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Although far from the R-word, Wyoming’s economy is slowing

in Economic development/News
Wyoming Economy Chart
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By Laura Hancock, Cowboy State Daily

Wyoming’s economy continues to grow, but it’s at a slower pace than in the past – raising the question of whether a recession is in the near future. 

Consider this: Wyoming’s number of single-family residential building permits increased by just six in the first eight months of the year over the same period last year. 

That’s according to the Wyoming MACRO Report, a quarterly publication looking at economic and revenue data.

Non-farm employment is up only 1.3 percent in August of this year, compared to August 2018, blunted by 1,400 jobs lost in mining – including coal — and virtually no growth in oil and gas jobs, the report states.

Natural gas production was down 11.2 percent in August compared to August 2018, and coal production was down 8.9 percent in the first eight months of the year. On the other hand, oil production was up 17.3 percent in an August year-over-year comparison, the report said. 

Generally, a recession is defined as a decrease in gross domestic product over two successive quarters. The data in the MACRO report does not show Wyoming in such a contraction.

However, the economy of the state – and the country – haven’t been in a recession for a decade. They may be overdue for one.

“The average economic expansion is much shorter than this,” said Anne Alexander, a University of Wyoming associate vice provost and economist. “It’s now the longest we’ve had. But it’s called a cycle for a reason. They do turn.”

The reasons Wyoming economic growth is decelerating have to do with the trade wars, the headwinds that coal has faced in recent years and the effects of a slower national economy, Alexander said. 

“It’s a combination of national, international and our own state’s circumstances,” she said. 

There is no formula for economists to predict a recession with certainty. But Alexander said it’s more likely than not that the economy headed toward a larger slowdown. 

“The indicators have been pointing to that way for a while,” she said. “The arrival time might already be here or might be early 2020.”

Across the country, manufacturing is downU.S. home sales are steady but prices are down and rail freight volumes are down, she said. 

Wyoming typically gets an advance warning – sometimes six months — before a recession, said Jim Robinson, principal economist for the Wyoming Department of Administration and Information’s Economic Analysis Division. 

That’s because the national economy often heads south before the state’s. For instance, when the demand for factory goods decreases, it takes some time for manufacturing energy demand to also decline, Robinson said, and Wyoming’s primary export is energy.

Robinson, who helps put together the MACRO and other economic reports, said he is keeping an eye on retail sales in a sector known as discount grocery stores and super centers. Think Walmart or Sam’s Club. 

“That subsector for Wyoming is down 4.5 percent this year,” he said. “That’s consumer spending. That’s important.”

The decrease may have to do with President Donald Trump’s tax cuts, which boosted consumer spending in 2018.

“That’s not happening to the same degree this year,” he said. “But also, consumers are starting to pull back this year.”

What if coal production drops to zero? Legislature looking for new revenues

in Government spending/Energy/News/Taxes
Electricity
2270

By Laura Hancock, Cowboy State Daily

Coal production in Wyoming has dropped by over 100 million tons in the past decade, and state Sen. Cale Case doesn’t think the downward slide is close to finished.

“There isn’t a scenario where it turns around, where the decline stops,” said Case, R-Lander, a co-chair of the Wyoming Legislature’s Joint Revenue Committee. “No one can articulate that.”

That will likely spell trouble for state coffers, which are dependent on coal revenue to pay the bills.

What if coal production trickled down to zero? It’s not entirely a hypothetical question these days, considering PacifiCorp’s recently announced draft plan to retire coal plants early.

Fueling state accounts

Wyoming coal producers pay severance taxes, federal mineral royalties, coal lease bonus revenues and ad valorem taxes at various points of the mining process, which flow to different state, education and local government funds. But each revenue source has decreased in the past 10 years:·      

  • Severance taxes: In 2009, mining companies paid the state $273.3 million. In 2018, they paid $198.8 million. In 2024, state projections show they could pay $185.9 million.·      
  • Federal mineral royalties, which are divided between the federal and state governments by 51% and 49% respectively: Wyoming received $262.5 million in 2009 and $198.1 million in 2018. Federal data didn’t contain royalty projections for the future.·      
  • Coal lease bonuses, which have funded Wyoming’s ambitious school construction program, were $213.6 million in 2009 and $5.3 million in 2018. From 2019 to 2024, the state estimates $0 from the bonuses, collected when mining companies pay for expanding operations on federal land. There are no expectations that mines will expand operations in the near future. ·      
  • Ad valorem taxes, assessed on the value of coal and paid a year after the assessment: Coal companies paid taxes on $3.8 billion in 2009 assessed valuations. They are expected to pay taxes on $2.8 billion in 2018 assessed valuations. By 2024, state projections show valuations falling by another $100 million to $2.7 billion.

The total income from severance taxes, federal mineral royalties and coal lease bonuses dropped from $749.4 million in 2009 to $402.2 million in 2018.

Case notes these figures don’t include sales and use taxes companies pay for items small and large — ranging from paper for copiers to tires for haul trucks.

“We don’t get the sales tax on stuff they buy,” he said. “Because they’re not buying much anymore.”

Replacement revenues

As Revenue Committee co-chair, it’s Case’s job to consider ways to make up for lost coal revenue.

“That’s a big lift,” he said. “It’s a lot of money.”

True, oil and gas continue to bring Wyoming revenue – but not enough to replace coal. And it’s entirely possible, with market concerns about global climate change, that new restrictions could kill demand for those fossil fuels.

Among proposals before the Joint Revenue Committee:      

  • The committee advanced a proposal in September that would create a corporate income tax of 7 percent on companies with at least 100 shareholders – in other words, businesses not generally headquartered in the state. The revenue created would be around $20 million to $25 million a year, Case said. It’s not a replacement for coal, but a start. A similar measure failed earlier this year in the Legislature.
  • Changes to property taxes, including: An increase in the statewide mill levy for schools, increases in some property taxes, and creating a new property tax class for multi-million dollar homes.
  • Wyoming taxes wind $1 per megawatt hour. Case would like to see it increased. Case would, in general, like to impose an electricity export tax. “Wyoming’s biggest export is electricity,” he said. At this point, there is no bill draft before lawmakers.

Many conservatives have said they want to see cuts to state government before looking to raise taxes.

“Here’s what I tell people: you’ll get your cuts,” Case said. “We’re going to have to cut like crazy. And we’re still going to need revenues. This is very serious. We’ve never faced anything like this.”

Ongoing discussions

The Wyoming Taxpayers Association, which represents many of the companies that would be affected by a corporate income tax, didn’t support the idea in the Legislature earlier this year. Its leadership hasn’t yet decided on its position on the bill currently under consideration, said Ashley Harpstreith, the organization’s executive director.

The Wyoming Taxpayers Association will be discussing the state’s revenue picture at its annual meeting next month. 

“The point is we’re going to have to have those hard conversations,” Harpstreith said. “It’s coming to a head. Industry has been paying the bills for a long time.”

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