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Thursday, January 5, 2017

Colorado Saves Wyoming - For Now

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

Ever since I first heard rumors about a possible income tax here in Wyoming - that would be a bit over a year ago - I have been warning our state legislators that any such tax would send convoys of U-Hauls down I-25 into Colorado. This morning, when I was on KGAB AM650 here in Cheyenne with Doug Randall, I again made the point that any tax increases in general, but specifically an income tax, would tip the scale for people to move back to Colorado again. 


While I still do not have firm confirmation that anyone in the legislature is going to introduce an income tax, rumors persist that the idea is lurking in the proverbial, smoke-filled chambers of the legislature where the real deals are made. But more importantly, whether they want it or not, the legislature is making an income tax inevitable by not addressing the state's deficit as the structural fiscal crisis it is. If they do not man up, even those legislators who are adamantly opposed to an income tax will have to accept one within the next 3-4 years. 

What is certain, though, is that an income tax will drive thousands of people scrambling for jobs and a new place to live out of state. Primarily, we would lose people back to Colorado. Recent Census data confirms this point.

Published in the days before Christmas, the Census Bureau's annual state-to-state migration report was widely recognized in media. The top story was the massive outflow of people from Illinois in general and Chicago in particular, a phenomenon I recently addressed with reference to Wyoming. What has not been reported, though, is that we here in Wyoming depend entirely on Colorado to keep our population from shrinking. 

From 2010 to 2014, we had a total net outbound migration of almost 11,000 people, or on average 2,200 residents per year. In 2015, that negative trend was suddenly reversed and we ended up with a positive migration net of 4,410 individuals. 

If our economy was booming, this would almost be self-explanatory. But our economy is not booming. Our job market is tanking, with 19 months straight of lost private-sector jobs (a statistic I will get back to tomorrow). Halfway through 2016 our state GDP had declined 6.6 percent on an annual basis, with private-sector activity down over eight percent. Personal income plummets in almost every county, and half the jobs lost in the private sector are lost outside of the minerals industry. 

With an economy in such bad shape, it is illogical that we would have an inbound migration of approximately 0.8 percent of our population. That is a high number by demographic standards. 

So what drove the popular inflow to Wyoming in 2015?

One state: Colorado. Here are the Census Bureau's net state-to-state migration numbers for Wyoming:

State-to-state net migration, Wyoming
Colorado 5,857 West Virginia 0
Texas 1,844 Vermont -9
Utah 1,116 Oklahoma -20
Nebraska 996 Mississippi -31
California 678 Tennessee -36
Maine 582 Indiana -38
Nevada 478 Arkansas -78
Virginia 297 Michigan -109
Washington 296 New York -129
Louisiana 288 Alaska -151
Connecticut 271 Wisconsin -175
North Dakota 267 South Dakota -193
Ohio 125 New Jersey -206
Illinois 111 Maryland -262
Alabama 89 Kentucky -321
Hawaii 80 Kansas -391
Minnesota 60 Missouri -415
New Mexico 44 Georgia -441
District of Columbia  29 North Carolina -538
South Carolina 27 Pennsylvania -659
Iowa 22 Florida -815
Rhode Island 6 Idaho -868
Delaware 0 Oregon -975
Massachusetts 0 Montana -1,016
New Hampshire 0 Arizona -1,277


The inflow from Colorado, which is the net between inbound and outbound migration, is completely anomalous for Wyoming - unless we take into account the fact that people who work in the I-25 corridor from Fort Collins and down toward Denver can save a decent amount of money by living in Cheyenne. According to the calculation tools provided by bestplaces.net, the median house price in Cheyenne is 40 percent lower than in Fort Collins; a Colorado family can save a good chunk of money and still get a bigger house in Cheyenne than they could in Fort Collins. Overall cost of living is 24 percent higher in Fort Collins.* 

While these numbers suggest that Coloradans moving to Laramie County suddenly can live like Kardashian royalty, it is important to keep in mind that the commute costs a pretty penny, both in actual dollars and in time spent on the interstate. Cheyenne also has less of a supply of recreational opportunities than the I-25 corridor, which is natural because Cheyenne is about a fourth the size of Fort Collins alone. Nevertheless, these are factors that play in when a family decides on what side of the state line to live. 

In other words: it does not take much of a change in state tax policy in Wyoming to neutralize the advantages that invite a family to move up here from Colorado. In fact, if we are talking about upper middle income-earners, in other words white-collar professionals earning $65,000 and up, then all it takes to make Wyoming unattractive is a three-percent personal income tax. 

However, it is not just an income tax that can tip the scale. In the white paper that the Joint Education Committee published last week, our legislators are offered a number of options on how to address the state's budget deficit. One of them is a combination of increases in the sales and the property tax. If that would happen, it could have the same effect on the finances of Wyoming families as an income tax, and thus send Coloradans packing. 

Just as a hint of what such an outbound migration could do to our state's economy, suppose the average person commuting from Wyoming to Colorado makes $60,000 per year. (In reality, I suspect the number is considerably higher; the more you make, the more you save on not having to pay a state income tax.) If 5,000 of them were to leave the state, they would take a total of $300 million in household income with them. 

Assuming normal consumption patterns, this outbound migration of income would take with it $52-$54 million worth of consumer spending that is subject to sales taxes. And that is just the start of the multiplier chain.

Not to mention what a large exodus of Colorado commuters would do to the local property market in Laramie County - and down the road to property values and property tax revenue. 

All in all, any tax increase in today's economic climate here in Wyoming is a thoroughly bad idea. Our elected officials need to steer clear of such ideas and focus entirely on structural spending reforms, such as school choice and Medicaid reform. And while we wait for those reforms to make it through the legislative machinery, why not our economy a shot in the arm with a one-year sales tax holiday?
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*) It is always important to take these calculations with a grain of salt, as the methodology behind them is not readily available. That said, bestplaces.net have been around for many years and grown in popularity, so their numbers do carry some validity.

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