January CREG shows optimism, growth for Wyoming’s economy
Cheyenne – The Jan. 15 meeting of the Wyoming Legislature’s Joint Appropriations Committee was addressed by Don Richards, co-chair of the Consensus Revenue Estimating Group (CREG), who noted, “When it comes to state government, the January CREG revenue estimates modified state operating revenues and increased those revenues by $113.4 million over Fiscal Year (FY) 2018, 2019 and 2020.”
While CREG puts out their report in October, which provides the basis for the Governor’s budget or supplemental budget, the group also provides a January revision prior to the legislative session each year.
“We try not to make philosophical changes, but rather, we make modification to the variables most in need of adjustment,” Richards said. “We made three primary changes in January.”
Sales and use tax
The first major change to the CREG report was an increase in sales and use tax forecast by $12 to $14 million through five fiscal years.
“Sales taxes are a bright spot for Wyoming revenue,” Richards said. “In the past year, mining sales and use tax collections have increased by 47 percent.”
Across all sectors and all counties, sales and use tax collections are running 17 to 20 percent over last year’s collection.
“We certainly experienced a strong end of summer and tourist season, and there are significant signs of increased purchasing in mining, oil and gas,” he added, noting it is a positive with recent low level tax collections. “Even with adjustments, though, we are far from the collections of 2015, for example.”
Secondly, Richards pointed out an increase in oil production, which benefits the state.
“We revised calendar year 2017 by 4 million barrels of production and continued that increase year-over-year through 2022,” he said. “We ended in 2022 with a 7 million barrel increase of oil over the October forecast.”
Richards commented, “This is a significant increase in our oil forecast, but it is not unwarranted.”
He cited a doubling in the number of rigs in Wyoming compared to a year ago, and the trend of increasing oil production is optimistically expected to increase over the next several years.
“We also increased oil prices by five dollars a barrel for calendar year 2018 to $50 a barrel,” Richards said
While the estimate is still below the spot market, Richards emphasized they aim to forecast a year-long average, so the estimate will be both above and below that estimate throughout the year.
“The CREG committee attempts to forecast and annual average, not a particular day’s price,” he emphasized.
Richards also said CREG added money in the form of administrative changes, as well.
“We added a non-trivial amount of money – $15 million – in state fee lease and bonus revenue,” he explained. “The state had three state land lease auctions in July, October and November, two of which generated significant bonus bids.”
At only five months into the biennium, Richards added total revenue exceeded fiscal year estimates by $3 million.
“As a result, we increased the estimate from $28 million to $43 million for this fiscal year only,” Richards said, adding one additional state land lease auction will be held in March. “We are optimistic some of the parcels will also generate generous bonus bids.”
The $43 million target, Richards said, is “very achievable” for the state.
Additionally, a marginal $9,756 was added to the account to right-size actual coal lease bonus funds from the federal government.
“A similar item is our last revision with respect to other funds deposited in the general fund, and this comes in the form of lease revenue for state agencies,” Richards added. “Our October estimate was $11 million per biennium, and we adjusted that to $11.5 million.”
Historical funds justified the $500,000 increase, which aligns with the Governor’s recommendation to take funds from the General Fund budget and move it into special revenue.
“What does this all mean in terms of the bottom line?” asked Richards. “After we take the individual ingredients to the CREG model and go through distribution, we benefit from two underlying fundamental changes in the outlook.”
First, an upward revision in oil prices provides optimism, despite a reduction in oil prices from $52 to $50 a barrel to reconcile with futures markets in 2021-22.
“Generally speaking, these were all upwards revisions that benefit the state,” he said.
A doubling effect is seen in the upwards revision, since the changes are made for 2018, the current budget year, as well as the upcoming biennium, 2019-20.
“Even a $10 million annual change will be tripled to $30 million as it is replicated in three fiscal years,” Richards said.
Secondly, there are three distributions of the funding – the General Fund, the Budget Reserve Account and in a one percent severance tax increase.
“In the prior decade, that one percent severance tax would be deposited in the Permanent Mineral Trust Fund,” Richards said. “Under legislative action for 2017-18 and the Governor’s recommendation for the 2019-20 biennium, those funds are now available for appropriation.”
Richards commented, “Effectively, we get a triple whammy because we see the effect in three years and in three different accounts.”
Saige Albert is managing editor of the Wyoming Livestock Roundup and can be reached at firstname.lastname@example.org.