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Revised revenues hurt Wyoming coffers

Revised revenues hurt Wyoming coffers

Monday, January 16, 2012

Revised revenues hurt Wyoming coffers
A report by Wyoming PBS News partner, Wyoming Business Report
By Wyoma Groenenberg

CHEYENNE — Wyoming faces a $113 million decrease in federal mineral royalties and severance taxes over the next two years, which could force the state Legislature to make further cuts to the state budget for FY 2013-14 in its upcoming session.

In the meantime, the FY 2012 budget will come up about $51 million short if the projections prove to be true, according to Renny MacKay, Gov. Matt Mead’s communications director. MacKay said the shortfall could be made up through the Budget Reserve Account.

Stagnant natural gas prices are mostly to blame for the forecasted revenue drop, and with a mild winter, the demand for natural gas for heating could drive prices even lower. The earlier projections had been estimated with natural gas prices being $4 per thousand cubic feet. However, forecasts show an average of $3.25 per thousand cubic feet this year, perhaps rising in a few years to $4.

The Consensus Revenue Estimating Group (CREG) revised its revenue forecasts for FY 2013 and FY 2014 at a Jan. 5 meeting, and the governor and legislators on committees meeting in Cheyenne heard the update from CREG co-chairs Bill Mai and Buck McVeigh.

In December, Mead proposed a $3.4 billion budget for the biennium, allocating about $87 million that was not appropriated so that legislators use it. But the lower projections delete that funding, and there’s still a $20 million deficit to make up.

MacKay said the shortfalls “reinforces what the governor says about ongoing spending and how the state needs to get it under control.”

The CREG report notes changes to forecasted natural gas prices result in reductions of mineral severance taxes to the General Fund (GF) and to the Budget Reserve Account (BRA). For the 2011-12 biennium, GF severance taxes were reduced by $6.8 million and BRA severance taxes were reduced by $13.4 million.

Forecasted severance taxes in the FY 2013-14 biennium to the GF were reduced by $18.1 million, and the FY 2013-14 biennium BRA forecast was reduced by $36.1 million. Federal mineral royalties (FMR) flowing to the BRA also decreased as a result of the gas price changes, reducing those projections by $21.9 million in the FY 2011-12 biennium and $58.9 million in the FY 2013-14 biennium.

The report points out the changes in natural gas prices and lower demand, which has resulted in storage levels more than 11 percent higher than last year at this time. Prices at major hubs in early January fell below $3/mcf as a result, at a time when prices have historically exceeded $5/mcf.

Fundamental changes on the supply side, the demand side, or both, will be necessary to see significant recovery in prices, the report says. Barring major production reductions, and until demand for gas increases through liquefied natural gas exports, electrical generation, manufacturing or industrial uses prices will suffer.

Wyoming Business Report