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, director of North Dakota’s Office of Management and Budget. She pointed to low foreclosure rates, wage growth and high demand for the state’s farm and energy products.
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.
West Virginia’s Helton agreed that states should have contingency plans, saying, “If we just sit back today and say things will be fine, we’re kidding ourselves.” He said the state is always considering what services it would have to cut if coal prices were to drop and unemployment were to climb.
Factors like savings in rainy day funds and high bond ratings also can make a difference in how a state economy fares, according to Elizabeth McNichol, senior fellow with the Center on Budget and Policy Priorities.
In Utah, for example, Gov. Jon Huntsman recently called a special legislative session to address a $272 million budget shortfall. But lawmakers there didn’t even touch a $415 million rainy day fund because they are able to shift money from infrastructure projects, which Utah usually pays for in cash, according to Huntsman spokeswoman Lisa Roskelley. Utah’s AAA bond rating will make it easier and less costly to borrow money for key projects, if and when the market for municipal bonds begins to thaw.
But Virginia, too, has strong bond ratings, and it faces a $2 billion budget shortfall, thanks largely to the collapse of the housing economy in the state’s suburban north.
There’s only so much states can do with savings and high bond ratings, Pattison said. After that, they are subject to larger economic forces.
For now, those forces are conspiring to place some little-heard-from states at the top of the economic pecking order.
