I have received questions about the January CREG report. Since it will be used as a basis for the budget debate during the legislative session, it is understandable that the report draws attention.
Unfortunately, there is not much news to be extracted from it. My recommendation regarding CREG reports in general still stands. Before I reiterate it, let us listen to CREG's own summary of their January report:
The actual FY 2018 General Fund (GF) revenues exceeded the January 2018 CREG forecast by $314.2 million. Of that amount, $267.9 million, or 85.3 percent of the variance, can be attributed to realized capital gains from investments of the Permanent Wyoming Mineral Trust Fund (PWMTF), not forecast by CREG. Actual Budget Reserve Account (BRA) revenues received exceeded ... forecast by $15.3 million, for a combined total of $329.5 million, including realized capital gains and $61.6 million without consideration of realized capital gains. Additionally, the deposits to the One Percent Severance Tax Account (OPSTA), which was used in the FY 2017-2018 biennium as a budget balancing revenue stream, exceeded the January 2018 CREG forecast by $6.9 million. Three major revenue streams contributed to the difference between actual and forecast revenues in a meaningful way: realized capital gains, as previously mentioned ($267.9 million); sales and use tax collections ($38.0 million); and severance taxes ($26.7 million). Among the major revenue categories for the GF, only pooled income, charges for sales and services, including cost allocation payments from the federal government, and penalties and interest failed to reach the January 2018 CREG projections.
For those who had expected a boost in tax revenue, this is probably a surprise. However, anyone who has been paying attention to how the Wyoming economy is performing has not had any reason to foresee anything better than what this report conveys. Back in November I warned that the latest growth spike in our state's economy was rapidly coming to an end. In an analysis of private-sector employment, also from November, I explained:
So far this year , average private-sector employment has been 5.3 percent lower than it was in 2008. This means, in plain English, that whatever recovery our state has seen has not even replaced all the jobs lost in the past ten years. By contrast, the national average private-sector jobs growth since 2008 is 9.8 percent. Not only have we not caught up with ourselves a decade ago - we have fallen 13.5 percentage points behind the nation as a whole.
We also lagged behind the national average in terms of earnings:
Unlike the overall trend in jobs, nominal wages have actually caught up, even risen above where they were ten years ago. However, the recovery in pay has not exactly been impressive: so far in 2018, average weekly earnings for the private sector as a whole are $1.15 in 2018 for every $1.00 earned in 2008. In other words, in ten years the average increase in weekly wages has been 15 percent. That is not even enough to keep up with inflation. For comparison, the national average weekly private-sector wage so far in 2018 is $1.26 per $1.00 in 2008.
Our state's tepid economic performance is entirely our own fault. For decades, our legislators have spent more time on how to spend the revenue from severance taxes than on how to secure strong economic growth. Regulations and - yes - high taxes stifle industrial diversity, discourage entrepreneurship and venture capital investments, and generally keep household earnings down. Therefore, we have very little of inherent growth potential in our state's economy.
Now that the tax-cut induced growth spurt in the national economy is coming to an end, we will not get any help from the outside either. It is reasonable, in fact, to expect that we are going to lead the nation into the next recession. I might add that our downturn will be steep and rather unpleasant.
None of this is visible in the CREG report, a fact that should surprise nobody. As I explained back on November 2, their forecasting record is not exactly optimal. On the contrary, they have a built-in bias in their forecasts favoring revenue stability; by necessity, this means that they have to predict that our state's economy will be on a stable growth trajectory for the foreseeable future.
Not only does this mean that they repeatedly miss the target in their forecasting, but it also means that the legislature really cannot use the CREG report for their legislation.
In fairness to CREG, this is in good part not their fault. The legislature gets what it asks for. If they are happy with the notorious inaccuracies in CREG's forecasts, then that's fine. I, for one, as a political economist and taxpayer, am not happy with what they put out. But, again, the main fault is with the legislature, not CREG itself. If the legislature really wanted some meaningful product to use as basis for passing a budget and debating spending and tax reforms, they would ask CREG and the entire Economic Analysis Division for regular reports based on unbiased macroeconomic analysis.
The bottom line, then: the January report from CREG adds little of substance for the legislative session. A better approach for those interested is to assume a recession is coming - and go about their legislative business with that in mind.