Wyoming’s economic future looks 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 total revenue surplus of $122 million compared to what was forecast for the state in January. That’s supported by an increase in oil and gas production through 2024, but Wyoming’s coal industry, once the state’s cash cow, continues to decline, the report said.

CREG makes revenue estimates for the state each October to coincide with the governor’s and Legislature’s preparations for the upcoming budget and legislative sessions. Lawmakers will have $173 million available to use for the 2025 supplemental budget.

State Rep. John Bear, R-Gillette, sees the CREG forecast as an opportunity to lower property taxes, causing “less pain” when considering cuts to government services.

“It’s always harder to control spending when you have extra income to work with, but it’s a better problem than the other way around,” Bear said. “We will find the right process to fund efficient government while providing tax relief.”

Bear asked to be included on the Joint Appropriations Committee, which plays a key role in crafting supplemental and biennial budgets. A former chairman of the Wyoming Freedom Caucus, Bear believes controlling state spending is one of the most important aspects of the legislative process.

CREG’s forecast shows higher-than-estimated oil and gas and investment income, but lower-than-fresh figures for coal output, at risk of hitting a 30-year low. Revenues from sales and use taxes fell slightly.

Growing investment

Investment income came in at $742.7 million, slightly higher than forecast. Total investment income of the Permanent Mineral Trust Fund was $93.3 million higher than forecast in January. The State Treasurer’s Office generated $173.2 million in interest in 2024 and $53.8 million in realized capital gains.

Investment revenues account for approximately 30% of the state’s general fund revenues.

State Sen. Mike Gierau, D-Jackson, a member of the Appropriations Committee, sees these investment gains and recent rare earth mineral development as evidence that Wyoming is moving in an encouraging direction when it comes to diversifying its oil base. income, a long period of time. -the desire expressed at the Wyoming Capitol.

Gierau said efforts like carbon capture and storage can also help with that goal while maintaining Wyoming’s coal industry.

“We’ve been talking about diversifying the economy for years, and I think we’re taking steps in that direction,” Gierau said. “It helps us be a little less dependent on the ups and downs of the energy sector.”

Mineral revenue provides 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 the major energy crisis. For example, after the COVID-19 pandemic, the state had to cut $430 million in budget cuts, including 324 state jobs.

Almost $3 billion projected

Gierau worries that the Freedom Caucus views these investment gains as “pork barrel money” that should be cut from the budget.

Bear said that while the investment numbers are encouraging, he doesn’t want them to be confused with the idea that Wyoming is expanding its tax base. He also wants the state to focus on investing in legacy industries rather than green energy activities that he believes will hinder fossil fuel production.

“I don’t support hurting Wyoming’s legacy industries,” he said. “They got us to where we are financially today.”

Due to strong investment income, $179.9 million of investment income from the Permanent Mineral Trust Fund was transferred to various savings accounts.

The total forecast for the Public School Foundation Program, which is based on a combination of federal and state mineral royalties, ad valorem tax revenue and mineral investment revenue, 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 these sectors fell in the second half.

For the 2023-2024 biennium, total general fund revenues exceeded $3 billion for the first time in state history, with record biennial receipts. Termination tax earnings deposited into the general fund were slightly above the ten-year average, while earnings from the Permanent Mineral Trust Fund were still below the 10-year average.

General fund revenue was very close to what was forecast, and CREG estimates that revenue will grow from $2.97 billion over the next biennium to $3.1 billion by 2029-2030.

Oil and gas are doing better

Estimated oil and gas prices fell slightly, while actual production beat the January forecast by 9%-10%. CREG recently lowered its price forecast from $75 per barrel to $70 for 2024 and 2025.

Overall, severance fee revenues were 6.7% higher than anticipated, and actual federal mineral royalties were 4.1% higher than anticipated.

In the first six months of 2024, Wyoming’s annual oil production is on track to increase by 5 million barrels to 53.1 million barrels per year. Wyoming’s oil rig count has spent most of the past year in the range of eight to 12 rigs, Baker Hughes reported, though the rig count recently reached 14 this fall.

The year-over-year rig count is still lower than in 2023, and total 2023 mining gross finished 5.5% higher than the latest CREG forecast.

Actual natural gas production in the first six months of 2024 exceeds the January forecast by 6.8%. The percentage of gas stored at the Opal hub in Lincoln County has fallen significantly, while reported sales volumes at the Cheyenne hub have increased from 42% in 2023 to 72% so far in 2024.

The outlook for coal is bleak

Surface coal production volumes are down about 9%-10% from forecasts, while coal prices are rising slightly. Total production fell by about 20%.

Coal production, though less volatile than oil, has declined in Wyoming since peaking in 2008, interspersed with several years of independent growth.

By the first half of 2024, coal production is on track to hit another near-term low, trending below the 2020 low and at risk of falling below 200 million tonnes produced for the first time since 1992, which would mark the lowest point. of coal production in Wyoming in more than 30 years.

CREG’s January report forecast a 19% decline over the next three years, which Richards believes was probably too optimistic.

Gierau said five years ago he believed coal would be a major player in Wyoming’s revenue portfolio for the next 40 years. Now, not so sure.

“Market shares are falling faster than we thought,” he said.

When considering the negative outlook for this industry, Bear said it’s especially critical that lawmakers be fiscally conservative with taxpayer dollars. He wants to study the latest budget and see if unnecessary spending can be cut.

Volatility

Oil is generally considered the single most influential factor in Wyoming’s revenue picture, CREG co-chair Don Richards said during a meeting of the Joint Appropriations Committee last week, which gives the state some risk when considering its long-term volatility.

The wars in the Middle East and Ukraine add a dynamic of uncertainty to the world economic picture.

The CREG report predicts many more years of economic volatility based on the state’s reliance on energy revenues. This revenue is also directly tied to the state’s public funding for K-12 education.

About 70 percent of Wyoming’s oil production comes from federal leases, which adds additional volatility to the state’s revenue picture whenever there is a change in presidential administration.

In 2006, revenues from severance fees and federal mineral royalties accounted for 56.7% of revenues deposited into the state’s General Fund and Budget Reserve Account. This year, federal severance taxes and royalties accounted for just 28.3 percent of the revenue deposited into these accounts, with sales and use taxes and investment income carrying a larger share of the load.

In the past 10 years, these revenues have only once accounted for more than 40% of these accounts. This compared to the last 10 years when they never had less than 40% share.

“Wyoming’s revenue portfolio is very slowly becoming more diversified and less dependent on mineral production, while remaining volatile,” the CREG report said.

Other mining

Trona production is on track to slightly beat the January forecast of 20.8 million tonnes. Sodium carbonate prices have ranged from over $200 per tonne in the spring of 2023 to $150 per tonne this spring.

As a result of two uranium mines coming on stream in Wyoming this fall, CREG is projecting production of 350,000 pounds this year, which it expects to grow to 3 million pounds by 2030.

In the medium to long term, CREG expects total uranium demand to exceed production levels, which would likely lead to higher prices and the resumption of mining operations in Wyoming. CREG forecasts the price of uranium to be $58 per pound in 2024, rising to $75 per pound before 2030.

What’s next?

The Appropriations Committee will begin work on the supplemental budget at its next meeting Dec. 9-13. During election years, new members of the Appropriations Committee typically sit with current members even before they take office as a way to shepherd them through the tight budget process, but Gierau isn’t sure that will happen next month. future

As a result of the August primaries, four members of the Appropriations Committee were voted out of office and another member is retiring. Because of that and new leadership in the Senate and House, the makeup of this committee will likely look significantly different by 2025.

The Legislature as a whole also looks like it will move substantially to the right, at least in the House.

Gierau said he hopes the new committee members will need time to learn the processes and functions of how Wyoming’s proverbial checkbook works.

He was encouraged by comments made by Rep. Chip Neiman, R-Hulett, the likely next House speaker, about the budget process in recent months.

Gierau also said Gov. Mark Gordon has already sent a directive to state agencies to create lean budgets in preparation for the new Legislature. Of the state’s more than 100 agencies, fewer than 25 are requesting budget increases, he said.

But a request for more than $400 million will be on the table for Capital Construction, which includes building and renovating Wyoming public schools.

“This is one where the rhetoric of the Freedom Caucus will go straight to the Department of State Buildings,” Gierau said.

Leo Wolfson can be contacted at [email protected].