States’ woes

WASHINGTON — As the national economic meltdown takes its toll on local economies, some out-of-the-way states are enjoying unprecedented prosperity. Home prices in states like Wyoming, West Virginia and North Dakota continue to rise, wages are growing and unemployment is at record lows.

While at least 23 states and the District of Columbia scramble to cut their spending, these states and others like them are enjoying economic boom times.

These geographically and socially disparate states share two key characteristics, experts and officials said. They are isolated from major urban centers — and thus from the housing bust and loss of financial industry jobs that have hobbled other economies. And they benefit from an abundance of in-demand commodities such as coal, natural gas and grain, whose prices remain at historically high levels despite recent drops sparked by fears of a global recession.

“The downturn in the economy has winners and losers,” explained Scott Pattison, executive director of the National Association of State Budget Officers. “After 9/11, it was fairly uniform — everyone had a downturn. This time it’s very different because of the high agriculture and energy prices,” and because the deflating housing economy is a regional phenomenon.

Wyoming anticipates a $100 million budget surplus this year, and its economy has grown threefold since 2001. North Dakota has rising wages and an unemployment rate that is half the national average. And West Virginia’s top budget official says the state’s economy is better than at any time since it was founded in 1863.

“They may not be wealthy states, but they pretty much all have budget surpluses,” allowing them to consider tax cuts or new spending, said Michael Bird, federal affairs counsel with the National Conference of State Legislatures.

Meanwhile, traditionally wealthy states are cutting back in the face of declining tax revenues and higher borrowing costs. Virginia’s governor just ordered the layoffs of 570 state employees, and a Florida agency recently proposed selling the state’s fleet of airplanes. California and Massachusetts have asked the federal government for unprecedented short-term loans that they normally would be able to secure from private markets.

These widespread hardships throw into sharp relief the relative prosperity of rural, commodity-rich states like Nebraska, Oklahoma and Montana.

Mineral wealth does not guarantee economic strength, however.

Colorado expects to take in 84 percent more in energy-extraction taxes this year than last, but faces a $99.4 million shortfall due to lower income and sales tax collections, according to Carol Hedges, senior policy analyst with the Colorado Fiscal Policy Institute.

Nor does isolation from the housing bubble guarantee fiscal fitness. Kansas has rising home prices and low foreclosure rates, but its first-quarter revenues are $19 million below projections.

But for many rural states with in-demand natural resources, the economic crisis gripping the rest of the nation has hardly cast a shadow.

“We’re in a very strong position and it does feel very good,” said Pam Sharp, state budget director in North Dakota. She pointed to low foreclosure rates, wage growth and high demand for the state’s farm and energy products.

In August alone, sales tax collections were 10 percent over the monthly projection, or $4.3 million more than expected.

The four biggest revenue generators for the state are sales taxes, individual and corporate income taxes and motor vehicle excise taxes.

In August, Sharp predicted the state will have built up a surplus of $1.076 billion by the time this biennium ends next June 30.

But as the national scene spirals down, “We’re watching closely how that might affect North Dakota,” she said. Already, farm commodity prices have fallen in recent weeks and North Dakota oil prices are far below their $125-per-barrel level from June and July.

“There are risks to the North Dakota economy,” Sharp wrote in last month’s state OMB report. “The longer the national economy struggles to pull itself from the recession, the more likely North Dakota will feel its effect.”

She said an August report by Moody’s Economy.com predicts a slowing of growth in North Dakota. But, so far, so good. Through August, the state had taken in 16.6 percent more in revenues this biennium than was projected when the Legislature adjourned in April 2007 — that is, $218.7 million unexpected revenues since July 1, 2007. And that’s not counting $275.2 million in oil taxes that have been shunted into the Permanent Oil Tax Trust Fund.

West Virginia is also a rural state doing well.

Virgil Helton, West Virginia’s revenue secretary, said, “We just haven’t been exposed to what the Arizonas and the Californias and the Floridas have.” He said West Virginia has record-low unemployment and is poised to benefit from rising coal tax rates, which will adjust to reflect the current high prices as long-term contracts expire. Income tax collections are up, too, thanks to new and better-paying jobs in the state, which has long had one of the nation’s poorest populations.

Wenlin Liu, senior economist with Wyoming’s economic analysis division, said his state is especially strong, thanks to a government that derives two-thirds of its revenues from the energy industry. Wyoming’s general fund has grown threefold this decade, Liu said, and home price appreciation there is second only to Oklahoma’s. Even the construction sector there is growing, thanks to state spending on public works.

Unlike earlier boom-bust cycles that upended many energy-producing states, Liu said he believes today’s high prices will hold steady “for many years” because they are based on demand from emerging global markets.

That’s a dangerous assumption, said Nicholas Johnson, director of the State Fiscal Project at the Center on Budget and Policy Priorities, a nonpartisan research group. When prices are high for a commodity a state produces, the growing energy or agriculture sector supports higher real estate values, a strong service sector and wages growth, he said, so officials “just appear to be doing everything right until something happens to those prices.” And when states depend too heavily on a single sector’s strength, they are setting themselves up for a fall, he said.

Indeed, key commodity prices have swung wildly in recent weeks as uncertainty about the fate of the global economy has led some investors to bet that demand for oil, natural gas and other products will slacken.

(N.D. Capitol Bureau reporter Janell Cole contributed to this story)

Tags: economy, government, states, energy, oil