Keeping Energy’s Golden Goose from Becoming a Golden Noose: Part One
Buck McVeigh has a bumper sticker that he uses in the presentations he makes as administrator of Wyoming’s Economic Analysis Division. The bumper sticker says, “Please, God, give us one more energy boom. We promise not to screw it up this time.”After 28 years working for the state, McVeigh has seen plenty of booms and busts. But he’s still not sure if he and his fellow Wyomingites get it.
One thing is certain. Their addiction to the wealth provided by the natural gas and other fuel sources buried in their soil is complete. Five sources of energy-related revenue now provide 66 cents of every dollar Wyoming receives. A Permanent Mineral Trust now totals $5 billion, but grows each year by law. The interest earned on that burgeoning block of money goes into the state’s general fund.
Money from gas, oil and coal has provided hundreds of millions of dollars to build or improve schools in the past few years. It has provided high school graduates with passing grades and decent ACT scores scholarships worth $1,600 to $3,200 a year to the University of Wyoming or one of the state’s eight community colleges. It is going to build business parks and other things that will hopefully diversify Wyoming’s economy.
Wyoming rolled the dice long ago. But the gamble remains for other Rocky Mountain states, who face similar decisions about how much environmental quality they want to risk for the buried rewards of oil, natural gas and coal. Colorado must decide, among other things, about drilling on the Roan Plateau and raising its severance tax on fossil fuels.
Lately, the state is on a hot streak that its cash-strapped neighbors cannot afford to ignore. In 1997, Wyoming ranked 31st nationally in per capita personal income. Colorado ranked ninth. By 2006, Wyoming ranked sixth in the country in per capita personal income. Colorado ranked eighth. It was the first time in at least 17 years that Wyoming’s per capita income had surpassed Colorado’s.
The reason why is as clear as the oil and gas severance tax receipts Don Likwartz reads from a list in his office at the Wyoming Oil and Gas Commission. In 1997-1998, Wyoming collected $264 million in oil and gas severance taxes. By 2005-2006, the number had pumped up to $1.374 billion.
McVeigh sums up the blessing and curse of those numbers bluntly.
“We’re very much exposed to disaster if there is a downturn in the energy sector,” he said.
At the same time, Wyoming enjoys some remarkable benefits. It levies no state income tax on its people. There is no corporate income tax either, McVeigh said. Most of the tax money coming into the state comes from out-of-state energy companies. Meanwhile, Wyoming produces more new jobs a year than it can fill with its existing population.
“You can make 50 to 60 grand driving a water truck in the gas fields with or without a high school diploma, if you can pass a drug test,” McVeigh said.
Once again, this blessing is mixed.
“These jobs are drawing people away from high school and college,” McVeigh said. “And they’re drawing from the retail sector.”
Wyoming ranks dead last nationally in economic diversification, and its concentration of jobs in the energy sector has intensified in the past several years.
This is not good news in a place that has in the past seen its energy-driven revenue stream dry up from 90 percent to 40 percent in a few years.
The spend-it-while-you-got-it mentality ignores the need for other kinds of sustaining industries. The most important recent turn in Wyoming may not be the March 2006 government approval that allowed one major natural gas site to go from 800 to 2,500 wells. The most important economic news may be the location of a new supercomputer on the road between Laramie and Cheyenne.
That, said McVeigh, is the path to economic stability.
Planning and discipline are key. These days, McVeigh worries that his state is spending without regard to the rainy days it has seen in past energy cycles.
“Elected officials think this one is different,” McVeigh said.
It is to the extent that it is demand-driven.
It is not to the extent that the supply of natural gas, oil and coal is finite. This is the truth that Wyoming and every other state must ultimately face when they build an economy extracting fossil fuels.
As those deposits disappear, so does your financial future.