The legislative session in Cheyenne generates a lot of headlines and publicity but much of the heavy lifting of the legislative process happens throughout the year and around the state in interim committee meetings, like this one. Pictured here is a June 2017 Joint Revenue Committee meeting in Riverton, with then co-chair Michael Madden front and center. (Andrew Graham/WyoFile)

Wyoming’s fiscal situation has grown very stormy in 2020.

The state has already administered a 10% cut across all agencies, followed by another $500 million this fall, with possibly more to come. It now looks like we’ll have to reduce the two-year budget from about $3.3 down to $2.4 billion in order to make it balance. This is too much to withstand if we hope to maintain needed state services.  

Observers have long noted that Wyoming suffers because it has resisted diversifying the revenue streams with which it pays for general state government and public education. 

The reality is a bit more complicated.

A summary of Wyoming’s fiscal woes must take into account that mineral severance taxes have declined for six consecutive two-year budget cycles and are forecast to keep heading south for at least another one. A similar pattern has also played out with federal mineral royalties. 

To grasp the significance of this downturn, in the 2007-08 biennium Wyoming received about $2 billion in severance taxes. In the current biennium, that revenue source is expected to amount to about $800 million — only 40% of what it contributed 12 years ago. 

Sales and use taxes play another important role. Because the narrow base of taxed goods is also slanted to the mineral industry, revenue from this source has also been stagnant for the last decade, holding to around $900 million each biennium. The current budget cycle is projected to experience a drop in sales and use tax largely because the mineral sector is declining and impacting other businesses that sell the mineral sector goods and services. .

It is also noted that post-COVID sales and use tax has not recovered during the first four months of the current biennium. In fact, this tax has dropped on average more than 8% compared to July through October of the previous year. 

What has happened in states around Wyoming? A quantitative comparison shows a telling contrast due to the lack of diversification in Wyoming. 

Idaho, Utah, Nebraska and South Dakota — all of which have more diversified state revenue structures than Wyoming — each experienced very healthy increases in state revenue while Wyoming’s plummeted. 

The state of Idaho, with a population of about 1.7 million, has a diversified tax system. It pays for general state government costs primarily with a  sales tax, moderate corporate and personal income taxes and a variety of smaller sources. Economists in the state initially expected large drops in tax receipts at the beginning of the pandemic. However, during the last few months state revenue has risen substantially as spending from the CARES Act has taken place. In September and October, general fund revenue grew by 9% and 7% respectively. Leading the growth in revenue was the corporate income tax. 

Tax revenues in Idaho have so far exceeded expectations this year that if revenues continue in the present pattern, property tax reductions could soon be on the horizon, according to Idaho lawmakers.

Utah is another state that relies primarily on sales and income taxes for supporting general state spending and public schools. Its diversified economy and revenue structure appears to be working to the state’s advantage. In a cautionary attitude, Utah lawmakers are saying that until the current favorable revenue trend continues for a few more months, fiscal changes are premature. 

Early in 2020, lawmakers there were warning the public that sales and use taxes were seriously lagging the state’s needs to finance public services. However, recent history has changed as the state has witnessed sales tax revenue increasing nearly 10% year over year. Income tax receipts have taken a similar jump rising an estimated 9.2%. It is believed by many observers in Utah that much of the added sales tax revenue is traced to COVID stimulus programs. 

Nebraska relies primarily on a sales and use tax, personal and corporate income taxes, and to a lesser degree, a gross receipts tax. Nebraska revenue forecasters recently raised the state’s revenue estimates for the present fiscal year. The group predicts that revenue will end the year at least $285 million above what was forecast at the time of budget preparation. In addition, forecasters predict these sources will produce more than $400 million in additional revenue during the next two fiscal years beginning in July, 2021.

The biggest jump in revenue in recent months has been the sales tax. For example, August sales taxes exceeded the forecast by 19%. Individual income taxes in Nebraska also beat predictions by more than 10%. Nebraska policy makers also believe that much of the large boost in state revenues can be attributed to economic stimulus related to the CARES Act.

Finally, South Dakota also has, so far, experienced needed growth in the state’s revenue. 

South Dakota, while of larger population than Wyoming, has a tax structure somewhat similar to Wyoming. It  has no income tax, but does have a sales and use tax. This tax differs from the Wyoming sales and use tax in that it is far broader and applies to most services not taxed by Wyoming. Another difference from Wyoming is that South Dakota relies on a relatively high property tax at the local level to finance the bulk of public-school education. Finally another obvious difference is that mineral extraction is not a major revenue generator in South Dakota.

At the close of fiscal year 2020 in July South Dakota had an unexpected revenue surplus. In addition, the first four months of fiscal year 2021 have produced large increases in sales and use tax revenue ranging up to nearly 20% year over year in one month. Sales and use taxes have increased over this four-month period by approximately 15%. Revenue forecasters in that state attribute a significant amount of this increase to the CARES Act and also the active wind development projects now taking place in the state. 

Analysts in South Dakota estimate that if the current trend in sales tax growth continues, it could amount to between $100 and $200 million in additional revenue above the fiscal year forecast.

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The pattern is readily apparent. Our neighbors, having established diversified revenue systems, are able to benefit from a wide array of economic activity, including the kinds of spending engendered by the CARES act. As a result they continue to thrive — and are able to maintain much-needed services — even as many economic sectors suffer.

Wyoming, meanwhile, remains unduly tethered to the minerals sector, unable to meaningfully benefit from growth or activity in any other field. When minerals tank, as they are currently, so does the state’s ability to fund the basic functions of government — regardless of what happens in the rest of the economy. 

Unlike previous slumps in the energy industry, the current one looks to have no reasonable likelihood of a timely recovery. Federal policy changes, point to slow recoveries in oil and gas and the outlook for the coal industry is even bleaker. 

If state legislators don’t fully appreciate the gravity of this rapidly approaching fiscal cliff when the Legislature meets next spring, it will be too late. The structural deficit for both the state’s general fund and the school foundation program are severe by any measure. 

Michael Madden

Michael Madden served 12 years in the Wyoming House as a Republican representative from Buffalo, including seven years as chairman of the House Revenue Committee. He is an economist and holds a doctorate...

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  1. Informative article. The idea of personal income tax for high earners should be the first restructuring ticket. Too many people move there for the free tax ride and its impacting your resources. Now that more people are out of work and communities are struggling to keep needed services afloat the overly wealthy have an opportunity to love on the state even more by contributing to needed resources.

  2. The Wyoming Futures Project, back in 1985 (I believe) tried to tell the state that unless it stopped putting all its eggs in the energy basket and diversify, it was headed for a crash. Several crashes later, here we are once again facing steep deficits and severe budget shortfalls. Diversification throughout all economic sectors is and will be Wyoming’s only hope of escaping the boom-bust cycles of the past. That invisible fence, built a hundred years ago, that continues to surround the state, keeping out progress, prosperity and innovation, is breaking our backs once again. Change is hard but necessary. TEAR DOWN THE FENCE!

  3. Mr. Madden I appreciate all your hard work both in the legislature and now as a contributor to WyoFile.

    I notice that you skipped our neighbor to the south, Colorado. Their economy seems to know no bounds. While Wyoming has always touted our “duty free” zone as an attractant to businesses I have always thought that new businesses tend towards a well educated work force and a state with lots of attractive amenities. If that state has a corporate income tax then they will figure that in to their business plan and move forward. If the state itself has no plan and seems to be flailing around during every legislative session for the last 10 years trying to find a way to fund necessary services and education then perhaps that business might want to look elsewhere.

    The wind energy sector is currently trying to make huge investments in Wyoming and every year the legislature tries to turn them into the next “cash cow” for the state. We live near a project that was supposed to be the largest land based wind project in the nation. While it continues to develop roads and some infrastructure, it has been slow to actually erect towers because every new year brings fresh threats of new rate legislation. Pretty hard to plan a project when you cannot rely on what your tax rate will be.

    Legislators need to put on their big boy pants and start making the hard decisions to fund our state. The extractive energy “free ride” is over. A good, stable income is necessary to move forward. If coal becomes king again then we will be positioned to excel again but we cannot continue to circle the drain while throwing our rainy day fund overboard.

  4. Michael –

    Good column that shows how our dependence on one industry (and one that is likely dying at that) is making our state a backwater.

    Serious question (no snark): You were in the State legislature from 2007 – 2019. What efforts did you make to diversify our tax/revenue base and raise more revenue? Personal income tax on the highest earners? Corporate tax on out of state companies doing business in Wyoming? Something else?

    1. Mr. Trauner:
      The short answer is, ‘all of the above’. You can check the legislative archives for all of those years to see which were dealt with during the interim’s joint revenue committee before and after I was the House Chairman.

      1. Thank you sir. I appreciate the answer. It was a serious question and not meant as a gotcha. I honestly did not know. What would you recommend now?

    2. Gary, apparently you haven’t been watching the WY Legislature for the many years Rep. Madden tried–over and over–to get revenue raising bills passed in the Revenue Committee! Senator Case and Rep. Zwontizer have been trying with the same results!. When legislators and prospective legislators sign a “No New Taxes” pledge for the Liberty Group, there’s not a lot of space for movement! Talk to those folks to see what their solution is for Wyoming’s pathetic revenue !

      1. Agree with your comment. The anti-tax pledge is from the Americans for Tax Reform… Grover Norquist and company… been around for decades sealing signers vote regardless of constituents that wish to discuss options to stop the bleeding. The hard realities are that these folks got elected in significant numbers last election…even knowing the candidates signed the pledge. Hard times ahead.

    3. Yes, Rep. Madden tried repeatedly to push forward with changing Wyoming’s revenue structure. He also was instrumental in getting better oversight for current tax exemptions and is largely the reason why there are annual reports to the Joint Revenue Committee each year on the amount of lost revenue from various sales and use tax breaks so we can understand and evaluate the consequence of those decisions. In addition to bigger taxes, he also tried several times over to tax flared and vented natural gas as a way to generate more revenue and to prevent the waste of the resource. I only wish the current delegation from Sheridan/Johnson counties would try as hard on these thorny problems. Even if the bill ends up being voted down, it’s worth considering and having the discussion. Perhaps we are now too many years too late, but better late than never.

  5. Thank you for the hard work that went into preparing this column. It is very illuminating to read the comparisons between Wyoming’s minerals-based revenue stream versus the more well-diversified revenue streams of her neighbors. It strikes me that their tax structures allow those states to benefit from and encourage a diversified economy— to look to the future for new industries. Wyoming, as UW Professor Godby has pointed out, suffers economically when it diversifies its economy because of its minerals-based tax revenue structure and, so, struggles to move towards an industry base other than minerals. The state’s economy is changing from forces Wyoming can’t control. But we can manage our response. This kind of analysis and tough thinking is what Wyoming leaders in the Capitol need to be doing to

  6. as big as it has gotten and since we are surrounded by those selling it, it just
    might not hurt to look into the sales of marijuana here in wyoming – jobs
    and if anybody IS going to colorado – take the business from them and bring
    it back here.

    do it like a business – you’ll emply people, make huge strides in revenue – utah has
    it, colorado has it – a lot of places are moving ahead with it while wyoming remains
    defiant – and losing money. this is a big chance to join in with new ways of revenue.

    otherwise, we will slowly lose more than just jobs. we are seniors, we aren’t involved
    at all – but we can see that like stocks, investing in said product might very well save our
    state.

    believe me, alcohol is a drug and it’s not only legal but a much bigger issue. fights in bars,
    trips to the hospital, cops on edge….people are killed when others are drunk. my husband
    was a lifelong fireman – he said this – i’ve cut too many dead people who were drunk from
    cars. i’ve never cut a person out of anything who was smoking marijuana.” look at the numbers
    and you’ll see you might want to make alcohol illegal. it IS a poison you know. great for
    snake bites – detrimental to your liver. just a suggestion.

    1. I agree with you, mrs. ammerman. While the commercial sales of marijuana will bring its own set of problems with it, it is one more way to bring another business to Wyoming. It would benefit a wide range of Wyoming businesses including the farmers/ranchers, processors/packagers, distribution, transportation, and sales. The US House has even passed legislation to decriminalize marijuana. I doubt the bill will pass the Senate at this time, but it is a sign of changes to come. Any laws in this regard must be well thought out, and enacted and enforced very carefully; but, fortunately, we can look at the many other states that have already taken this step and see what works and what doesn’t. That can help to guide us with our own legislation.