Wyoming’s longstanding revenue sources are a double-edged sword for the state and its residents. Though the coal, gas and oil industries built the foundations of what we know today, relying solely on those sources of revenue crippled the state’s budget in recent months.

With no clear end in sight to the dismal economic situation, Rob Godby, director of the University of Wyoming Center for Energy Economics and Public Policy, said the state not only needs a new revenue model but a new tax model that would require considerable political and cultural changes. At a point in a bust cycle that has no clear end, Godby said it’s far from certain how the state will deal with the slump.

“We need to recognize our challenges, optimize our opportunities, and we will need to overhaul our revenue model and willingness to invest in supporting new activity,” Godby said.

Environmental resource policies — including energy policy and its effects on state economics and macroeconomic conditions — are Godby’s focus. Currently, he is most active in trying to help the state understand what some of the risks have been with revenues from energy.

The state’s three primary commodities — natural gas, coal and oil — saw declines in revenues caused by market conditions throughout the last two years, Godby said. With those three commodities, Godby said Wyoming is more diversified than many other energy-dependent states. But the state is in a uniquely challenging position, as all three markets are very weak.

Those conditions are likely to be further compounded by greenhouse gas regulation. Even if the state makes it out of the current fiscal crisis, Godby said market demand for all three commodities could be reduced as a result of federal regulations, putting an economy such as Wyoming’s in the crosshairs in the coming decade.

“Regardless of whether you like (regulations) or not, if they happen — which looks likely — then we have to deal with that,” Godby said.

Regardless of what’s led the state to its current economic conditions, Godby said there is not much Wyoming industries or policymakers could have done to avoid it.

As reality begins to set in, people around the state are making calls for a diversified economy, less reliant on energy.

“We’ve known about that for years, and it’s easy to say, but hard to do,” Godby said.

If lower taxes and deregulation was the solution, Godby said the problem would be fixed by now. Wyoming, Godby said, is already one of the most tax-friendly states in the nation.

The only real solution, he said, is to overcome its economic challenges by attracting new economic activity at a significant enough level to reduce the reliance on energy commodities — a challenge Godby describes as “extreme.”

“If you’re going to attract that much new economic activity and avoid energy cycles, you have to attract activity not related to the energy industry, or at least not fossil fuels,” Godby said.

Godby said Wyoming’s very small population and distance from markets makes it tough to compete with other large economic centers. Its largest population centers in Cheyenne and Casper are divided by more than 150 miles, diluting market opportunities. It’s neighbors in the Colorado Front Range, Billings, Montana, and the Salt Lake City Basin — all major economies — make it hard to compete in attracting diversity, Godby said.

“At best, we’re likely to be a satellite of those economies around us,” Godby said. “Given we don’t have a center of our own to create gravity, it’s much more challenging to create economic diversification we would need to reduce reliance on fossil fuel industries. There are very few industries that would naturally want to locate in Wyoming and could afford us that opportunity.”

Tourism and technology

Though it’s a long ways from generating the kind of revenue seen from energy, tourism is Wyoming’s second-largest private economic activity. Godby said Wyoming’s natural wonders attract a lot of visitors, but the nature of the jobs in tourism are very different from those in energy.

Energy’s large-scale industrial nature not only means it pays high wages for its workers, but also requires highly-skilled support sectors and high-skilled professional jobs such as as accounting and legal support. Paying high wages for those in energy jobs and its support sectors also means more money spent in local economies in sectors such as entertainment, hospitality, service and retail. Tourism, Godby said, just doesn’t have the same type of ecosystem.

“The jobs aren’t professional services, so they pay lower wages,” Godby said. “You also don’t need the same support sector — neither as large nor well-paid — so the overall wages in the tourism sector induces less economic activity when people spend their income.”

In 2015, Gov. Matt Mead said one of his priorities was to make technology the fourth largest job sector in Wyoming. Godby said technology has its own problems. The state is well-wired with lots of fiber connections and its cooler, drier climate makes it favorable to technology companies such as data storage. But Godby said making Wyoming the next Silicon Valley isn’t an easy task.

“Silicon Valley occurred when it didn’t exist elsewhere — now there is a Silicon Valley,” Godby said. “It was built on very strong universities nearby, such as Stanford. We do have a strong university at UW, but it has competitors. As proud as we are of UW, it’s not Stanford.”

Promoting further development of wind energy — the only alternative energy source that’s really viable in Wyoming, Godby said — also won’t be easy. Not only are the necessary transmission lines not in place and very expensive to implement, Godby said wind farms just don’t produce as many jobs as fossil fuel sectors. In addition, Wyoming is the only state in the country that taxes wind generation — and is considering increasing those taxes — which still generate far less revenue than fossil fuel commodities.

“Further, because Wyoming is not the only state with excellent wind potential, such taxes have the possibility of driving away such development,” Godby said.

Growing an economy also requires a knowledgeable workforce. Godby said the university is downsizing, losing the key thing needed to spur an innovation or technology boom — people. And, even if new technological innovations came out of UW, Godby said there’s no way to tell whether the technology would benefit Wyoming.

Whatever the best way forward, Godby said it’s “going to take a long time for those changes to be meaningful in the state economy.”

Making diversification work

Even if Wyoming were able to find a burgeoning economic sector to fill the void left by a downturn in revenues from energy commodities, Godby said the state faces another challenge in how it collects revenue.

“Our entire fiscal model depends on taxing other people through taxing energy commodities we ship out of state,” Godby said. “If we were to develop a new economy — say it’s high-tech — we’d still be broke as a state using the current revenue model with no income tax, no corporate tax, depending heavily on property taxes paid largely by the energy industry. A lot of taxes are paid based on production potential. Sales tax is levied on activity we do in energy.”

The problem, Godby said, is if the state diversified its economy away from energy, a rather large cultural and political shift would be required to find new tax revenues; likely by doing something people in Wyoming aren’t used to: taxing themselves.

“People have become pretty used to having other people pay for services,” Godby said. “Asking people in Wyoming to share a larger part of the burden is not going to be popular.”

But, to support economic diversification and attract development in non-energy markets, Godby said it’s critical to maintain state services.

“State services are essential in attracting the economic development we want to see occur — everything from infrastructure, good healthcare services, high-quality education — all of that is essential and requires government revenues,” Godby said. “It’s a chicken and egg scenario: where does the revenue come from that we might need to support necessary investments to diversify the economy?”

As state budgets contract in agencies across the board, Godby said Wyoming is going to lose good people who fuel economic activity. When it recovers from the current crisis, Godby said rebuilding that human capital will be difficult and expensive.

Though its challenges are considerable, Godby said Wyoming could make the changes it needs to.

“At the end of the day, we need a new revenue model, and we still need a new model to tax that new base,” Godby said. “It’s not to say it can’t be done, but the current economic model needs to change fundamentally if we are going to diversify the economy.”

(15) comments

danceswithdeer

Wow; what a succinct article about the perils of diversification without a change in our social/political mindset. Given the current (and future slump) in the energy industry, imagine what would happen if IBM suddenly announced that it was going to build a plant in Casper that would employ over 1,000 high salaried IT engineers, coders, programmers, etc. If those workers had the average of 2.2 kids, the school system would be inundated with students at a time when the school budgets are shrinking; the city's infrastructure and services would be stretched, and other than sales tax, the state of Wyoming would hardly collect any taxes that could help sustain the kind of growth a diversified economy would require. It's just like all of those shell companies that operate out of Wyoming with owners who have never set foot in Wyoming and have never given anything to the state. As stated by a shell company owner in an article I read somewhere, "Wyoming gives me everything, and I don't have to give them a thing." I've said it before, and I'll say it again: unless you own a coal company, a gas well, or an oil well, you're not a taxpayer. I always chuckle when I hear Wyoming people ranting about being taxpayers...

clipper

Yes, It sounds like the tenured are worried about losing their golden goose.

danceswithdeer

Clipper, are you posting drunk on the wrong article again? This article has nothing to do with UW or the faculty and everything to do with the changing economic realities of Wyoming.

clipper

Well let me put it into grade english so that maybe you dwd might understand. The writer is a director at UW who writes "policy" papers for a living, thus my tenured comment. The new revenue model he desires (to keep funding his high salaried position) when translated equates to new taxes. Do you understand yet?

Ernest Bass

Quote: “you’re not a taxpayer.” Wyoming citizens are most definitely taxpayers. Six percent of almost every dollar spent in Laramie is confiscated by the government as sales tax. Also paid, directly or indirectly, by Wyoming citizens: federal income tax, mineral severance tax, property tax, lodging tax, tobacco tax, liquor tax, gasoline tax, social security tax, estate tax, franchise fees, capital gains tax, inheritance tax, workers’ compensation tax, federal excise tax, personal property tax (automobile tags), unemployment tax, hunting and fishing license tax, food license tax, building permit tax, dog license tax, and bicycle license tax. This is not intended to be a comprehensive list of all taxes paid by Wyoming citizens. Dances, why do you think Wyoming citizens are not taxpayers?

danceswithdeer

Newsflash Bass! Wyoming (Laramie included) is in a financial crisis because the price of oil, natural gas, and coal is down...not because people aren't buying fishing licenses, liquor, etc. Let's take the new high school, for example. When I see people get all Banty Roostery about "my tax dollars," with regard to the new HS (or other projects in the state), they need to realize that the "taxpayers" of Laramie and Albany county aren't building that school (no, not a penny); the taxpayers of Campbell County, Natrona County, Sublette County, and Sweetwater County are building that school because that's where the minerals are. Can you imagine high high the tax levy would be if Laramie had to pay for its own HS? Now, yes, the people of Laramie (begrudgingly) are paying for the pool and stadium, but the mineral extraction taxes are paying for the HS. While we're on the subject, the main reason Laramie and Albany County are in the midst of a financial crisis is because the welfare (taxed from the energy sector) that Laramie has gotten in the past has been reduced. That's what I mean by taxpayers. Laramie and Albany County haven't paid their way in decades. Maybe it's time.

Ernest Bass

Quote: “taxpayers of Campbell County, Natrona County, Sublette County, and Sweetwater County are building that school because that's where the minerals are.” No. Mineral severance taxes are ultimately paid by those who consume the minerals. Albany County and Laramie citizens pay the severance taxes every time they buy gasoline (oil), every time they heat their house (natural gas), and every time they turn on a light (coal). Consumers pay the mineral severance taxes – not the citizens of Campbell, Natrona, Sublette, and Sweetwater counties. Quote: “they need to realize that the "taxpayers" of Laramie and Albany county aren't building that school (no, not a penny).” Yes, we are. The new high school is being funded by mineral severance taxes which are paid by all consumers – including those in Albany County and Laramie.

Quote: “the main reason Laramie and Albany County are in the midst of a financial crisis is because the welfare (taxed from the energy sector) that Laramie has gotten in the past has been reduced.” Here is a thought. Maybe we are in the midst of a financial crisis because government spending has grown out of control.

bread and circuses

I'm always a bit amazed-and saddened-by how little most people understand about how government collects tax. It's by design that most taxes are either extracted from paychecks before you see it or is hidden in the cost of goods and services. Governments are in a financial crisis because they promised and spent too much. Now it's time to tighten the belt.

Matthew Brammer

"unless you own a coal company, a gas well, or an oil well, you're not a taxpayer."

My bank account begs to differ, and so does my business. Thanks.

Paul Heimer

Excellent article. Professor Godby nails it. He understands the problems facing the people of Wyoming. The saddest part of this article is the sad realization that in the current political climate our ability to change how Wyoming pays for local and state government will not change - thereby dooming the state to an endless cycle of boom and bust.

danceswithdeer

Wrong again, Bass. The consumers have nothing to do with paying the mineral severance taxes. Those are paid by the energy extractors when they export the products. If the state of Wyoming didn't rob the coffers of Campbell, Natrona, Sweetwater, and Sublette counties and then divvy the money up the money equally (based on population) among the poor counties, only four counties in the state would have paved roads and new schools. It's called "Recapture" in the Wyoming legislature, but I like to think of it as a mild form of communism.

bread and circuses

"The consumers have nothing to do with paying the mineral severance taxes. Those are paid by the energy extractors when they export the products".

I wonder where those extractors get all that money.

Ernest Bass

Your thinking not good, grasshopper. Where do you think the "energy extractors" get the money to pay their mineral severance taxes? That’s right - from the people who buy and consume their products.

Plattite

So according to Godby, taxing windpower dissuades companies from building more windfarms, yet increasing corporate and personal taxes will make tech companies and people want to move here?! So the solution is that we tax ourselves into prosperity? Wyomingites need to embrace the big government coastal economic model?

You have to have a comparative advantage to make money in something. The population is low, we are far from urban areas, and the environment is not conducive to large scale agriculture. We do have decent tourism sites, good transportation connectivity, world class fossil fuels, and low taxes. Low taxes is one of our major draws for business. If we raise taxes a ton that will do more harm than good.

The boom and bust cycle sucks, and its painful, but we are slowly attracting more businesses here on our terms. Just like the often brutal winters we have, sometimes a little hardship is cleansing. Instead of trying to change WY maybe everyone else should learn how to tighten their belts too.

waitasec

Which business taxes are low? Corporate income tax? Doesn't that mean you just have to file your business in Wyoming? How many corporations have filed in Wyoming, but actually do physical business elsewhere?
Isn't the job of the company accountant to make the businesses appear as broke as possible to minimize any income tax, regardless of the state it's filed? How much corporate income tax does Wyoming collect?

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