WYOMING STATE LEGISLATURE

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213 State Capitol  Cheyenne, WY 82002

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July 20, 2007

 

To:        Members, 59th Legislature

 

From:      Steve Sommers

 

Subject:   July 2007 Revenue Update

    

The information presented in this report constitutes the July 2007 revenue update. Together with the April revenue update, and the January and October CREG reports which preceded it, this update provides revenue information on a quarterly basis.  Please note this report does not change the January 2007 CREG projections or the goldenrod dated March 19, 2007. Those are still the official fiscal documents. This report is simply intended to provide a basis of comparison of actual revenues as they currently stand, to the projections made in January.

 

General Fund

 

Presented in Table 1 of this report is the general fund revenue analysis. The three major sources of general fund revenue are shown individually as follows: severance taxes; sales and use taxes; and interest income.  All other sources are grouped together.

 

Column 1 shows the total FY 2007 projection of revenue from each source. This is the current official CREG projection of revenue to the general fund. Column 2 provides the actual YTD revenue received from each source. Column 3 is the percentage of the projection that has been received (column 2/column 1), and column 4 is the percentage of the projection that we normally expect to have received at this point in the fiscal year. Column 5 compares what we have actually received to what we expect to have received (column 3-column 4).

 

As you can see from column 5 in Table 1, actual total revenues received are currently 9.6% ahead of expected levels with all major categories either ahead of or very close to projections.

 

With respect to severance taxes, current receipts are only .3% less than the total projections for the year with two months of revenue yet to be received.  However, since natural gas prices are currently lower than the average projected for FY07, the natural gas taxes remaining to be collected in the final two months of the fiscal year are likely to temper the degree to which actual revenue will exceed the projection.  The general fund is likely to receive an additional $20M in the next two months from severance taxes for a total of $206.2M for the year, or an extra $19.5M over projection.

 

Sales and use tax revenues are running only .2% less than expected at this point in time in the fiscal year. If the estimate is off, it won’t be by much one way or the other.

 

Of the $241M actually received from PMTF and pooled interest income, $150.5M is from the investment of the PMTF. This amount exceeds our projection of $101.7M by $48.8M for the entire fiscal year. Because PMTF investment income will probably exceed the spending policy amount which is estimated to be approximately $114.3M, this could result in a $36.2M flow from investment income to the spending policy reserve account (SPRA) rather than the general fund. Pooled interest to the general fund totals $90.6M. That exceeds the estimate by $10M. In total then, income to the PMTF and pooled investments exceeded projections by $58.8M with a possibility that $36.2M will have to be transferred to the SPRA, leaving approximately $22.6M more in investment income to the general fund than what was projected in January 2007.

 

Miscellaneous revenue sources exceeded projected levels by approximately $9.5M. While there may be a few small revisions to these miscellaneous numbers they won’t amount to much.

 

Bottom-line - General Fund

 

Potential total general fund actual revenues above projections would be approximately $19.5M in severance taxes, $22.6M in investment income, $0 in sales and use taxes and $9.5M in miscellaneous revenue sources for a total of $51.6M for FY07.

 

Mineral Severance Taxes

 

As presented in Table 2, total severance tax revenues are 16.3% ahead of FY07 expected levels. For oil, actual prices are running ahead of projections and production only slightly below with the result being oil revenues 3.8% ahead of projection. For coal, both price and production are ahead of projection with the result being coal revenues 15.7% ahead of projection. Revenues from these two minerals should continue at the same pace for the rest of the fiscal year. For natural gas, even though current revenues are running higher than projected for this point in the fiscal year, I don’t expect them to continue at the same pace. The average year-to-date price for FY07 reported through the month of April was $5.35/mcf compared to our projection of $4.50/mcf, but Wyoming hub prices have been running between $2.00/mcf and $4.00/mcf for the last several months and we will likely hit an average for the year that is closer to $5.00/mcf. Production is running slightly ahead of projection, so we should exceed our projected revenue from natural gas for the year before it’s all said and done.

 

Bottom-line - Severance Taxes

 

Despite running close to 16.3% ahead at this point of the year, I do not expect maintain that pace due to lower than forecast natural gas prices for the last several months. I suspect that total severance tax revenues will amount to $100M over the next two months or $96.8M over the January projection.  As stated above the general fund should receive approximately $20M of the additional $100M and the budget reserve account portion should be about $40M. This would result in the general fund receiving $19.5M more than projected and the budget reserve account receiving $36.3M more than projected for FY07.

 

Federal Mineral Royalties

 

Also presented in Table 2 of this report is the federal mineral royalty analysis. The columns in this table are identical to those in Table 1, with column 5 indicating that currently we are 13.7% ahead for the year. As with severance taxes, natural gas prices and production significantly impact royalty revenues.  As a result, the pace of revenue flow from that individual source is likely to slow from those prior levels in the remaining months of collection in FY07.  Nevertheless, due to the continued strength of coal and oil prices, actual federal mineral royalty revenues should exceed the projected levels, perhaps by as much as $85M, of which $56.7M would flow to the budget reserve account.

 

Conclusions

 

At the present time, it appears that actual general fund revenues will exceed projections by $51.6M, and budget reserve account revenues will exceed projections by $93M for a total of $144.6M for FY07.

 

The 07-08 projection of general fund/budget reserve account revenues will be subject to revision this October.  Given the current price range of natural gas, it is conceivable that the estimates for severance taxes and federal mineral royalties from that source may require a short-term downward revision. It’s too early to tell whether increases in other revenue sources would offset any lower natural gas revenues.

 

As always, we will continue to monitor the revenue situation and keep you informed.  Let me know if you have any questions.