Wyoming revenue outlook improves, state leaders still cautious
CASPER — Wyoming’s current revenue is well ahead of where economists predicted it would be earlier this year, but that positive development could be temporary.
The Consensus Revenue Estimating Group (CREG) recently released a July state revenue report, which is an informal check-in report to the official January revenue forecast. The July update states that actual revenues are outpacing the January 2021 predictions, but revenue is still trailing by nearly 10 percent the same period during fiscal year 2019.
The July update showed the state’s general fund and the budget reserve account — essentially the state’s two checking accounts — exceed the January projection by a combined 16.6 percent.
Sales and use taxes are still the largest contributor to revenue collections, with an increase of roughly $35 million. This increase is fueled by contributions from wind projects and increased spending from federal stimulus, according to the report.
While the latest report is not an actual amendment to the January forecast, the report gives an indication of where the state stands ahead of next year’s legislative budget session. The next official report — like the January CREG — comes in October.
This uptick in the originally projected revenue does not mean Wyoming has solved its ongoing budget crisis or rebounded from pandemic losses. Rather, it’s mostly a reflection of increased commodity prices that are subject to fluctuation.
“We don’t know if that’s going to be sustained, so (Gov. Mark Gordon is) going to continue to be conservative in his budget approach,” said Michael Pearlman, Gordon’s director of communications.
“We’re looking at this as this is one-time money right now,” he later added.
Though overall sales and use taxes outperformed projections, sales taxes collected from the mining industry fell 58.1 percent compared with last year, primarily because of suspended exploration amid the pandemic. Industries closely connected to mining, including construction, manufacturing, transportation and auto and machinery leasing, also saw a decline of more than 20 percent.
Driven by federal stimulus money in addition to high prices, oil and gas development is slowly rising — the rig count hit 16 this week, according to Baker Hughes — but has lagged far behind skyrocketing prices.
“They haven’t had the recovery in the oil and gas sector that normally supports sales tax,” said Kevin Hibbard, co-chairman of CREG.
Oil and gas production during the first half of the year tracked relatively closely with CREG’s forecast. Demand, however, is much higher than anticipated — a disparity that has led to unexpectedly high prices.
The price of Wyoming oil in July was $6.31 more per barrel than projected, pushing the average price of gasoline in the state above $3.50 per gallon, compared with $2.20 per gallon a year ago. Natural gas prices were up 36 percent over last year, averaging $3.40 per thousand cubic feet.
High natural gas prices mean that coal, which is often more expensive than natural gas, has become a competitive fuel source for utilities seeking to minimize electricity costs. The CREG report found that coal production in Wyoming was slightly below expected levels, though prices matched the January forecast.
Still, because of unusually warm temperatures this summer on top of the high natural gas prices, coal production has been strong so far this year, said Travis Deti, executive director of the Wyoming Mining Association.
“We’re looking pretty good for probably the next year, year and a half,” Deti said.
But that additional coal use is expected to cause a 17-percent increase in CO2 emissions from electricity production nationwide through the end of 2021, according to the Energy Information Administration — a finding published in the wake of the latest report by the Intergovernmental Panel on Climate Change, which issued more dire projections than ever before, coupled with a narrowing window to reduce emissions and mitigate climate change.
The petroleum industry remains hesitant to scale up production too quickly. Though oil demand is expected to remain high in the coming years, the delta variant of COVID-19 has raised worries about additional lockdowns, which would drive fuel demand back down.
“We’re just kind of in a wait-and-see mode at this point on what’s going to happen,” said Ryan McConnaughey, director of communications at the Petroleum Association of Wyoming. “Obviously, the best thing that could happen for our industry is to see COVID numbers and COVID cases come under control, so that we can return to as normal as possible.”
President Joe Biden is also pushing for increased international oil production to help lower gasoline prices — a strategy opposed by Wyoming’s oil industry.
“Our argument would be, well, we should be producing that right here in the United States,” McConnaughey said.
Following the April CREG update that also put Wyoming’s revenue ahead of January predictions, Gordon announced that the bulk of the next state budget will be built without cuts, which will not change based on the most recent July update.
“The governor’s budget position remains conservative, and he’s not planning changes to his budget based on these projections,” Pearlman said.
The report cites the gradual reopening of the economy following the pandemic, but one of the factors that could force the promising numbers back down is the delta variant, which is hospitalizing people at increasing rates throughout the country.
Airline usage would plummet and demand for fuel would fall with it, for example, which would drive down commodity prices that are giving the state its current monetary cushion.
“Volatility isn’t recovery,” said Rep. Mike Yin, D-Jackson, a member of the Joint Revenue Committee.” Temporary highs match the high prices based on limited supply in many sectors, and as long as we have our wagon hitched to this one industry, we will be at the whim of prices set by [The Organization of the Petroleum Exporting Countries].”