Wyoming Liberty Group
Wyoming State Revenues Continue to Fall
Powering through savings won’t save the state
Wyoming’s Consensus Revenue Estimating Group presented its January forecast update this week. The update shows a continued fall in minerals revenue. No surprise, and given the current situation, expect more of the same as Wyoming’s budget session kicks into gear.The deteriorating revenue situation means we must see leadership on spending reductions by the legislature. If the legislature decides to either use savings or tax hikes to maintain a level of state spending bloated by years of minerals tax revenue windfall, our children and grandchildren will be left with a legacy of debt and higher taxes.
The January CREG report updates the forecast from the October 2015 CREG report. The report updated the dismal revenue situation for 2015-16 and beyond. CREG reduced forecasted revenues by $32 million in 2015-16, from its October estimate, with $5.1 million less in the General Fund and $26.9 million less in the Budget Reserve Account, the government’s two traditional spending accounts.
These fell because of a $15.4 million reduction in severance tax revenue and $16.6 million reduction in Federal Mineral Royalties.
The heart of the matter is this—2015-16 biennium revenue now sits at $3.44 billion, down from $3.46 billion in the October 2015 forecast, or $32 million lower. This means the revenue shortfall for the biennium we are in right now sits at $192 million, up from the $160 million the governor used as a basis for the budget he covered by moving money around.
Things are looking even worse for 2017-18, as forecasted revenues fell by another $46.6 million from the October estimate, with $6.8 million less in the General Fund and $39.6 million less in the Budget Reserve Account.
This is because of a $20.6 million reduction in severance tax revenue and a $25.8 million reduction in Federal Mineral Royalties.
Here the essential points are—biennium revenue now sits at $2.89 billion, down from $2.94 billion in the October 2015 forecast, or $46.4 million lower. This means the total 2017-18 shortfall, for now, is about $475 million. At the moment, the total shortfall for the three fiscal years, 2016, 2017 and 2018 sits at $667 million. None of this includes the reported $515 million shortfall in the school account expected for the 2019/20 biennium.
Keep in mind that this revenue decline includes only the reduction in severance tax and Federal Mineral Royalties. It does not include the fall in sales tax revenue, which is currently $61 million lower than its total at this time last year. This means the reduction is likely even worse than reported in the January CREG report.
People may also be interested to know that the effect of Governor Mead’s proposed Rainy Day Fund raid is now available.
To accommodate the governor’s borrowing from the Rainy Day Fund to cover off his spending party, the fund falls from $1.8 billion to $1.56 billion.
But recall the trick the governor is using to sell the idea of a Rainy Day Fund raid to legislators. Governor Mead wants the legislature to divert severance tax that would have gone into the Permanent Wyoming Mineral Trust Fund, the legacy savings account set up to protect future generations when the minerals windfall is gone forever. This has totaled about $100 million per year. But severance tax revenue is down so the severance tax diversion to the Rainy Day Fund is also lower. In one month, the forecast for 2017-18 dropped from $203.4 million to $197.7 million.
With the likelihood of further revenue reductions, big shortfalls in other accounts not even discussed fully here, and no end to the downturn in sight, the state finds itself not in a rainy day, but a rainy season. The last time this happened, the downturn lasted 17 years. This means the Rainy Day Fund and other savings diversions will be unable to maintain Wyoming’s big government. We must reduce spending to a level Wyoming taxpayers are willing and able to fund. This is not an impossible task. Other states, such as Louisiana, have reduced government spending by some 26% and simultaneously improved services and their economy. At the very least, we must not raise taxes or expand Medicaid, and most certainly we must not steal from future generations.