CHEYENNE – An updated forecast for state revenues released Tuesday paints a grim picture of Wyoming’s economic landscape heading into the next decade.
Though the Consensus Revenue Estimating Group’s October report shows the state gaining more revenue this year than initially projected, it estimates a $185.4 million drop in revenue for Wyoming over the next three years.
Lawmakers received a rundown of the report from CREG co-Chairman Don Richards during the Joint Appropriations Interim Committee meeting Tuesday morning in Riverton.
“Going forward, there will be less money available under the October 2019 CREG forecasts,” Richards said. “This will make it a little bit more difficult for the Joint Appropriations Committee and the current executive on the general fund and budget reserve account to balance that budget.”
Though the long-term situation poses a challenge for lawmakers, most revenue sources for the 2019 Fiscal Year overshot CREG forecasts from January. Sales and use tax revenues were up $19.2 million, or 3.8%, while severance tax revenue was up $20.8 million, or 7.9%.
Wyoming, which sets its budget every two years, is nearing the end of its 2019-20 biennium, and the legislative session in February will focus on crafting the 2021-22 budget.
Gov. Mark Gordon, in a news release, said Wyoming will need to be clear-eyed about the tough decisions facing the state over the next several years.
“Wyoming is accustomed to boom/bust cycles – what economists like to call ‘market cycles,’” Gordon said in the release. “But this time, I believe we may be experiencing a more fundamental change that will affect how well we can fund government services going forward.”
Wyoming’s struggles began in 2015, when the state saw a significant drop in revenue from mineral severance taxes. That revenue source is down from a 2008 high of about $1.1 billion, though there was a slight increase between 2018 and 2019 to bring this year’s total to about $677 million.
Wenlin Liu, Wyoming’s chief economist, said the uptick was due to high natural gas prices last winter, which was included in Fiscal Year 2019.
“That mineral severance tax for fiscal year '19 is increased. However, the forecast from Fiscal Year 2020 through 2024 is very flat,” Liu said. “It’s anywhere between 10% to 15% lower than Fiscal Year 2019.”
While natural gas prices can fluctuate, Liu said the true challenge is obvious.
“Coal is definitely the challenge,” Liu said. “They have to compete with extremely low natural gas prices. Anytime natural gas price is that low, power plants easily switch from coal to natural gas. Also, you have to compete with renewable sources.”
Previously flush with revenue from mineral severance taxes, Wyoming has pivoted to its Legislative Stabilization Reserve Account, also referred to as the rainy-day account, to fill funding gaps.
Rep. Dan Zwonitzer, R-Cheyenne, who chairs the House Revenue Committee, said the report wasn’t as bad as he was expecting, mainly because of the boost in investment income that goes toward the state’s LSRA. Investment income from the Permanent Wyoming Mineral Trust Fund was up $180.4 million, or 97.7%, in Fiscal Year 2019.
“Wyoming is really relying on our investment income currently,” Zwonitzer said. “We’re just totally burning down our LSRA and replenishing some of that loss with investment income.”
The savings account, which has about $1.7 billion in it, was created in 2005, though the state’s growing dependency on it could prove dire, Zwonitzer said.
“The great news on one side is we built up a savings from the good years to probably weather the storm for another three to four bienniums,” Zwonitzer said. “So we could exist how we’re existing probably for the next six to eight years. But then there’s nothing.”
While the coal market continues its decline, Zwonitzer said the next potential hit for Wyoming could come from the stock market and its effect on the state’s investment income.
“We have a long-term understanding of where the coal and oil prices are going, and we’re going to live off our savings as those decline,” he said. “The real unexpected hit that we need to be constantly aware of is the stock market and our investment revenues.”
With the state facing roughly $250 million in funding deficits for K-12 education, the report also shows a $4 million drop in estimated revenue in Fiscal Years 2020 through 2022 for the state accounts used to fund K-12 education.
“The School Foundation Program and the School Capital Construction is a mixed bag,” Richards said. “It basically is a wash.”
The governor’s budget for the 2021-22 biennium is expected to be released Nov. 18.