Wyoming’s economic future is looking brighter than it did at the start of the year or even four months ago.
A Consensus Revenue Estimating Group (CREG) report released last week shows a $122 million overall revenue surplus compared to what was forecasted for the state in January. That’s bolstered by a surge in oil and gas production so far in 2024, but Wyoming’s coal industry, once the state’s cash cow, continues to decline, the report says.
CREG makes revenue estimations for the state each October to coincide with the governor’s and Legislature’s preparations for the upcoming budget and legislative sessions. Legislators will have $173 million at their disposal to use for the 2025 supplemental budget.
State Rep. John Bear, R-Gillette, looks at the CREG forecast as an opportunity to cut property taxes while inflicting “less pain” when considering cuts to government services.
“It’s always harder to control expenditures when you have additional income to work with, but it’s a better problem to have than the other way around,” Bear said. “We will find the right process to fund an efficient government while providing tax relief.”
Bear has requested to be put on the Joint Appropriations Committee, which plays an integral role in crafting the supplemental and biennial budgets. The former chairman of the Wyoming Freedom Caucus, Bear believes controlling state spending is one of the most important aspects of the legislative process.
The CREG forecast shows higher-than-projected revenue in oil and gas and investment income, but less than glowing numbers for coal production, at risk to hit its lowest point in more than 30 years. Sales and use tax revenue was slightly down.
Investments Up
Investment income came in at $742.7 million, slightly higher than what was forecasted. Total Permanent Mineral Trust Fund investment earnings were $93.3 million higher than what was forecasted in January. The State Treasurer’s Office generated $173.2 million in interest in 2024 and $53.8 million in realized capital gains.
Investment income makes up about 30% of the state’s general fund revenue.
State Sen. Mike Gierau, D-Jackson, a member of the Appropriations Committee, sees these investment gains and the recent development on rare earth minerals as evidence that Wyoming is moving in an encouraging direction when it comes to diversifying its revenue base, a long-expressed desire at the Wyoming Capitol.
Gierau said efforts like carbon capture and storage can also help with this goal while simultaneously keeping Wyoming’s coal industry alive.
“We’ve been talking about diversifying the economy for years and I think we’re making steps in that direction,” Gierau said. “It helps us be a little less reliant on the ups and downs of the energy sector.”
Mineral revenue supplies about half of Wyoming’s budget each year.
Gierau said the biggest value of the state’s investments is that they soften the blows of major energy downturns. For instance, after the COVID-19 pandemic, the state had to cut $430 million from the budget, including 324 state positions.
Nearly $3 Billion Projected
Gierau worries that the Freedom Caucus considers these investment gains as “pork barrel money” that should be cut from the budget.
Bear said although the investment numbers are encouraging, he doesn’t want them to be confused with the idea that Wyoming is broadening its tax base. He also wants the state to focus on investing in legacy industries rather than green energy pursuits he believes will hinder fossil fuel production.
“I don’t support hurting Wyoming’s legacy industries,” he said. “Those are what got us to where we are financially today.”
Because of strong investment revenues, $179.9 million in investment earnings from the Permanent Mineral Trust Fund was transferred into various savings accounts.
Total forecast for the Public School Foundation Program, which is based on a combination of federal and state mineral royalties, ad valorem tax revenues and mineral investment earnings, exceeded the original projection by $83.2 million.
Sales and use tax revenue was $17.8 million lower than expected at $1.32 billion. After a strong start to the year, revenues in those sectors declined in the second half.
For the 2023-2024 biennium, total general fund revenue exceeded $3 billion for the first time in state history, with record biennial receipts recorded. Severance tax earnings deposited in the general fund were slightly above the ten-year average, while Permanent Mineral Trust Fund earnings were still below the 10-year average.
General fund revenue was very close to what was forecasted and CREG forecasts this revenue to grow from $2.97 billion in the next biennium to $3.1 billion by 2029-2030.
Oil And Gas Doing Better
Forecasted oil and gas prices are slightly down while actual production exceeded the January forecast by 9%-10%. CREG recently reduced its price forecast of $75 per barrel to $70 for 2024 and 2025.
In total, severance tax revenue was 6.7% higher than anticipated and actual federal mineral royalties were 4.1% higher than anticipated.
Through the first six months of 2024, annual Wyoming oil production is on pace to increase by 5 million barrels and reach 53.1 million barrels for the year. Wyoming oil rig counts spent most of the last year in the eight- to12-rig range as reported by Baker Hughes, though rig counts have recently reached as high as 14 this fall.
Year-over-year rig counts are still lower than in 2023 and total gross products from mining in 2023 ended 5.5% higher than the most recent CREG forecast.
Actual natural gas production through the first six months of 2024 is exceeding the January forecast by 6.8%. The percentage volume of gas stored at the Opal hub in Lincoln County has declined significantly, while sale volumes reported at Cheyenne’s hub have increased from 42% in 2023 to 72% so far in 2024.
Coal Outlook Bleak
Surface coal production volumes are down by about 9%-10% from what was forecasted, while coal prices are slightly up. Overall production is down about 20%.
Coal production, although less volatile than oil, has declined in Wyoming since reaching its peak in 2008, intermixed with a few standalone years of growth.
Through the first half of 2024, coal production is on pace to record another near-term low, trending below the low 2020 production levels and at a risk of falling below 200 million tons produced for the first since 1992, which would mark the lowest point of coal production in Wyoming in more than 30 years.
CREG’s January report forecasted a 19% decline over the next three years, which Richards now believes was probably overly optimistic.
Gierau said as recently as five years ago he thought coal would be a significant player in Wyoming’s revenue portfolio for the next 40 years. Now, he’s not so sure.
“The market shares are dwindling faster than what we thought,” he said.
When considering the negative outlook for this industry, Bear said it’s particularly critical that lawmakers be fiscally conservative with the taxpayers’ money. He wants to study the most recent budget and see if incremental cuts can be made to unnecessary spending.
Volatility
Generally, oil is considered the most influential factor on Wyoming’s revenue picture, said CREG Co-Chair Don Richards during a Joint Appropriations Committee meeting last week, which gives the state some risk when considering its long-term volatility.
Wars in the Middle East and Ukraine are adding a dynamic of uncertainty to the worldwide economic picture.
The CREG report forecasts many more years of economic volatility to come based on the state’s reliance on energy revenue. This revenue is also directly tied to the state’s public K-12 education funding.
About 70% of Wyoming’s oil production comes from federal leases, which adds further volatility to the state’s revenue picture whenever there is a change in presidential administration.
In 2006, severance tax revenue and federal mineral royalties made up 56.7% of revenue deposited into the state’s General Fund and Budget Reserve Account. This year, severance taxes and federal royalties only made up 28.3% of the revenue deposited into these accounts, with sales and use taxes and investment income shouldering a larger share of the load.
Over the past 10 years, these revenues have only comprised more than a 40% share of these accounts once. That’s in comparison to the previous 10 years where they never comprised less than a 40% share.
“Wyoming’s revenue portfolio is very slowly becoming more diversified and less reliant on mineral production while still remaining volatile,” the CREG report reads.
Other Mining
Trona production is on pace to slightly exceed the January forecast of 20.8 million tons. Soda ash prices have ranged from more than $200 per ton in the spring of 2023 to $150 per ton this spring.
As a result of two uranium mines coming on board in Wyoming this fall, CREG is forecasting 350,000 pounds of production this year, which it expects to grow to 3 million pounds by 2030.
Over the intermediate and long term, CREG expects total uranium demand to outstrip production levels, which would likely lead to higher prices and resuming Wyoming’s mining operations. CREG forecasts $58 per pound of uranium pricing in 2024, rising to $75 per pound before 2030.
What’s Next?
The Appropriations Committee will start working on the supplemental budget at its next meeting from Dec. 9-13. During election years, new members of the Appropriations Committee typically sit with current members even before taking office as a way of shepherding them into the highly dense budgetary process, but Gierau isn’t sure this will happen next month.
As a result of the August primary, four members of the Appropriations Committee were voted out of office and another member is retiring. Because of this and the new leadership in the Senate and House, the makeup of this committee will likely look significantly different heading into 2025.
The Legislature as a whole also appears it will shift substantially to the right, at least in the House.
Gierau said he hopes that the new members of the committee will take time to learn the processes and functions of how Wyoming’s proverbial checkbook works.
He’s been encouraged by the comments Rep. Chip Neiman, R-Hulett, the likely next House speaker, has been making about the budgetary process in recent months.
Gierau also said Gov. Mark Gordon has already sent a directive to the state’s agencies to create lean budgets in preparation for the new makeup of the Legislature. Of the state’s more than 100 agencies, fewer than 25 are requesting budget increases, he said.
But a more than $400 million request will be on the table for Capital Construction, which includes building and renovating public schools in Wyoming.
“That’s one where the rhetoric of the Freedom Caucus is going to run head on into the State Construction Department,” Gierau said.
Leo Wolfson can be reached at leo@cowboystatedaily.com.
