an attempt to reach that goal for some buildings.
Charles Ware, Burke Jackson and Don Bryngelson, representatives of the School Facilities Commission addressed the Committee. Mr. Ware noted that currently the school building remedies are being handled in a "crisis mode". That is intended to change with the required five year plans for each district. He noted the Commission could not take a "cookie cutter" approach since each district is in a unique situation. While the Commission does not intend to write blank checks to the districts, it is committed to working with the districts and to reduce the litigiousness of the issue. The Commission estimated at least $100 million in school capital construction expenditures will be made each year for the next six to seven years. The Commission would like to see some type of dedicated revenue stream to provide that funding.
The Committee discussed the Commission's plans and how they fit the Supreme Court mandate. Projected life cycles, energy conservation considerations and other issues associated with school capital construction were included in the discussion. Senator Kunz noted that the Commission should provide a synopsis of its plan to the Court and the Legislature. Senator Mockler suggested the Commission should provide a projected schedule under its plan so that all would know which particular buildings would be "waiting at the end". Senator Devin noted the process is and will be ongoing, that there is a local/state control issue in the background of school capital construction and that the state had little control over capcon expenditures until the 2002 legislation. In response to Committee questions, LSO staff noted the Supreme Court left open the possibility of extensions of time to meet goals and retained jurisdiction should the parties not be able to reach agreement on a particular issue.
LSO staff briefly reviewed a chart prepared on local government capital construction financing. (Appendix 11). Senator Mockler requested a "breakdown" of which state funds flow to local governments and a totaling of those funds. LSO staff indicated that there would be some definitional problems regarding the request, but that for the categories of revenue streams chosen, a compilation would be supplied.
George Parks, executive director of the Wyoming Association of Municipalities, and Joe Evans, executive director of the Wyoming County Commissioners Association, addressed the Committee. Mr. Parks noted the largest capital construction issue for cities is street building and repair. Solid waste facilities are also a major problem. The optional sales and use tax provides a significant source of funding.
The Committee questioned the effects of de-earmarking and Mr. Parks stated that cities and towns had lost money as a result, though the distribution of the rainy day account had made up for part of that loss. Mr. Evans stated that counties received between $21-22 million in severance taxes in FY01 and only $12-13 million in FY02. LSO staff noted that FY00 and 01 distributions were unusually high and that while generally FY02 distributions (the first year for full implementation of "de-earmarking") were less than FY01, FY02 distributions were nearly equal the average for the previous five fiscal years. With the distribution of the "rainy day account" of $41 million, cities and towns received more in FY02 than they would have otherwise received without the "de-earmarking" legislation. That distribution was, however, a one-time distribution of funds, while the revised distributions under the "de-earmarking" legislation were ongoing.
Mr. Parks offered two suggestions for legislation. The first would provide a one cent fuel tax increase to be distributed to cities and towns. (Appendix 12) The second was a constitutional amendment exempting municipal sewage disposal systems and other municipal utilities from constitutional debt limits applicable to municipalities. (Appendix 13).
Mr. Evans noted four areas of primary concern for counties: roads, jails, courthouses, and solid waste facilities. As far as recommendations, he suggested that the optional sales tax proposal by Representative Huckfeldt last session (by which more flexibility was made available for the entire two cent optional tax) would be useful. The general obligation debt limit of 2% was low, but probably not worth the effort of a constitutional amendment. The State Loan and Investment Board grant and loan program could provide more funds for road maintenance. Finally, thought could be given to increasing the mill limits in "boom" years and setting aside the increased revenues for leaner years.
University President Dubois addressed the University's capital facilities plan. The draft plan for the years 2002 through 2007 was provided. (Appendix 14). President Dubois outlined the plans assumptions, principles, challenges and financing proposals. The financial plan calls for the University to fund all planning for the projects. Some of the projects would be funded through bonding by the University, others by additional budget allocations or through the use of federal mineral royalties. A listing of all projects, projected costs and maps of current use of facilities on the campus and anticipated use of those facilities under the plan are contained in appendix 14. President Dubois noted the plan was a starting point and that should the Legislature not be supportive of the general concepts it would be best to know that early in the process so the University could adjust accordingly.
Frank Galleotos, Director of Administration and Information, Rick Miller, UW Vice-president, and Rich Gilliland, Executive Director, Community College Commission, addressed the Committee regarding capital construction and major maintenance for State, University and community college facilities. Mr. Galleotos' remarks are contained in appendix 15. He noted the state is in the process of implementing a new approach to budgeting for and evaluating capital construction funding. The state currently addresses capital construction on a funds available basis, delaying maintenance and construction when funds are short. Mr. Galleotos suggested that the state should make a sustained effort to maintain current structures through the agencies' regular operating budgets.
Mr. Miller suggested the same concept used for K-12 major maintenance could be used for State facilities, the University and community colleges. His remarks were also provided in writing and are contained in appendix 16. The proposal suggested using a replacement cost per square foot, and a multiplier determined necessary to keep the facilities at a specified condition (here the low end of the fair category, resulting in a multiplier of 1.5%). The formula used is not as important as establishing a line item in the state budget for major maintenance funding in his view. Mr. Gilliland supported the remarks of Mr. Miller as applicable to the Community Colleges.
The Committee discussed the amount of funds needed to meet the proposals, the applicability of the formula (including the underlying factors and assumptions) suggested and Mr. Galleotos' suggestion of financing construction through agency lease payments.
Report on state investment policy
State Treasurer Cynthia Lummis and Deputy Treasurer Sharon Garland addressed the Committee. Treasurer Lummis explained the state spending policy for investment earnings from the permanent mineral trust fund and the common school account. Legislation last session changed the spending policy amount from a dollar amount fixed in statute to a percentage of the corpus value. That percentage will decrease until a sustainable earnings amount of 5% is reached. No changes to the spending policy amounts are being recommended. (Appendix 17).
Treasurer Lummis also discussed investment earnings for the past year and provided a written review of those earnings by fund and investment manager. (Appendix 18). On March 31, 2002, 9.2% of assets were in equities, while on June 30, 2002, 7.8% were. The decline is attributable to a declining value of those equities, not to the sale of equities in favor of other investments. Returns for the various funds in FY02 ranged from 5.19 to 9.98 percent. Overall, domestic equity assets were a negative 20.18% for the fiscal year, while domestic fixed assets returned 9.10 percent. One year returns by investment managers ranged from a negative 36.15% to a positive 9.98% by the State Treasurer's Office.
The Committee commended the Treasurer on the returns in a difficult market and discussed the presentation generally. Senator Goodenough requested that the State Retirement System be contacted and an investment performance summary be supplied.
Tobacco settlement proceeds
Treasurer Lummis introduced J.J. Ament and Bob Doherty from UBS Paine Webber and Alex Brown, to discuss securitizing tobacco settlement proceeds. Mr. Ament and Mr. Doherty provided written materials outlining the tobacco settlement and possibilities of securitizing settlement payments to the state of Wyoming. (Appendix 19). Under a master settlement agreement four tobacco companies have agreed to make payments to the settling states (including Wyoming) amounting to over $200 billion over the next 25 years. The payments are to be made in perpetuity, with Wyoming's share approximately .25 percent. The base amounts of payments are not guaranteed, but are subject to certain adjustments, including volume adjustments. The volume of smoking is projected by some to decrease. The payments are the sole responsibility of the settling tobacco companies.
Because future payments are subject to some risks and given the desire for immediate funds, some jurisdictions have "securitized" their payments or used the payments to issue bonds. "Securitizing" payments involves selling the right to receive future payments to an independent third party in exchange for an immediate payment. The third party issues bonds, uses the bond proceeds to pay the state and repays the bonds from future tobacco settlement proceeds. The state is not obligated to pay bondholders, their only recourse is to look to the third party for payment. The positives to the state include the transfer of risks of reduced future payments and an increased amount of immediately available funds. The downsides include the interest payments when securitizing, which are higher than traditional borrowing, the transaction costs are higher, and the immediately available funds might be spent for alternative purposes.
The Committee requested copies from the State Treasurer of any existing Attorney General opinion on the use of the tobacco settlement proceeds. The Committee also requested a spreadsheet showing the securitization of differing amounts and the funds generated by investing the "upfront" payment in comparison to the amounts needed for the substance abuse program. The Committee discussed generally the pros and cons of the idea.
State Family College Savings Program
Deputy Treasurer Garland discussed changes last session's legislation made to the Family College Savings Program. Rules were being adopted to implement the changes. A summary of the program was provided. (Appendix 20).
State financial consultant
State Treasurer Lummis explained that her Office continued the contract with Keith Curry to act as a consultant to the State and the Committee on bonding and associated matters. The independence of a consultant was viewed as worth the cost of the contract.
The Committee recessed at 5:00 p.m. for the evening.
Chairman Parady called the meeting to order at 8:30 a.m.
In response to Representative Huckfeldt's request, LSO staff discussed passage of a bill last session providing for beginning agriculture producer loans at reduced interest rates. Proposed rules had been issued for the program and they were briefly outlined for the Committee. Representative Huckfeldt asked that the agriculture producer loan history be requested of the state lands office.
After receiving a summary of last session's HB 103 (appendix 21) from LSO staff and discussing bonding, tobacco securitization and other issues with Mr. Curry, the Committee reviewed possible legislation to be drafted for the next meeting.
Senator Coe noted he might bring before the Committee legislation regarding the Natural Gas Pipeline Authority and possibly expanding enabling legislation to include siting and transmission issues. Representative Osborn moved and Senator Kunz seconded, that staff be authorized to work with Senator Coe on proposals by the Wyoming Energy Commission to amend the Authority's enabling legislation. Senator Hawks noted that currently only revenues generated by the project funded by bonds of the Authority could be used for paying bond proceeds and that any legislation should continue that limitation. After further discussion the motion passed.
Senator Kunz moved to have the proposal of Mr. Parks regarding the Constitutional amendment on municipal debt limitations drafted. Representative Osborn seconded the motion, which passed. Representative Osborn requested a list of "municipal utilities" which would be included in the proposed language.
The Committee discussed the proposal to increase fuel tax by one cent, distributed totally to municipalities. The Committee discussed other funding sources for cities and towns capital construction. Senator Mockler suggested possibly changing the SLIB grant and loan program. Senator Kunz noted that any further review should include expenditures of the optional sixth cent sales tax. The Committee took no action on the additional fuel tax proposal. Chairman Parady appointed a subcommittee of himself, Senators Coe, Meier and Mockler and Representative Boswell to pursue Senator Mockler's suggestion of reviewing and possibly amending the current SLIB grant and loan program. Senator Mockler was appointed chair of the subcommittee.
Senator Kunz moved to have last session's HB 103 drafted for further consideration. The draft should include all House and Senate adopted amendments, with conforming amendments as necessary to accommodate last session's actions in regard to school capital construction. After discussion of the bond amounts in the bill, further amendments to be included in the draft were considered. Senator Kunz moved to increase the school bonding authority on page 15, line 19 to $350 million as a placeholder. The motion passed. Representative Osborn moved to increase the state capital construction bonding amount to $250 million on page 14, line 14. The motion passed. Senator Mockler moved to include as part of the annual report referenced on page 8, a review of all bonding outstanding and cash available to be used. The motion passed. Chairman Parady restated the main motion and it passed.
The Committee decided by consensus not to pursue Transportation Commission "GARVEE" bonding authority.
Senator Meier suggested a Constitutional amendment be drafted limiting the total amount of debt that could be incurred to include revenue bonds as part of the "constitutional debt limitations". He moved a draft be presented which would limit the amount of money which could be used to service debt to twenty-five percent of all revenues the state has, excepting revenues currently pledged for debt. The motion failed.
Senator Mockler moved that staff draft a tobacco securitization bill. The draft would:
1. Move the tobacco settlement trust fund corpus to the permanent mineral trust fund;
2. Securitize only two-thirds of the OPM annual payments (i.e., excluding the strategic payments);
3. "Swap" proceeds received from the payment for securitizing the settlement with severance taxes in order to avoid arbitrage issues and place the funds in a separate account within the permanent mineral trust fund;
4. Make the funds earned subject to the spending policy amounts for the permanent mineral trust fund.
The Committee requested a memo from UBS Payne Webber explaining why revenues were pledged for 41 years for a 20 year bond issuance. Staff was also requested to work with Mr. Curry and the State Treasurer to determine how much would be earned from different securitized amounts and to develop a discounted payment cash flow analysis.
Senator Kunz moved to amend the main motion to securitize 100% of the payments. The motion passed. Representative Osborn moved to earmark the earnings, using as much of the immediate payment as necessary to fund the substance abuse program as provided by last session's legislation. Earnings from the remaining amounts should be earmarked to continue future funding of the program as provided in last session's enactment. The motion passed. The main motion, as amended passed. Senator Hawks requested that the draft contain detailed staff comments explaining the various provisions.
Representative Osborn raised the issue of the major maintenance funding proposal presented by Mr. Miller, Mr. Galleotos and Mr. Gilliland. No motion was made on the issue.
Chairman Parady set the next meeting for 9:00 a.m. in Riverton, on November 11 and 12.
There being no further business, Chairman Parady adjourned the meeting at 11:30 a.m.
Respectfully submitted,
Representative Fred Parady, Chairman