Wyoming’s revenues greatly exceeded earlier projections made by the state’s Consensus Revenue Estimating Group, according to new numbers released last week.
Though the new infusion of funds to the state’s general fund was still not enough to cover the state’s annual budget on its own, Wyoming’s revenues were boosted by strong years both in the oil industry and the stock market which, in turn, helped spur spending on Main Street.
The biannual CREG report showed 2018’s general fund revenues exceeded the group’s optimistic report from January, passing start-of-the-year projections by approximately $385 million. This was largely thanks to sales and use tax collections ($91.3 million over projections), severance tax collections, mineral royalties ($43 million) and investment income ($82.9 million) largely exceeding projections across the board.
These numbers are in line with expectations announced in an update on the state’s revenues made to legislators back in July.
Drilling drives gains
According to the report, a significant driver for the state’s economic performance this year comes from a predictable source: drilling.
“Resurgent economic activity associated primarily with oil and gas extraction was the main reason for the increase in sales and use tax collections in FY 2018,” the report reads. “Of the 12 primary industry sectors, mining accounted for 41.7 percent of the total increase in a year-over-year comparison, followed by the retail trade sector, which contributed 22.1 percent.”
These numbers are reflected largely by the geography of where the increases were felt: According to the report, 19 counties in Wyoming realized gains in sales tax collections, with just four oil and gas extraction counties— Converse, Campbell, Sublette and Sweetwater — accounting for two-thirds of the increase.
Those positive numbers are expected to contribute to increasing revenues in the next few years, with overall revenues expected to rise nearly 11 percent in 2021-2022, mostly due to sales and use tax projections. Stronger retail returns, particularly due to recent legislation around collecting online sales tax revenues, are also expected to bolster returns on the retail side.
In Converse County, Republican legislator Brian Boner said that the numbers exhibited in the report reflect what’s been seen on the ground there. The additional funds should lessen some of the tough decisions to be made during the upcoming session.
But not all of them.
“It’s additional cause for celebration, but we’re not out of the woods yet,” Boner said. “It certainly makes our jobs a little bit easier in January.
“It does help us in our task, but we’re still dealing with a billion dollar structural deficit,” he added. “We’re going to need to address that in January. People are going to be jockeying for limited resources: that never changes.”
Energy drives future prospects
An improving oil sector in Wyoming and positive investment returns offered an improved outlook for the state’s revenue picture in the long-term, though projections still fell well short of the industry’s 2008 peak, or even the highs it experienced prior to the bust. Though the forecast noted the “highlight” of the report was clearly with increased tax collections from and projected outlook for the state’s oil sector, its other industries — particularly coal and natural gas — have fallen short of expectations.
Oil prices — according to CREG’s more conservative reading of oil futures — are expected to see increases of 8 percent through 2020 before stabilizing, exceeding projections for natural gas, which is expected to see a modest 4 percent increase in 2019 and 2020 combined. This, the report notes, is a modest projection written with caution to the uncertainty of future demand. Though coal rebounded somewhat last year after two years of drastic decline, the first six months of 2018 saw coal production 7.8 million tons (5.2 percent) lower than last year, dampened by the lower market demand and regulatory uncertainties.
“Natural gas and coal prices are not as strong as previously forecasted and have been revised downward,” the report reads. “The outlook for coal production has been revised downward.”
This, Democrats in the Legislature hope, might be the impetus for serious talks on ever elusive fiscal reforms as they hope to avoid further budget cuts.
“It was positive, clearly,” said Senate Minority Leader Chris Rothfuss. “It was not unexpected. The recent development in the oil sector and activity statewide has been something we’ve been tracking for the past year, so we knew that with increased oil prices and production we’d see gains made in our state revenue. This profile reflects that. At the same time, it reinforces other realities, including continued declines in revenue from natural gas and coal.
“The most important thing is with this CREG forecast, we shouldn’t be spending time in this session talking about how to cut education spending or other essential state programs,” he added. “I hope we’ll be able to pause, catch our breath and start realistically addressing economic diversification and revenue diversification, recognizing we’re certainly not out of the woods.”
He added that other sources of income for the state, particularly around its investments, also fail to offer long-term sustainability, particularly as the report was released in the midst of Wednesday’s stock market tumble that saw the Dow erase all the gains it had made in the past year.
“Our future solvency as a state relies on positive capital gains in the long run from the stock market,” said Rothfuss. “We switched from relying heavily on a volatile industry to now, simultaneously, relying on that and the stock market to pay the bills. And we really just increased that reliance on the market — which made sense. We needed to pay the bills … it was the right thing to do, but we can’t become complacent when we expect the stock market to improve every day. Especially when you look at what happened today.”
The leadership to make those changes will largely come from the attitude of the upcoming administration. Republican candidate for governor and Wyoming Treasurer Mark Gordon has, on the campaign trail, advocated for more local financial independence, particularly around allowing municipalities to invest more of their funds in the stock market. (Gordon could not be reached by press time to comment on the report.) To stabilize the state budget, Gordon has also advocated for spending guidelines around the state’s rainy day funds, which have long sat relatively dormant.
His opponent, Mary Throne, has advocated spending some of these funds as well, but with a different objective: stabilizing the economy.
“The fundamental problem in Wyoming is we don’t take steps to get out of the boom-and-bust cycle,” she said in an interview. “Just because there’s an uptick in oil doesn’t mean we ignore that issue.”
“We still need to make sure we deal with the fundamentals,” she added. “I don’t want Wyoming’s future dependent on the whims of the crown prince of Saudi Arabia.”