There’s a long-recognized but often ignored catch-22 at the heart of Wyoming’s economic-diversification efforts: Unless we also diversify our tax structure, attracting new non-mineral industries and their workers would actually worsen the state’s already dire fiscal situation.
Now, the work-from-home movement spawned by the coronavirus pandemic is putting that once theoretical threat to the test.
First, a quick review of the fundamental challenge first described in this column in 2019. Analysts using a Regional Economic Model, Inc. model are able to plug in Wyoming’s unique economic parameters — such as tax rates, prevailing wages and the costs of public services — to determine the net fiscal result of economic growth within various industries. Specifically they modeled what would happen if Wyoming was able to expand its agricultural, food-manufacturing, chemical-manufacturing, public-utilities and minerals industries.
The results demonstrated that growth in any or all of the non-mineral sectors produced long-run fiscal deficits for the state. That is, the increased tax revenue generated by the new businesses and their employees fell far short of the increased cost associated with providing public services — e.g schools, police protection, courts, road maintenance, sewers, department of health services etc. — to the new households and businesses.
In contrast, the model found that growth in the mineral industry produced substantial positive fiscal benefits in Wyoming. That’s the only way we’ve thus far been able to afford what’s been moderate expansion in non-mineral sectors. But now that excess revenue from the mineral industry has dried up.
The model also looked at how similar economic growth would play out under the unique tax structures found in North Dakota, Utah and Kentucky. In each of these states, expansions in the examined industries produced net-positive fiscal gains, in direct contrast to Wyoming. In other words, other states generally tailor their tax structure in such a way that as their economies expand and diversify, new fiscal revenues keep pace with the added cost of providing public services.
Three years ago, when this study was performed, no one could know just how pertinent it would be to today’s economic circumstances.
As a result of the COVID pandemic, workers all over the country and in a broad swath of industries began working at home. Management figured out pretty quickly that remote work actually functions pretty well for many roles. Various accounts now suggest that generally productivity has not fallen and, not surprisingly, employees have welcomed the opportunity to work from home. Many business entities have now adopted a work-from-home model for most of their employees.
As a logical progression, many employees no longer need to reside anywhere near their company location. Their employer may be based in Atlanta, Seattle, Dallas or New York, but they can now live and do their job from wherever they choose.
Quick question, would you rather live in Sacramento or Sheridan? Yeah, me too.
Not surprisingly, Wyoming along with many other states in the Rocky Mountain region are feeling the impact of this qualitative change from workers employed by out-of-state companies. Some Wyoming economic development associations now appear to welcome this new trend.
There are a multitude of reasons why this new residential pattern is likely to become more and more popular. First, employees soon discover, as they consider a move farther from their company location, an opportunity to purchase quality housing at far lower prices than their home location. This is particularly true for those relocating from California and other urban areas of the country. Second, another economic boost awaits them when they discover a far lower tax environment than what they were accustomed to before their move.
The companies that employ these transplanted workers are amenable to alternative residential locations if worker productivity remains satisfactory. In fact, over time it probably allows them to offer lower salaries to employees because of lower living costs.
It is also possible that the state and local governments from areas these employees and their families leave see a positive impact because the trend alleviates pressures on overcrowded schools and residential subdivisions.
If you’re keeping score at home, that’s three economic winners so far: workers, employers and the workers’ former governments. Guess who loses.
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If this residential pattern continues, Wyoming stands to take an even bigger hit than was demonstrated by the REMI model three years ago. A migration of employees working in companies located in other states is analytically the same in the model except for the fact that the company, and the taxes it pays, remain in its existing location. In other words, it’s a double whammy for Wyoming. We still incur the costs of providing services to the incoming worker but any taxes paid by the employer go into a different state’s coffers.
Therefore, the fiscal losses are equivalent to the cost of the services that each of these new Wyoming households are entitled to, minus the state and local taxes those households pay. Because the companies themselves do not relocate, these losses are augmented by the lack of business taxes that would have been paid.
The Wyoming Taxpayers Association, government agencies and other organizations suggest that an average Wyoming household receives about $27,000 in services each year but only pays about $3,000 to $3,500 in primarily property and sales and use taxes. Again, the difference used to be made up by the taxes that commercial and industrial businesses and in particular the mineral industry pay.
This means that each new household relocating to Wyoming and working from home for an out-of-state employer on average costs the state at least $23,500 more in services than it contributes. Some households receive annual services costing far more than this. For example each public school student from these new households costs about $17,000 alone.
Assuming Wyoming’s net cost per household of services is $23,500, each 100 work-at-home households results in new uncompensated costs to Wyoming State and local government of $2.35 million. Likewise, each 1,000 of these incoming households adds $23.5 million to our budget deficit.
In past years, mineral taxes paid up to 70% of education costs as well as many other government programs. Thus, there were ample revenues generated in that industry to cover revenue deficits such as this. But, with the current challenges in this industry, those days are behind us.
A new way of dealing with these structural shortfalls is perhaps overdue.
It was a great system of taxation! Tax minerals at 50-100K per job! It worked well until access to minerals became difficult. Permitting kills most of these jobs. Permitting delays moves the market readiness. By the time the permit is granted the market is down and the economics do not work. Delay, delay, that is the strategy. Representative Madden is correct, Replacing 100K year taxed jobs with 3k year taxed jobs is a recipe for disaster.
Wait until these highly paid out-of-staters in the comments realize their air of self-importance doesn’t go over well here.
Dr. Madden repeats the canard that Wyoming residents receive $27,000 in services while paying only $3,500 in taxes. The “taxes paid” does NOT include all the federal taxes we pay – federal taxes that come back to Wyoming. Federal personal and corporate income taxes, federal fuel taxes (18¢/gal), federal unemployment taxes and the like all return to Wyoming to help fund those $27,000 in services.
Marti-
Nice try , but your argument is vaccuous. I have seen several studies that mostly conclude quite similarly that the federal taxes paid by Wyoming residents return 2- 3 X the return in federal services and offsets. Wyoming also gets a very rich overreturn on fuel taxes paid within the border ( a great deal by tourists and people transiting the state ) … our contribution to our own state highway and road maintenance is overshadowed by nonresidents. Maybe you are not aware that fully 80 percent of the costs of building , operating, and maintaining our vital commercial airports is paid by the feds. Also, my own Park County has the dubious grace of being able to collect sales, use, excise, and fuel taxes inside Yellowstone Park, yet neither the county nor the state gives back much if anything to the National Park system for their operating costs…we take but we do not give back ( recall that ” No taxation without respresentation ” lesson from your schooling ). If you want to have a real kn ockdown fight about paying taxes but getting many times the return in services and offsets, look no further than our Agriculture economy in Wyoming, which would implode and vanish without the largesse of federal and state subsidies… farmers and ranchers are flannel wearing Socialists if ever.
Truth be told, Wyoming has NEVER been able to pay for itself and its own needs with its own money . We cannot take care of our own basic needs without the multiuplier of outsiders supporting us. The taxpayers in Connecticut and Massachusetts are Wyoming’s saviors. Wyoming is a federal province. Without federal support this state would be one big white tribe of subsistence hunter-gathers living in huts. We need a new business model here in the Coboy State tor eplace that arcane 19th century handout mentality.
( Oh by the way , the state fuel tax should be raised to a minimum of 50 cents a gallon if the goal is to keep the roads driveable. It’s well past the time Wyoming and the rest of America started paying for the true cost of carbon-based fossil fuels. Time you and the other narrowminded conservatives woke up to that basic fact of life in the 21st century ).
Niobrara County has long had a influx of agricultural transplants from Colorado and they are the nicest people I have ever met. They sold their farms and ranches and bought in Wyoming – their cultural was an exact fit with ours and they fit in immediately. Its difficult to be accepted in Wyoming if you’re different – the change will come but very slowly. Lander and Cody and Sheridan have adjusted nicely but not so much the case in other parts of Wyoming. The new arrivals need to at least partially go “native”. Leave the old behind and adjust.
Well said Lee. I find it curious that for being such a backwards minded, poorly managed State who survives by the sweat of poor Eastern tax payers that so many people are moving here and continue to reside here. It is amazing how many point to a problem, condemn the proposed solution and yet do not offer an alternative solution.
I have long questioned if the State of Wyoming is fulfilling its state constitutional mandate to maximize the revenue from State school trust lands to fund education to the fullest extent possible. Wyoming has 4 million acres of state school trust lands. At a minimum each 6 x 6 = 36 square mile Township of non-federal land on the maps contains at least two full sections of State land set aside. It usually is more. There are tracts of unbroken State lands in Wyoming exceeding 50,000 acres ( Examples : the big Pitchfork Ranch west of Meeteetse , or the huge tract east of Clear Creek north of Buffalo in Johnson County)
We must ask i9f the State Land Board is in fact optimizing the revenues from the various leases thay award on those tracts. While most are grazing leases , there is much acreage leased for mineral, timber and other purposes. It is my perception that a great many of the leases are grossly underpriced , especially orphaned state tracts surrounded by private or federal land used for grazing. We know the entirety of the Stockgrower cabal in the West has successfully rigged and jigged the public land allotments in their financial favor since the days of the Territories , in all the western states. In Wyoming we appear to award leases on the cheap with one hand, then hand out large subsidies for grass, water, access, etc with the other.
The burn comes when many of these temporary revolving State Land leases somehow morph into defacto private land when the leasees hang on to them fopr multiple generations. That certainly is the case with the 45,000 acre tract of State Land on the aforementioned Pitchfork Ranch… the ranch founder homesteaded the creekbottoms in long skinny tracts and thus controls all the access to the state land surrounding them… the 2 percent of the private land is the gatekeeper to access and use of the 98 percent of the public land on the adjacent ground. This is not an uncommon situation.
The question becomes : Is Wyoming getting the optimal financial return on leases of State School Trust Lands for the benefit of funding education ?
Absolutely not. I went to a Republican caucus when Trump was running in 2016. Their major plank was to force the feds to cede all public lands to the state. By doing this the ranchers could then control all state land. It would mean an end to places for hunting, fishing, camping, hiking, etc unless a person pays to trespass these lands. Today ranchers lease out thier properties to the outfitters for hunting at steep prices thus locking up large blocks of land. And since the state gives away and even pays ranchers to lease state lands, how would anyone expect the state to generate an income that would show a profit to benefit all Wyoming peoples?
Another good article from Mr. Madden. I would add that this skewed tax structure results in what I’ll call crony socialism – our electeds using government resources (read: ,money) and enacting laws that favor their preferred industries in a desperate attempt to maintain the historic status quo, even while professing to be free market capitalists. All because they don’t have the cajones to recognize, or act on. a changing world around them.
Mike Weber asked for a suggestion. I think a good starting point would be to connect more spending decisions with the responsibility to raise the funding for the spending. Senator Dave Kinskey has a proposal to cut back the distributions to cities and counties. Although it isn’t part of his proposal, the legislature could easily give cities and counties the ability to levy local taxes if they felt the spending was necessary. I believe the current state distributions to cities and counties is over $100 million, so that could make a meaningful dent in the state budget deficit.
All we seem to hear about education funding is that court rulings have made it nearly impossible to touch. I believe this is nonsense. Do any of the court decisions require the state to pay for transportation? In the decade and a half after the state decided in their “infinite wisdom” to increase the reimbursement for transportation from I believe 80% to 100%, the cost of transportation increased from $28 million a year to $78 million a year. That would put a meaningful dent into the deficit. You could have individual districts be responsible for raising the funds for activities.
Another area the state needs to re-visit is whether or not local districts can be expected to take some of the responsibility for new school construction. This might require another visit to the courts, but so what. It used to be that if a school district wanted to build a new building, the state would come in and help once a district had bonded itself to 95% of its ability, which seems pretty reasonable. The alternative might be no new construction if the state has to shoulder 100% of the burden. Would that be better? I don’t think so.
For the life of me, I have a hard time understanding why the legislators are such hypocrites. One of the ideas you could probably get almost all legislat0rs on is the benefit of local control. If they believe that, what is keeping them from giving local communities and school districts the ability control certain projects merit locally generated taxes?
Where I grew up, California, the final sentence of the article is telling….
“A new way of dealing with these structural shortfalls is perhaps overdue. ”
That is pol- speak for tax increases. We left California years ago because of it’s confiscatory taxes, over bearing regulation and hostile business climate. Now we are leaving Nevada because it is spiraling down the same path as the state to the west, and we will be domicile in Wyoming in another month. As a tech worker still making a California salary my wife and I are the kind of people you want because we have money to spend and are already looking at ways to spend it. I am looking forward to living in a state with a minimalist government footprint and I pray that articles like this are not a harbinger of bad days ahead. Don’t make me be a bad guy and take our spend someplace else.
Frankly, I too would be interested to see an actual nuts and bolts, facts and figures, analysis of how the average person is consuming $30K plus in state services. It doesn’t smell right. Besides, if revenue is going to be that slack, assuming the Biden Administration fulfills it’s promise to destroy the fossil fuels industry, it is going to become incumbent on government to reduce its size and scope before it comes asking for different funding streams, with strict means testing on every single service government provides and every single board and commission that oversees it.
This discussion sure causes people to get heated. I don’t really know what the answer is at this point. I do know there is a budget shortfall in the state and everybody has to pay more and get less to make up our states budget shortfall. I do see a fair bit of wealth moving into the state and we still have a rough state economy. So I guess I’d have to lean on an economist to educate myself on whether folks such as yourself moving here to work remotely is a god sent blessing and one of the answers to our economic future as a state.
Couple of comments.
First is the guise that working from home is considered productive. I work with numerous small business owners and employers and those that have shifted to a work from home environment comment that their employees are less productive. To many distractions, difficulty in maintaining any sort of team oriented environment because employees are all on their own islands, not together collaborating, difficult to monitor work load management, additional equipment to be provided, etc.. And in many industries, work from home is not a long term option or not an option at all. While we certainly will attract and have been attracting people with remote work opportunities for quite some time, I do not see this as being the new normal. Frankly, people are coming here because we still have some semblance of freedom and most citizens are law abiding vs many urban areas and the two coasts.
Second, I need a road map between the $3,000 in services that each Wyoming resident pays for and the $30,000 of benefit we receive – these are the numbers I see thrown around most often. Granted, I’ll be the first to acknowledge the mineral industry has paid the piper for most citizens of this State for many years, but the numbers do not match up. If they matched up, you might as well throw in the towel or implement an income tax that would be the highest in the nation to cover those so called benefits. Maybe most of the citizens do not want all of these so called services/benefits? Do I need my Greenway plowed as soon as the snow storm is over – while we struggle to plow streets and highways or even keep them maintained? .
I do not care how much money you raise, government will find a way to burn thru it. In lieu of just throwing more tax revenue at the problem – I can guaranty you we will never generate enough revenue – we need to address the efficiency of those services provided and the efficiency of the tax collection/assessment processes we have right now. As I have said before, we spend the second highest amount per capita on education but perform somewhere in the middle of the pack. Dan Zwontizer proposes – finally – a serious look at consolidating the wasteful administrative costs of 48 school districts – 105 +/- schools have as many students as these small districts. Why is it we spend so much and get marginal returns? Or maybe looking at the cost of some of the nickel and dime taxes and so called “fees” we assess in this state. Wyoming has a personal property tax system where you are required to pay a small tax on the equipment your business uses. Take a small contractor or doctors office – they have to report all of their personal property type assets to the County each year, the County makes an assessment, then you pay your tax in two installments. The Counties and State probable spend hundreds collecting $50 in taxes – or less. Spend a dollar to collect a nickel
I think most people would agree, the tax structure needs work, times have changed, minerals will not foot the bill. But let’s look at serious tax reform, serious spending reform before we give more money for government to burn thru. It might be painful, but you might get more popular support for increased taxes if you could demonstrate to the citizens of this state that government and it’s leaders were serious about making government more efficient with the resources we have.
And let’s really look at the taxes we pay in total. Unemployment taxes, workers compensation taxes, state filing fees, sales tax, use tax, property taxes, personal property taxes, license fees, building permit fees, development fees, impact fees……….you might actually be surprised how much you pay in taxes – and when you are footing the bill, may have second thoughts about how efficient and effective your government is with your funds.
As long as I can remember the welcoming committee here in our wonderful Wyoming have more than once said welcome to Wyoming but bother telling us how you did things back where you came from. How much longer can we maintain this mind set. The days of mineral royalties paying for our road maintenance, pitching in on education, partial funding for town and city infrastructure are fading fast It will take a huge dose of sugar to make the tax medicine go down but sooner or later tax pill will have to be administered.
Cowboy up.
I would like to hear the author’s ideas for options to put a new way of dealing with these structural shortfalls in place.
My daughter and I just spent a week in Sheridan and a week in Denver. She is a $100K plus high-tech millennial from silicon valley looking to locate to a more law abiding state than CA. Somewhere without high taxes, costs of living, illegal immigrants, homeless. etc. Somewhere with great outdoors, and a chance to buy a ranchette. Somewhere she will spend over a million dollars over the next 10 years. Sounds like Wyoming to me!
Dream on…wait’ll the water runs out!
This article nails it. Wyoming can’t afford to diversify its economy because of its tax structure.
This is what makes Governor Gordon’s flippant response that “we would love that” if Weld County, Colorado joined Wyoming ridiculous. Adding 300,000 people to Wyoming would bring in way more expenses than it would generate in revenue, crushing the state’s finances.
It would be nice if our Legislature and other public officials would have serious conversations about building and supporting thriving communities.
Fascinating! But Mr. Madden is leaving out some important variables when he expressed his certainty that ,say ,workers who could still retain high paying jobs while paying fewer taxes would prefer to live in Sheridan than Sacramento.. For one thing, people from Blue states do not generally want to live in one of the most red states in the USA, recently in the news for wanting to recall Liz Cheney for expressing her support for impeaching Trump.. For another, the neighbors aren’t friendly to outsiders and it would be difficult to make friends, especially if you didn’t go to a workplace.. I discovered this as a former New Yorker. When I sold my cabin near Dubois which I’d owned for 22 years, a neighbor begged me not to sell to a Californian. I did. He lasted a bit more than a year.. Also the California schools are better and the medical care is WAY better. Yes,c housing in Sheridan , which is a nice place, is cheaper ,but cheap isn’t everything if you are making a California wage.. Some people like movie theaters, state of the art restaurants, gyms, good supermarkets, museums, diverse cultures,c and the ocean nearby. I would bet that the new influx , if indeed there was one, would come from Weld County ,Colorado or Nebraska and Idaho. .And when those transplants discovered their services were reduced it would be easy for them to go back where they came from..