Wyoming’s recovery from the COVID-19 pandemic has been slower than most other states, according to state and federal data, with numerous indicators hinting the state’s economy may not reach its pre-pandemic strength by the time the Legislature meets this winter.
Year-over-year revenue projections released last week by the Wyoming Consensus Revenue Estimating Group outpaced the group’s January estimates by nearly 17%. However, Wyoming’s revenues still lag behind the state’s pre-pandemic collections by roughly 10%. That’s despite record-setting tourism numbers and an uptick in fossil fuel prices fiscal analysts expect to be temporary.
Though better-performing than oil-reliant states like Alaska and North Dakota, Wyoming’s rally lags well-behind the recovery seen elsewhere.
According to data compiled by Pew Charitable Trusts, approximately 20 states had recovered their pre-pandemic revenues by the close of 2020, with an additional 13 states close to full recovery by spring’s end.
With a record-setting tourism season nearing its end and an anticipated softening of fossil fuel prices, fiscal analysts are urging caution as Wyoming lawmakers prepare for the 2022 legislative session.
“We are continuing to treat any excess revenues basically like one-time money,” Michael Pearlman, a spokesperson for Gov. Mark Gordon, said.
WyoFile takes a look at what could help, or hinder, Wyoming’s economic recovery in the coming months.
In the first months of the COVID-19 pandemic, declining coal and oil production coincided with low oil prices to deal a big blow to Wyoming’s economy. The revenue shortfall that resulted prompted the state to slash hundreds of millions of dollars in spending in the 2021 budget session.
More than midway through 2021, the energy industry is telling a much different story. According to CREG, Wyoming oil production and prices are currently on pace to match levels not seen since 2014, demand for natural gas is strong, wind energy production escalated and coal has seen a surprising resurgence, though the federal Energy Information Administration anticipates that rebound to be temporary. State fiscal analyst Don Richards echoed that.
“Wyoming will benefit from increased coal production this calendar year in all likelihood, but the structural underlying trend is a negative,” Richards said.
The underpinnings of Wyoming’s economy are still highly volatile, fiscal experts at Pew warned. However, Wyoming’s diversified revenue streams in the extraction industry — coal, oil, gas, trona — have helped the state avoid the level of decline seen in states like North Dakota and Alaska, experts say. Those states have both ridden a disproportionate reliance on oil revenues to double-digit declines in revenue from the start of the pandemic.
“We have people up here who still think oil is going to go to 100 bucks and stay there the rest of the century,” Brad Keithley, director of Alaskans for a Sustainable Budget, said. “There’s a lot of denial about the true state of the oil industry that we’re facing.”
The temporary increases in energy revenues are unlikely to yield broader benefits for Wyoming, according to fiscal experts at Pew. Since the beginning of the pandemic, Wyoming has seen a precipitous decline in mining employment and in support services for oil and gas operations, according to Federal Reserve Economic Data. Those jobs haven’t returned. This decline in traditionally high-paying employment, Pew’s Mike Maciag said, has contributed to Wyoming’s citizens seeing a decline in real earnings greater than any other state except Hawaii.
“If we were to exclude the stimulus payments and all the other federal stimulus citizens received, Wyoming state personal income would have actually declined about 3.6%, over the year,” Maciag said.
Richards said the impact of fewer high-wage jobs in energy can ripple across economies in extractive-reliant counties like Converse or Sublette, where demand generated by energy workers fuels other businesses. Though fossil fuel consumption often increases in the colder months, in fall and winter other spending in areas like recreation tend to go down. And energy prices in Wyoming, CREG warned, face numerous hurdles to reach the levels they once did.
“Caution is still warranted regarding the recovery momentum on multiple fronts,” the report read.
While the temporary uptick in energy prices could help Wyoming make up the 10% revenue gap from its pre-pandemic levels, Richards said, revenues from supplemental sources like investment income are expected to slow as the nation enters an inflationary period.
One-fifth of Wyoming’s operating budget comes from returns from the state’s Permanent Mineral Trust Fund. The United States reached an inflation rate of 5.4% entering the summer, a 13-year high. High inflationary periods are typically bad for portfolios heavily reliant on bonds. (The state’s latest monthly portfolio performance report was not available by press time.)
“Wyoming’s portfolio has tended to overperform in down markets and underperform in rising markets,” Richards said.
While indications in late July hinted that the surge in inflation could be temporary, according to the Wall Street Journal, fears over inflation have persisted as Congress weighs yet another multi-billion dollar infrastructure bill. Federal policies to temper that inflation are likely to be a central discussion topic when the Federal Reserve Bank of Kansas City hosts its annual symposium in Jackson Hole later this month, media reports have said.
While Wyoming’s economy has underperformed compared to most of the country, Maciag said there is ample opportunity for the state to reverse its fortunes in the coming years.
Wyoming still boasts the nation’s largest rainy day fund, which has helped it offset revenue declines in recent years, and has already taken steps to cut spending. There have been several limited attempts to diversify the state’s economy, Maciag said. And an infusion of federal relief money will continue for months.
“There are a lot of federal dollars helping to shore up state budgets right now,” he said.
Gov. Mark Gordon has committed to a methodical approach to spend those dollars that entails honing in on expenditures that can help generate long-term revenues and sustainable employment several years out. Federally, the Congressional Budget Office has estimated new federal infrastructure spending will result in a net positive economic impact, decreasing the federal deficit between $2 billion and $11 billion through increased productivity.
However, Wyoming — and particularly coal-reliant communities — appears unprepared to capitalize on the greatest impacts of those dollars, experts told WyoFile.
That inflationary pressure could also impact how the state approaches its upcoming budget, Gordon’s policy director, Renny Mackay said, with higher rates reducing the buying power of those federal funds. The federal infrastructure package is also expected to create a surge in demand for labor and materials, Mackay said, further complicating the state’s ability to fully benefit from those funds.
“This is not going to be easy,” Mackay said. “This is not some sort of panacea. We’re gonna have all kinds of challenges with it, let alone the fact that there’s another huge spend on infrastructure that’s going to contribute more to inflation.”
Keithley of Alaskans for a Sustainable Budget encouraged Wyoming policymakers to be proactive in diversifying the economy and revenue streams to avert a scenario like that in his home state, which has experienced significant budget cuts post-pandemic.
“Be proactive in dealing with the issues out there, because once you start down the road of relying on savings, it doesn’t get better,” Keithley said. “You just keep sucking more and more savings into the vortex.”