Wyoming’s budget has challenges ahead, which is government-speak for saying the state could be facing financial trouble with its legacy coal industry down 25% for the first six months of the year.
Revenue collection for the state of Wyoming is pacing ahead of earlier forecasts by 3.8%, but a challenged energy sector could quickly change that.
Worse, the surplus could disappear as mineral revenue receipts trickle in, warns a new report released Monday.
At the heart of the revenue report is growing nervousness over the state’s energy sector.
Falling coal production in the Powder River Basin in northeast Wyoming and continued weakness in natural gas prices are to blame, according to forecasting revenue projections by the Wyoming Budget Office.
Last week, second quarter data released by the Wyoming State Geological Survey revealed that coal production slipped nearly 30% from the second quarter of 2023 when the Cowboy State dug up nearly 54.7 million tons of coal out of the coal-rich Powder River Basin.
In the same three-month period this year, more than 38.5 million tons of coal was mined, according to state data.
For the first six months of 2024, coal production fell 25% to 84.6 million tons mined from 112.7 million tons dug up in the first half of 2023.
Wyoming’s budget update for the fiscal year that ended June 30 comes from Wyoming’s Consensus Revenue Estimating Group (CREG).
CREG is made up of nine financial experts who come up with estimates on the state’s budget for lawmakers to use as a roadmap on how to draft spending bills.
Total revenue collections in the fiscal year that ended June 30 show that the general fund and budget reserve account exceeded the CREG forecast from January by $70.4 million, or 3.8%.
However, the report shows budgetary challenges in future fiscal years while the surplus projections for the current year that ended June 30 may dip as money trickles in from taxpayers in the energy sector.
Challenges with low prices for natural gas and “declining coal production” may reduce the fiscal year average and bring mineral revenue excesses more in line with the January 2024 CREG forecast.
Reasonable Declines
“It is reasonable to anticipate that the revenue pacing of severance taxes and federal mineral royalties in excess of the January 2024 CREG forecast may decrease as remaining accrued revenues are collected, mostly reflecting the continued weak natural gas prices and reduced coal production through the balance of fiscal year 2024,” according to Monday’s CREG report.
The final tally on fiscal 2024 revenues will be released with the October 2024 CREG report.
Accrued revenue represents revenue earned and for which the state has not yet received payment. The state has until the end of September to receive this revenue.
Severance taxes are paid to Wyoming when a mineral is removed from the ground, while federal mineral royalty revenues represent a portion of the Cowboy State’s revenues with the U.S. Treasury paid the rest.
“The fiscal year total coal production is lower than the CREG forecast for (fiscal year) 2024, with two months left for accrual accounting,” wrote Don Richards, co-chairman of the Wyoming Legislative Service Office in Cheyenne, and who heads up CREG, in an email sent to Cowboy State Daily.
Current coal production levels are also lower than the January 2024 CREG forecast.
These will be re-visited in October with a new CREG forecast for fiscal year 2025 and beyond, Richards said.
Still, at least for the moment, said Richards, “Total state revenue to major accounts continues to exceed CREG’s forecasts.”
Ailing Coal And Natural Gas
Actual revenues directed to the state’s general fund and budget reserve account are expected to exceed the January 2024 CREG forecast by a “moderate margin,” according to the CREG update issued Monday.
The budget reserve account, or sometimes referred to as a rainy-day fund, is where surplus severance taxes and federal mineral royalties can get redirected on an as-needed basis for appropriation at a later date.
Those cash pockets are only so deep.
The CREG update notes that natural gas prices dropped to multi-decade lows in the spring due to weather-related weak demand and elevated storage inventories.
Additionally, U.S. power generation from coal continues to decline steeply, mostly due to falling natural gas prices.
The CREG update noted that coal production and demand are negatively impacted from high coal stockpiles and continued retirement of coal power plants.
As a result, Wyoming surface coal production has declined substantially since the beginning of 2024, the budget report concluded.
Pat Maio can be reached at pat@cowboystatedaily.com.
