Wyoming- No State Income Tax and $1.8 Billion Socked Away

Wyoming Missed Boom and Bust, and Found the Payoff in Traditional Economic Base

By T.R. Reid
Washington Post Staff Writer

CHEYENNE, Wyo. — From coast to coast, embattled state governments are raising taxes, cutting programs, even releasing prison inmates early in an uphill battle against budget deficits. And then there’s Wyoming.

This year, the nation’s least-populous state plans to beef up spending on Medicaid, expand its community college program, add capacity at the state prison, set aside nearly $100 million in a reserve fund — and still close the books with a comfortable surplus. And all that in a state with no corporate or personal income tax.

"I would sure rather be in my position than that of most other governors," said Dave Freudenthal, 52, the folksy attorney who won the governorship in November even though he is a Democrat in an overwhelmingly Republican state. "We have people in here asking us all the time: ‘How did you do it? What are you doing right?’ "

Being considered a model of fiscal rectitude is something new for Wyoming, which never really shared in the national boom of the 1990s. While dozens of states rode the high-tech road to huge revenue increases, Wyoming stuck to its traditional economic roots — energy, agriculture and tourism — and didn’t attract much new industry. Population rose slightly in the ’90s, but is still not quite up to the half-million mark.

Since it never had the boom, Wyoming has managed to miss the bust.

"Things never got really good here, like they did in some other states," Freudenthal said. "But it ain’t getting real bad, either."

With energy taxes producing more than a third of its revenue, the state government got a significant boost when natural gas prices spiked two years ago. Wyoming also produces oil and coal, and a relatively new source of gas — the methane emitted from giant coal mines — is being developed. With the prospect of major increases in energy prices that could result from a war in the Persian Gulf region, the state’s mineral tax income could grow further this year.

Local governments here are also big winners from the energy industry.

The steady increase in mineral prices has produced an increase in land appraisals, which makes local property taxes go up year after year. "With appraisals going up all the time, the state doesn’t have to provide as much subsidy to the [23] counties," said state budget director Arthur R. Burgess.

Economists have criticized Wyoming over the years for relying primarily on mineral and property taxes, with no broad-based income tax; it is one of just three states without an income tax. But that arrangement, too, has been a boon in the Bush years, Burgess said.

"A lot of states tie their income tax directly to the federal tax," the budget director said. "They just take a certain percentage of each family’s federal tax. So when the federal income tax is cut, state revenues go down, too. But those cuts have no impact on us."

Meanwhile, the Bush administration’s defense spending increases suggest that no job cuts are in store at Wyoming’s biggest single employer, Cheyenne’s Francis E. Warren Air Force Base.

On top of its healthy mineral industry, Wyoming has held steady in tourism even as other tourist destinations have suffered after the terrorist attacks of Sept. 11, 2001. Unlike many national parks, Wyoming’s two mountain gems, Grand Teton and Yellowstone, both reported record numbers of visitors last year.

Business has also been improving for Vern Jones at his car-rental agency in Rock Springs. "I think tourists keep coming here because, you know, the things you do in Wyoming just feel safe to people," Jones said. "People come here for hunting, for fishing, to hike in the canyons. Those things haven’t had any downturn from 9/11."

Burgess said the state expected the high mineral revenue, and the resulting budget surplus, to continue "at least for the next several years."

One thing Wyoming will definitely do in these bumper years, said Freudenthal, is continue to put money aside for a rainy day. "When people ask what we’ve done right, I always tell them about our Permanent Mineral Trust Fund," he said. In years of surplus, Wyoming puts 5 percent of its mineral revenue into the fund as a cushion against tougher times.

"If you’re dependent on mineral income, then you have pretty big swings from boom to bust," Freudenthal said. "We started that fund back in 1974 to protect against the swings, and it’s up to $1.8 billion now. That’s another thing about Wyoming that a lot of other states wish they had this year."

© 2003 The Washington Post Company

http://www.washingtonpost.com/wp-dyn/articles/A31815-2003Feb5.html