Escaping from Natural Resource Dependence in Wyoming
Wyoming is a study in contradictions. One of the most politically conservative states in the United States, and the least populous despite its large land area, Wyoming has long had a rugged individualist streak and a fiercely libertarian politics that favors low taxes. But when you actually dig into how state and local governments in Wyoming are funded, what you find is a centralized system powerfully at odds with any ideal of local autonomy.
Cities and counties in Wyoming are so dependent on pass-through funding from higher levels of government that they are effectively wards of the state. This makes them tremendously vulnerable to anything that depresses state revenue, much of which is tied to the natural resource extraction that drives Wyoming’s economy. It also weakens the feedback loops that should encourage resourceful and innovative local development decisions. Local policy choices matter proportionately less. And even the state's largest and most economically diversified cities are not immune to this toxic dynamic.
Geoanalytics firm Urban3 took a look at Casper, Wyoming’s second-largest city, through the lens of local generators of prosperity. What they found reveals some familiar lessons about how a city like Casper can achieve greater independence and resilience.
A Perilous Dependence on Extractive Industry
Photo via Bureau of Land Management, on Flickr.
There is a simple reason that low-tax Wyoming has been able, for decades, to maintain one of the highest levels of per capita revenue and spending in the nation (behind only Alaska and New York in 2019). That reason is extractive industry. Wyoming's public finances are extremely dependent on revenues tied to oil, gas, coal, and mining. More than half of the state revenues supporting schools and health care are from fossil-fuel royalties and taxes.
Wyoming is less diversified in its revenue sources than its peer states. It has no personal or corporate income taxes, and a state sales tax of only 4% (one of the lowest rates). Severance taxes on natural resources fund about one-sixth of the state's general fund. Severance tax revenue has steadily fallen from $2 billion in the 2007-08 biennium to only $800 million in 2019-20.
Property taxes, another major source of revenue for cities, counties, and school districts, are also skewed toward extractive industry in Wyoming because of differential taxation rates. Minerals and mine products are assessed at 100% of their value, versus 9.5% for most real estate. According to the Wyoming Taxpayers Association’s 2020 Wyoming Property Taxation guide, fully 50% of property taxes collected in the state are from mineral production.
Wyoming's governments are thus, to a large extent, hostage to the fossil fuel and mining industries' fortunes, and recent years have not been kind to those fortunes. As of 2019, natural gas income was down 74% in 12 years, and mineral severance tax revenue from coal was estimated to be down 38% from its 2011 peak. These changes are dramatically jeopardizing the public finances of cities whose local economies aren't even strongly tied to extractive industry.
Take the city of Casper. It's not a boom-and-bust oil town, but the state's second largest city. Casper has a diversified employment base, including financial services, education, and health care. It has a sizable downtown with a mix of local businesses. And yet the City of Casper and its encompassing Natrona County are substantially dependent on the state to fund their operations.
But nowhere is this dependence more the case than with regard to schools. In 1995, in response to a lawsuit over disparities in educational funding between rich and poor districts, the Wyoming Supreme Court struck down the state's entire K-12 education system, and ruled that Wyoming had to provide "a cost-based, state-financed proper education" in all of its school districts. The state created a revenue sharing program, with elaborate formulas to redirect funds from places chipping in more local revenue to places producing less. Most state education funding comes from the School Foundation Program. A third of its revenue comes from federal mineral royalties.
The system has delivered some impressive results. But it has achieved that in part by spending more on K-12 education per pupil than any state except New York, and has done so by relying heavily on non-renewable resource revenue. The Natrona County School District, encompassing Casper, gets 74% of its budget from the state—$148 million in Fiscal Year 2021.
The writing is now on the wall. Oil and gas prices collapsed in 2020 during the COVID-19 pandemic. The coal industry is dying, probably for good. Wyoming faces a yawning statewide deficit of $300 million for school funding alone, and legislators can't agree on a fix. Many are staunchly opposed to a tax hike or new tax.
The pain goes beyond schools. In late 2020, Governor Mark Gordon suggested that the state might need to start "abandoning" small towns because it could not support needs such as infrastructure maintenance. (This topic was discussed on an episode of the Strong Towns Upzoned podcast.)
In Wyoming, the game has been rigged so that its cities, big and small, are all subject to these same forces. Because so much of their revenue comes from the state, they rise and fall together. This is an impossibly fragile situation. How does a Wyoming city that doesn't want to be dependent on deeply uncertain state revenue streams go about freeing itself from that dependency?
Where's the Incentive for Productive Local Growth?
The recipe for a prosperous, self-reliant place is in some respects simple and timeless. We can observe the pattern of development that has predominated across societies and eras throughout human history: places built incrementally over time, with a mix of activities in close proximity, scaled to people who walk.
This pattern fosters spontaneous interaction between residents, and it embeds local businesses in the community. Over time, a growing city becomes its own raison d'etre: its engine of prosperity is no longer whatever non-renewable natural bounty (such as a mine or oil field) may have motivated its founding, but the ingenuity of its own inhabitants, and the opportunities that the city affords them to interact and cooperate with each other. Local innovators produce wealth that can be exported, and begin to provide goods and service locally that once had to be imported. In doing so, they rely on a whole ecosystem of locally-provided services, recirculating money within the community.
We can observe, in city after city, that the traditional development pattern, where it exists, coincides with the greatest concentration of local wealth. Geoanalytics firm Urban3 has documented this in dozens of cities across America, using taxable property value per acre as a proxy for wealth generation. Consistently, it is the mixed-use, walkable downtown that is a city's cash cow—and investing in those places is a no-brainer.
Unfortunately, even some of the Wyoming cities that are furthest along on this path, that have the best bones to work with, have spent a long time abandoning those good investments from prior generations and making poor ones today.
Casper, for example, has concentrated its recent growth on the edges of town, in automobile-oriented development dominated by chain retail and ample parking. To the southwest of the core, along CY Boulevard, there is a long strip of such commercial development. To the east, the Eastridge Mall on East 2nd Street opened in 1982. Like many malls, it has lost two of its anchor stores—both Sears and the state’s only Macy's departed in 2019.
As we have documented many times at Strong Towns, this form of development is a money loser for cities, even when local tax revenues are higher than is the case in Wyoming. It does not generate enough local return to pay for its own infrastructure and services. And it fails to hold value over time. Urban3 analyzed tax productivity in 2011 and found that these suburban sites generate only a fraction of the return produced by Casper's downtown. Here’s the comparison from that report:
This type of suburban commercial development is extractive in its own way. The profits largely do not remain in town, and the spending and jobs generated are dependent on wealth created elsewhere. The pinnacle of that dependence on outsiders is represented by the BB Brooks Ranch outside of Casper to the north. There, a vast area of rangeland is subdivided into 40-acre parcels, many of them sold to absentee owners from places like New York who want to own a patch of land in Wyoming.
Examples of highly productive buildings in downtown Casper. The tattoo shop can be seen in the image at the bottom-right.
The bones are good in downtown Casper, though. The analysis that Urban3 conducted in 2011 found that the most productive real estate in Casper is downtown, often in modest buildings on a small land footprint, such as the tattoo shop pictured at the left.
Casper has a fairly active nightlife, and a host of historic buildings that could benefit from renovation. The city has received justly deserved attention for downtown’s unusual Wells Fargo tower—built in 1964 as a new home for the Wyoming National Bank and designed by somewhat of a regional starchitect, Denver’s Charles Deaton. What is less well known is that the former home of the Wyoming National Bank is in a building that's now apartments, and that building is some of the most productive real estate in Casper. That building was once covered in metal siding—a “slipcover” trend commonly applied to historic buildings in the mid-20th century. Its restoration has been a boon to downtown.
Before and after photos of the original Wyoming National Bank building, whose aluminum “skin” was removed and its façade restored.
The key to financial independence for Casper and Natrona County lies in these investments in the core of the community. And there’s a lot of room to grow. According to Urban3:
Findings [by the National Association of Realtors] demonstrate in an average community almost 30% would choose a more urban product. Using those numbers with Casper’s 55,000+ people in the current market would indicate 15,000 would be interested in urban housing. Even if the survey was off by half, that would still indicate demand for 7,500 people (or 3,700 units) choosing urban living.
Far from everybody needs to be on board with downtown development to begin to power these positive feedback loops. It’s an incremental process.
But it’s one that Wyoming cities, compared to cities elsewhere, may have historically felt less incentive to pursue because of a lack of skin in the game. That's the catch-22 with state dependency. Building unproductive growth patterns doesn't hit your local budget as hard in the short term when only a fraction of your budget is from local taxes.
What fossil-fuel dependence has done to Wyoming’s cities is not only to make them all fragile in the same way, to tie their fates together. It has also blunted the feedback from local land-use decisions. It’s time to move on from this era. A place like Casper should be leading the way.
Daniel Herriges has been a regular contributor to Strong Towns since 2015 and is also a founding member of the organization. His work at Strong Towns focuses on housing issues, small-scale and incremental development, urban design, and lowering the barriers to entry for people to participate in creating resilient and prosperous neighborhoods. Daniel has a Masters in Urban and Regional Planning from the University of Minnesota, with a concentration in Housing and Community Development.
Daniel’s work with Strong Towns reflects a lifelong fascination with cities and how they work. When he’s not perusing maps (for work or pleasure), he can be found exploring out-of-the-way neighborhoods on foot or bicycle. Daniel has lived in Northern California and Southwest Florida, and he now resides back in his hometown of St. Paul, Minnesota, along with his wife and two children.