Review of Wyoming's Fiscal HealthFeb 09, 2017
By Orphe Divounguy, Ph.D., Rea S. Hederman Jr., Tracy C. Miller, Ph.D., and Joe Nichols
Since 2008, the Wyoming economy has been contracting even as the overall United States economy has been expanding. Job creation is stagnant and Wyomingites are leaving the labor force. State tax revenues are shrinking with the state economy. The sharp downturn in energy commodities is the main culprit behind Wyoming’s downturn.
These economic and fiscal challenges are unlikely to abate. The state’s largest source of revenue comes from mineral production, especially coal, oil, and gas. Unfortunately, the energy minerals market is not likely to recover in the near future. Federal government regulations, such as the Clean Power Plan, will have adverse effects on much of Wyoming’s energy sector, and permanent technological changes have increased the US supply of oil and natural gas, which leads to lower prices. Thus, state budget revenues are going to remain low along with the price of energy commodities—unless fundamental changes are made.
Wyoming’s fiscal situation is even worse than current data suggest, due to the increasing reliance on strong performance from equity markets. In the past few years, high earnings on state trust fund investments have helped bolster state revenues, and have offset the downturn in severance and sales taxes. However, the high fund earnings are the result of above-average stock market gains, which cannot be guaranteed in the future. Excluding those fund revenues, Wyoming’s per capita general revenues are down almost 10 percent in real dollars over the last 10 years.
On a positive note, Wyoming revenue forecasts have usually been conservative, especially in the initial two-year period of each forecast. But, the forecasters have been too optimistic in predicting a recovery in the minerals market in the later years of the forecast. This reflects an unsubstantiated belief that better days are around the corner. After some large spending increases in the last decade, the state government has kept spending growth in check and accumulated sufficient savings to carry through cyclical downturns. However, policymakers now face revenue declines that are structural, not cyclical.
Legislators should not continue to rely on savings to fix the shortfall, because falling revenues mean that savings will not be replenished. The status quo of relative flat spending and decreasing tax revenues is not sustainable.
To maintain the health of the state’s businesses, ranches, and families, policymakers need to resist anti-growth measures, such as raising taxes to cover shortfalls, which will only cause a vicious cycle of economic and fiscal decline. Policy makers should address the structural decline in revenues with a similar cut in government spending and maintain a pro-growth tax system.
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