Saturday, December 31, 2016

Protecting Big Government At All Cost

The legislature is slowly letting us know more about what it wants to do about our state's fiscal crisis. On the upside, we now have more details about what to expect - are you surprised to hear that those details include higher taxes? On the downside, though, we also have a clearer idea of the overall legislative strategy, and sad to say, it is entirely concentrated on preserving status quo, i.e., saving big government at all cost.

The document giving away this strategy is from a subcommittee under the Joint Education Committee. Called the Subcommittee on Education Deficit Reduction Options, it released a White Paper on December 29 detailing its thoughts on education funding in response to the state's fiscal crisis. 

Thursday, December 29, 2016

What Wyoming Can Learn from Illinois

Sales tax revenue are down across the state. KGAB reports:
The latest report on Wyoming’s economy shows some hopeful signs for the energy industry as well as bad news about sales tax collections. Senior State Economist Jim Robinson says the bad news is that state sales tax collections are down by almost 16 percent for the first five months of Fiscal Year 2017 compared to the same time in FY 2016. Campbell County sales tax collections are down by a whopping $16.4 million over that period compared to the year before, while Natrona and Sublette counties are each down by $5.9 million using the same comparison. Among the state’s 23 counties, only Teton and Washakie counties show an increase in collections for the first five months of FY 2017 compared to the same time a year ago. 

Wednesday, December 28, 2016

How HJ2 Comes Home to Roost

Our state government's budget crisis is getting bigger by the day. In just a few weeks the official deficit forecast has increased from a $400 million in 2018 to $720 million in 2020 to $1.8 billion in 2022.

The first two numbers are real. The $1.8 billion is a scarecrow that is supposed to make you write a blank tax check to the state. 

Monday, December 26, 2016

Feeling Guilty Enough to Pay More Taxes?

On Christmas Eve, the Casper Star Tribune ran another story about how the state's budget deficit is really a problem with funding education:
In 2016, Wyoming’s education funding slid into full crisis. With the state in an energy slump stretching into its second year, schools face shortfalls of roughly $700 million in the next two-year budget cycle. Roughly 70 percent of Wyoming’s tax base comes from minerals. When oil, gas and coal prices fell, local and state funding for education fell with them. 
There is no doubt anymore that this is a well-orchestrated messaging effort, pumped out through a central-heating system like the hot air warming your house on a winter night. 

Turn Private Sector From Decline to Growth

My blog article on December 16 about a 6.6-percent decline in the Wyoming GDP has earned quite a bit of interest. It is now the second-most read article on this blog - thank you! - and I can certainly see why: nobody else is discussing this side of our state's economy. 

The point behind that blog article was to ask, rhetorically: if the legislature and Governor Mead want to raise taxes to close the budget deficit, then what part of the economy is going to pay those taxes? 

Thursday, December 22, 2016

Prosperity Districts and Predatory Capitalism

It is well established that economic freedom and limited government is the best path to prosperity. Big government is an enduring impediment to economic growth, and has been so ever since the idea was invented that government should engage in economic redistribution among private citizens.

It is equally well established that economic freedom requires a certain level of order and predictability in public institutions in order to function. The institutional framework needed to secure the blessings of economic freedom are not very extensive - on the contrary, all government has to do is protect the life, liberty and property of individuals and businesses, and the free market and free, voluntary interaction between citizens can take care of the rest. 

This sounds simple enough, but it is not. 

Spending Reform, Part 3: Medicaid

On Tuesday I presented some numbers indicating how big savings our state could see if we reformed our health care and health insurance industries here in Wyoming. I also pointed out that we might want to await the incoming Trump administration's proposal for how to "repeal and replace" the Affordable Care Act. This last statement surprised some readers, two of whom asked if it is not worth the while to go about these reforms at the state level. 

Tuesday, December 20, 2016

Spending Reform, Part 2: Health Care

Health care is one of the few parts of the Wyoming economy that is still growing. October of this year marked the 34th straight month with year-to-year job growth in health care and social assistance. The growth is not strong, however, at times barely statistically visible. This is not surprising, given how the rest of the Wyoming economy is doing

At the same time, health care is an industry where relatively mild government reforms could make a big difference to the Wyoming economy. 

To see the potential in health reform, we need to include both health insurance and health care production. There are interesting reform potentials in both areas.

Monday, December 19, 2016

Spending Reform, Part 1: School Choice

Education is becoming a hot topic in the debate over the state's budget crisis. Governor Mead has made clear that he believes the budget deficit to be entirely related to education. That is not true, of course - the deficit is the cause of a general revenue crisis - but let us assume for a moment that the governor is correct. 

Suppose that our public education system is suffering from a free-fall deficit problem, and that government has become structurally unable to fund our schools. What is the logical solution?

Friday, December 16, 2016

Wyoming GDP Down 6.6 Percent

Upon request from several readers, I will set aside next week for a series of blogs on reforms to government spending, and their positive effects on the Wyoming economy. Before we get there, though, we need to take a look at some state-level GDP data.

Most states are doing well. In the second quarter of 2016 - the latest data available - a total of 14 states had more than two percent in GDP growth over the same quarter a year before. This is good, given that the national economy only mustered 1.2 percent growth. All in all, 37 states enjoyed positive growth, though the 37th, Pennsylvania, barely climbed above the line with 0.08 percent...

Thursday, December 15, 2016

The Case Against a Corporate Income Tax

Can we get Wyoming out of its fiscal trouble without raising taxes? I sure hope so. With a private sector that is practically hemorrhaging jobs, and most of those jobs being lost outside the minerals industry, the absolutely last thing we need is more burdens on businesses and families here in the Cowboy State. 

Unfortunately, both the governor and the incoming legislative leadership appear to have made a deliberate decision to frame our budget crisis as a crisis in funding education. It is not. It is a general budget crisis that has its origin in too much permanent spending. 

Wednesday, December 14, 2016

Fiscal Reforms and Legislative Mechanics

I receive comments and correspondence from legislators on a regular basis. This morning one of the e-mails asked me about the legal side of privatizing the University of Wyoming. The prevailing opinion is that since it is a land grant university, it should be impossible to privatize. My answer to the legislator could interest all readers of this blog, so here it is.

Tuesday, December 13, 2016

Downward Jobs Trend Continues

In November I reported that Wyoming had seen 17 months straight of private-sector job losses. Since then, the Bureau of Labor Statistics has released another month of state-level jobs data, and the update for Wyoming is as one could expect: we are now at 18 months straight of losing jobs in the private sector - and it is not just minerals.

To begin with, the BLS has updated the jobs numbers for September, adjusting total private employment downward from 214,000 to 213,400. In other words, final numbers show that the job-loss trend is a little bit worse than what I reported in November.

Now, let's add the October numbers to my report from last month. First, the decline in private-sector employment (over same month previous year):

Monday, December 12, 2016

Governor Admits Deficit at $720m

This morning Governor Mead gave his budget address to the Joint Appropriations Committee (JAC). Overall, it was an encouraging performance by our state's chief executive, in particular because he invited all Wyomingites to a discussion about the state's fiscal future. And the governor updated the budget forecast with a new outlook that deserves more attention than he gave it.

More on that in a moment. First, we need to straighten out what Governor Mead really thinks about the state's fiscal problems, and in particular how big - or small - those problems are. As a lead-up to handing over the document, the governor announced his main intentions to the Casper Star Tribune:

Friday, December 9, 2016

Democrat Comeback: More Corporate Welfare

In the November election, the Democrats suffered one of their biggest losses in recent memory. It was not so much the presidential and Congressional elections that hit them hard, although it really hurt them that Secretary Clinton did not become our 45th president. No, the real defeat for the Democrats took place at the state level, where Republicans expanded on their already-impressive gains from 2014: the Republican party now controls both legislative chambers and the governor's office in 25 states, up two from 2014. Democrats, on the other hand, have the same "trifecta" control in six states, down from seven in 2014.

Thursday, December 8, 2016

Win-Win: Privatize University of Wyoming

Just as we feel the first pinch of winter Arctic cold, the temperature in the debate over the state's budget problems is rising to new levels. The University of Wyoming, which gets a quarter of a billion dollars annually from the state, is working on a strategic plan that could turn into a plea to shield the university from further budget cuts in the coming legislative session. The Wyoming Tribune Eagle has the story:

Tuesday, December 6, 2016

A Conversation about Wyoming's Future

My blog articles about the campaign to raise your taxes ("The Campaign to Raise Your Taxes", "How to Cut Taxes by $1.5 Billion" and "$400m Deficit: See I Told You So!") has drawn both praise and scorn. I appreciate the support and encouragement from you blog readers - thank you and keep up the good work in your communities.

The one part that bothers me is that the conversation about the serious economic situation in our state seems to bring out the worst in some people. As an example, I got an e-mail from an influential legislator, sent over his private e-mail but signed in his official capacity as a representative of the people in his House District. The highlights of the e-mail are as follows:

Monday, December 5, 2016

Privatize Our School Buildings

Governor Mead is getting some well-deserved attention for taking the state's fiscal crisis seriously. KCWY13 in Casper reports:

Thursday, December 1, 2016

$400m Deficit: See I Told You So!

Never bark at the Big Dog. The Big Dog is always right. 

Six months ago I testified before the Revenue and Appropriations committees, telling them that in Fiscal Year 2018 we could have a budget deficit of $350 million if nothing was done about it. Some committee members shook their heads, laughed and dismissed my forecast. 

Well, they are not laughing now, are they?

Tuesday, November 29, 2016

How To Cut Taxes by $1.5 Billion

In yesterday's blog article I reported on the campaign to raise your taxes. Among the points I made:

Monday, November 28, 2016

The Campaign to Raise Your Taxes

The campaign to raise your taxes is on. On Saturday, the Casper Star Tribune declared:
Political watchers sometimes joke that Wyoming is the most conservative socialist state in the nation. In other words, residents want quality schools, well-paved highways, low fees to register their vehicles and good government services. But they refuse to pay much in taxes. A new University of Wyoming study shows that the disconnect between the demand for government services and the aversion to taxes persists to this day, even as the state faces serious economic troubles. 

Tuesday, November 22, 2016

Personal Income Data Suggest Weaker Economy

The Bureau of Economic Analysis has released new data on personal income. This data can give us a great deal of information on how our economy is doing, especially when put in the context of other data, such as private consumption and entitlements paid out to Wyoming residents.

First, the update on personal income itself. In 2015, Wyoming residents earned $32.9 billion in personal income, up 3.1 percent from 2014. We paid $3.7 billion in personal taxes, leaving us with a disposable income of $29.2 billion, a 3.4-percent increase in money available in household checkbooks from 2014. 

Monday, November 21, 2016

Internet Sales Tax: Bad Idea for Wyoming

Here we go:
A committee of state lawmakers voted Friday to advance a bill that would require large online retailers to collect sales tax on purchases made by Wyoming customers. Members of the Legislature’s Joint Revenue Interim Committee voted to send the bill to the full Legislature when it convenes in January. Supporters of the measure say such a law would even the playing field for businesses in Wyoming. That’s because customers may be inclined to buy items online instead of at Wyoming businesses to avoid paying sales tax.
Nonsense. This has nothing to do with leveling the playing field. 

Friday, November 18, 2016

Wyoming Needs A One-Year Sales Tax Holiday

As I have explained in several different blogs and elsewhere (are you keeping up with my monthly KGAB AM650 appearances?), the Wyoming economy is in bad shape. We have lost jobs uninterruptedly for almost a year and a half now; state GDP has been weakening for a year; 17 of our state's counties have lost private-sector wages in the last year; etc.  

In addition to the growing economic pains at the ground level, the state budget is in the red with no end in sight.

The long-term solution to this problem is a series of structural spending reforms:

Thursday, November 17, 2016

Jobs Lost for 17 Straight Months

Jobs creation is one of the essential measurements of the strength of an economy. When no new jobs are being created, many analysts focus on the unemployment rate as a way to find out how weak the economy actually is. This, however, is an inexact measure for a state; it works well for countries where the in- and outflow of labor across the border is legally, culturally and economically limited. A state does not have those limitations on the flow of people across its borders. Therefore, when there is a decline in a state's economy, the unemployment rate often remains low simply because of outbound workforce migration. 

Wyoming is a good example. Our unemployment rate still is relatively low, despite the major decline in economic activity in our state: as of September, the rate was 5.3 percent. This is way too low for an economy where GDP is in decline and major industries have recently been cutting jobs, and done so brutally.

Tuesday, November 15, 2016

Egalitarianism and the Budget Crisis

As we draw closer to the 2017 legislative session, the pile of questions for our legislators keeps growing higher, especially regarding the state's budget crisis. So far, the conversation about the deficit and possible remedies has been limited to the governor's discretionary reductions, by means of which Governor Mead seems to believe that the state can white-knuckle it through a temporary reduction in revenue.

Recently, the governor has demonstrated insight into the permanent nature of our budget crisis, but thus far it has been limited to measures for the promotion of industrial diversification. Those are good, long-term ambitions, and limited as they are he nevertheless deserves recognition for them. However, it will be years before those measures can deliver anything close to tangible budgetary results for the state.

What our state needs is a coherent, coordinated and principled strategy both for the short term and for the long haul. 

In order to lay out such a comprehensive strategy, our legislators need to ask themselves one basic question:

Monday, November 14, 2016

State Economic Index Verifies Downturn

Last week, the state's Economic Analysis Division released the November edition of its Wyoming Economic Indicators (WEI). The report, which is technical in nature, does not editorialize its statistical message. That job is left for the media to do. For example, KGAB reports:

Friday, November 11, 2016

Mead's ENDOW Plan: A Step Forward

Good news this Friday morning: it looks like Governor Matt Mead is now taking our state's economic crisis seriously. KGAB reports
Wyoming Governor Matt Mead has launched a new initiative to diversify the state’s economy. The Economically Needed Diversity Options for Wyoming Initiative, or ENDOW, will coordinate and expand ongoing efforts across the state, as well as produce measurable results expanding Wyoming’s economy. “We need immediate and measurable results now,” said Mead during the Governor’s Business Forum in Cheyenne on Thursday. “We need to build on recent success in establishing technology as a fourth leg of Wyoming’s economic strength; efforts to add value to coal, minerals and natural resources; and on our success in a growing manufacturing industry,” added Mead. Mead says many economic studies and plans over the years really haven’t addressed issues that are still pressing in 2016.

Thursday, November 10, 2016

Diversifying the Wyoming Economy

With Donald Trump elected as our next president, hopes are rising for a rebound in coal production. Trump, who has vowed to end the war on coal as soon as he takes office, is certainly going to make life easier for the coal industry in Wyoming. That is good news of course; every private business should have the chance to compete on its own terms rather than having to jump through government hoops or run through a labyrinth of regulations (especially if that labyrinth ends with a brick wall).

However, as I have said before, even if President Trump will repeal all Obama's regulations on his first day in office, and even if the repeal is not met with court challenges by the environmental movement, it is feeble to bet our state government's budget on a new coal rally. In the past few years natural gas has to a large degree replaced coal in electricity production, and the demand for coal for other purposes has not made up for that decline. 

Tuesday, November 8, 2016

Growing the Welfare State in Wyoming

On this the fateful election day of 2016, when the country ponders whether to part completely with the founding principles of our constitutional republic, or to give those principles another chance, it is a good time to think a bit about what Wyoming would look like if the proponents of unabridged government actually ran this state. 

To many Americans in general, and to Wyomingites in particular, the Scandinavian welfare state seems like a very distant fairy tale that has little if anything to do with our daily lives here out on the prairie. But the truth is, that welfare-state model has already made big inroads into our state, both in terms of strictly federal programs such as Social Security and Medicare, and in the form of all the entitlement programs that the federal government and the state pay for together. 

Monday, November 7, 2016

Employment and Earnings in Wyoming

In tomorrow's election, a lot more is at stake than who the next president is going to be. Regardless of whether Donald Trump or Hillary Clinton becomes our nation's next chief executive, the economic crisis in Wyoming is going to be there for our legislature to deal with. Yes, Trump has said that he is going to lift all regulations on coal that Obama has put in place, and that will certainly be good for the coal industry in our state. But as I explained recently, even under such favorable circumstances, it is foolish to bet our state's budgetary future on the hopes for a coal rally

Besides, does anyone really believe that the environmental industry and all its campaign arms will suspend their activist activities just because Trump repeals Obama's War on Coal regulations? Expect years of court battles and, at best, slow progress for the repeal efforts. 

I do not mean to sound overly pessimistic, but as an economist I live in the world of probabilities. As much as I might, personally, wish for Donald Trump to be able to restore the Wyoming coal industry to its historic heights, I cannot disregard the realistic factors that very likely put hurdles in the way of his policy ambitions. 

Friday, November 4, 2016

Amendment A: Wishful Budget Cosmetics

When the M/S Titanic was taking in water, that fateful night in the North Atlantic, did the captain order full speed ahead? No. He stopped, assessed the situation and tried to find a solution. 

In his case, there was none. Mathematically, the Titanic was doomed. 

When a government is hemorrhaging money, the exactly wrong thing to do is to order full speed ahead. The right thing to do is to pause, assess the fiscal crisis and find appropriate solutions. 

Unfortunately, the captain and bridge crew of the M/S Wyoming have not yet stopped to make that assessment. The governor and the legislature forge ahead, as if they were trying to ignore the hole in the budget. 

Now they have a new tool to help them. Amendment A, proposing a quicker, easier way to invest state savings in the stock market, has an air of full-speed-ahead thinking built into it.

Thursday, November 3, 2016

How Big Is State Spending - Really?

Many years ago, when I was working for a think tank in North Carolina, I had one of my first experiences with the convoluted world of state government spending. Over a period of six months I worked with another analyst on trying to nail down exactly how much money the state of North Carolina was really spending every year. We had an even greater problem finding out exactly how many people were on state payroll, one way or the other.

You would think that these things are obvious and transparent, and that you could "just ask someone" who would then pull up the right number in an instant. Unfortunately, that is not how it works. 

After my experience in North Carolina I was hired as research director at the South Carolina Policy Council. Inadvertently, I immediately stirred up controversy over state spending: I came in to a meeting with some state legislators with a printout of their total outlays for the last fiscal year, pointing to the total number of $21 billion. My boss gasped, embarrassed at me apparently presenting the wrong number. 

"No, no, it's only $7 billion" was the reaction from everyone else in the room. 

Tuesday, November 1, 2016

Making Budget Priorities: The HD11 Debate

Last week, on October 25, the Democrat and Republican candidates for HD 11 met for a debate. The incumbent Democrat, Mary Throne, and her challenger Jared Olsen had a pleasant conversation that, in many ways, was the poster child of civilized Wyoming politics. 

There was one part of this debate that made it especially interesting, namely when Throne and Olsen discussed what to do about the state budget crisis. While it was not possible for them to exhaust the issue in this debate, their answers did pave the way for a more principled discussion about the role that government should - or should not - play in our economy.

Both candidates recognized that we do have a budget crisis. That is an important step in itself; only six months ago it was almost impossible to find either an incumbent or a candidate for the state legislature who was willing to admit to any such thing. Even better: while not presenting actual legislative ideas, both candidates laid out the foundations for how they would like to see the state address its budget crisis. 

Monday, October 31, 2016

Don't Bet Budget On A Coal Rally

As we get closer to the 2017 legislative session, the budget-deficit discussion rapidly intensifies. So far, though, it has not focused squarely on the deficit itself, but rather various variables that perhaps, maybe, hopefully could catapult the state's finances across the deficit dungeon and onto solid revenue ground again. 

One of the variables that seems to attract the most interest is a rebound in coal production. This is entirely understandable: coal has for a very long time been a very important product in the Wyoming economy, and a critical revenue producer for the state government. 

Today the Casper Star Tribune throws more coal into the engine that drives the rebound hope, boldly reporting that coal is "determined ro rally":

Friday, October 28, 2016

Be Careful with the Rainy Day Fund

With the latest CREG report in mind our governor and some legislators seem open to using the Rainy Day Fund to bridge over the state's revenue shortfall. This is a natural reaction, and using the money now is a good idea - but only under strict conditions. If the legislature does not recognize those conditions, the use of Rainy Day cash will actually make matters worse for our state. 

To understand the proper use of a Rainy Day Fund, let us start with the basics. The theory behind a government cash reserve is that:

a) revenue is cyclical, fluctuating with the ups and downs in the business cycle; but
b) spending is not cyclical.

Right here, we have a problem. 

Thursday, October 27, 2016

A Review of CREG Forecasting

Given how important the Consensus Revenue Estimating Group's (CREG) reports are for the state's lawmakers and for our governor, and given the problems in the latest report that I pointed to the other day, it would be a good idea to take a closer look at how CREG's forecasts evolve over time.

Let me first of all, again, stress that economic forecasting is among the toughest things an economist can get involved in. Contrary to what conventional wisdom would suggest, there are no good methods for predicting where the economy is heading at any given point in time. The most common forecasting techniques, which are based on econometrics, can very well predict the future of the economy so long as nothing of any significance happens. Once the economy hits a recession, econometricians are notorious for their failed forecasts.

The main reason why econometrics is unable to predict disruptions in stable economic activity is that its models must produce "rigorous" solutions; roughly, this means that forecasts where all the relations between the variables are statistically significant. If there is no rigorous solution, the econometrician typically backs away from making a forecast. 

Tuesday, October 25, 2016

Biennium Revenue Down $466 million

(Updated. Kudos to Brad who caught a clerical error.)
The much-anticipated October CREG report was released on Monday. The story is that the state has to deal with a $156 million revenue shortfall. Here is what the Casper Star Tribune said:
Wyoming lawmakers are short $156.6 million for the current two-year funding cycle, according to a report released Monday morning. That means when legislators convene in January in Cheyenne, they will have to make up the difference through program cuts, tax increases or spending the rainy day fund. The current revenue shortfall is the result of a decrease in revenue in recent memory.
I thought it was a decrease in revenue in the minerals industry. But be that as it may. Governor Mead's comment

Monday, October 24, 2016

Right and Wrong About Economic Freedom in Wyoming

In a newly released video, the Wyoming Republican Party encourages people to "vote Wyoming". The video presents life in Wyoming as being free and unrestrained by government. It also says that liberty is inseparable from economic freedom and that every man has the right to the proceeds of his own work.

It is very easy to get the impression that under Republican stewardship, Wyoming has become a powerhouse of economic freedom. But if that were the case, should not our economy be doing better than it actually is? Should not the free-market forces by now have diversified our economy? Should we not have liberated the mining industry of the burden of being the sole motivator of the Wyoming economy?

Friday, October 21, 2016

Are We Really Better Than Texas?

Wyoming is a great state to live, and in many ways that freedom we so often associate with the American Way of Life is still a reality out here. 

In some ways, though, that freedom has gradually become more of an illusion than facts. We may not have an income tax, but in almost every other way imaginable we are a big-government state. The figure below reports one of the many numbers that give a meaning to that notion: state and local government revenue as share of the Wyoming GDP. With total state and local government revenue at $10.4 billion (including all federal funds), our state and local governments are almost 25 percent of the state's GDP. 

Thursday, October 20, 2016

Right and Wrong About the Wyoming Crisis

The Economic Analysis Division of the Department of Administration and Information has published its Economic Summary for the second quarter of 2016.  It is a gloomy picture, though presented in the usual dry econo-speak. Two highlights:

Wyoming experienced a decline of 2.8 percent (or 8,050 jobs) in total employment in the second quarter of 2016 compared to one year earlier, a smaller decrease than the previous quarter. Wyoming’s unemployment rate, [sic] climbed to 5.6 percent in the quarter, the highest since the fourth quarter of 2011, while in the U.S., it remained at 4.9 percent. Most industrial sectors in the state experienced job decreases during the period.

Wyoming’s total personal income declined 1.5 percent in the second quarter of 2016 from the previous year. U.S. personal income increased 3.2 percent during the same period. [Emphasis added]