With the state’s coal industry facing increasing federal regulations and a declining market, lawmakers are considering whether state subsidies, in the form of tax breaks, might mitigate the financial turmoil destabilizing a $650 million pillar of Wyoming’s economy.
The Legislature’s Minerals, Business and Economic Development Committee last week agreed to consider a pair of tax break ideas brought by the Wyoming Mining Association in hopes that reducing state revenue might pay dividends in maintaining coal production and thousands of jobs in the state that otherwise might disappear.
“These are tough times,” Wyoming Mining Association Executive Director Travis Deti told the committee. “Not only for the coal industry, but for the mining industry in general.”
Deti suggested lawmakers reduce the state’s severance tax rate for coal from 6.5% to 6% — a tax break that could save the industry tens of millions of dollars annually.
The coal association also suggested a tax credit strategy to benefit not only coal, but all mining operations, including trona and uranium. The idea is to discount mines’ state severance tax bills based on a percentage of local sales taxes paid when purchasing new mining equipment — an incentive to invest in continuing mining operations in the state, Deti said. He suggested crediting coal operators for 35% to 50% of sales taxes, and limiting the incentive to mining equipment used at existing mining operations in the state.
“It just kind of gives the company a little incentive to keep investing in their Wyoming operations and gives them a little bit of tax relief when they have to make those investments,” Deti told committee members.
But the goal of maintaining or even boosting natural resource production by lowering state taxes and fees has long been in question in Wyoming.
The Mineral Tax Incentives, Mineral Production and the Wyoming Economy study, often referred to as the “Gerking report” for the study’s lead author, Shelby Gerking, concluded in 2000 that various state severance tax reductions do not have a significant impact on employment and production.
“We’ve seen study after study to this effect,” said Shannon Anderson, attorney for the Sheridan-based landowner advocacy group Powder River Basin Resource Council. “State tax policy does not drive whether or not minerals get produced. It’s geology and commodity prices. It’s the global economic picture. The whole basis of a severance tax is that this is a one-time opportunity to tax this finite mineral resource.”
Coal’s outlook
Wyoming has heavily relied on coal mining for the past 50 years, dedicating much of the revenue to funding K-12 schools and growing the state’s Permanent Mineral Trust Fund. So when there’s a decline in coal production, there’s a corresponding impact on the state’s budget.
And coal’s current outlook spells trouble for the state’s finances.
Wyoming coal exports to the U.S. utility market were down 20% during the first quarter of the year due to a mild winter, low natural gas prices and increasing competition from renewable sources of electric power generation. On-site stockpiles of coal at power plants remain flush, according to the U.S. Energy Information Administration, which means demand for Wyoming coal is likely to remain lower than usual in coming months.
Adding to the industry’s troubles, the U.S. Environmental Protection Agency recently issued four new rules to drastically reduce coal pollution, including a 2032 deadline for coal-burning power plants to cut planet-warming carbon dioxide emissions by 90%, or convert to natural gas or close altogether. That means Wyoming coal’s market — which almost entirely consists of U.S. power plants — is likely to shrink even further.
Though Wyoming has already joined several other coal-reliant states in a pair of lawsuits to block the new federal rules, utilities are under pressure to convert or close coal plants under the assumption that the rules might stand, according to one coal industry attorney.
“Things are difficult,” Deti said. “Market conditions are tough.”
Lingering doubts
Industry officials representing Wyoming coal, oil and natural gas frequently propose tax breaks and other state-level financial incentives, insisting that decreasing direct revenue is outweighed by maintaining jobs while keeping the core of Wyoming’s mineral-derived economic revenue in place.
In fact, that argument prevailed in 2022, when the Legislature lowered the state severance tax rate for coal from 7% to 6.5% — about a $10 million annual savings for coal operators in the state. Whether the tax break has effectively maintained coal mining jobs and kept some mines in operation that might have otherwise closed is an open question.
Before the severance tax break was enacted, Arch Resources — the state’s second-largest coal producer — had already announced its intention to eventually close its two Wyoming mines without setting a timeline. Although the Black Thunder and Coal Creek mines are still in operation, Arch said it plans to eventually close them. The company recently hinted at layoffs due to a continually declining market for Wyoming coal.
“State tax policy does not drive whether or not minerals get produced. It’s geology and commodity prices. It’s the global economic picture. The whole basis of a severance tax is that this is a one-time opportunity to tax this finite mineral resource.”
Shannon Anderson, Powder River Basin Resource Council
During the committee’s discussion last week, Rep. Cyrus Western (R-Sheridan) questioned the merit of another severance tax break and asked Deti what coal companies are doing with the savings.
“Trying to stay alive,” Deti responded. “This body, and the industry, we’ve got to strike the right balance to where we are in the market and in the current state of affairs.”
The committee withheld action on the proposals, noting that the Revenue Committee might take up the issue when it meets later this month in Casper.
Anderson, of the Powder River Basin Resource Council, told WyoFile there will likely be significant opposition to a tax break for the industry.
“We have an obligation, not only to this generation, but future generations, and to make sure that we get adequate revenue for that resource because, once [coal] is mined, it’s gone forever.”
How short are our memories that no one remembers all the bankruptcy filings by coal producers in 2019, and the millions of dollars in debt that were forgiven. Debtors wound up holding the bag on a lot of bad paper, which ultimately trickled down to all tax payers. Meanwhile, fast forward, and low and behold those same companies that had somehow “legally” divested themselves of debt, magically had tremendously profitable years. Stop subsidizing industry…..let the free market dictate who stays in business and who doesn’t. Supply and demand……it’s really that simple.
Adjusting state taxes to reflect broader, not short term, market and economic trends only makes sense. The cumulative production tax-royalty burden on PRB coal is 25-30% of revenue (and then companies get to pay income and property taxes). If a mine experiences a $1/ton production cost increase, it must collect $1.50 in revenue to stay even. Current tax-royalty rates were set during the coal boom. We’re now in a bust situation.
When these kinds of government funds, tax-breaks and subsidies are given, do those who receive them consider it “socialism”? And our free public education for K-12, free public libraries, keeping roads plowed? These various uses of our taxes are looked at so differently, sometimes with denials and blinders…
😭 poor coal corporations. Next they will ask to be freed of their obligation for reclamation. After all, they have to keep their stockholders and company executives on easy street as they leave our Wyoming resource destitute.
Last time severance taxes were reduced, workers were told if they did not take a pay cut they would be furloughed. Make no mistake- the concern for saving jobs is neither on the minds of the mining companies or the political leaders of this state. A proactive approach would be convening a commission – even a position in the governor’s office, that considers the future of work in Wyoming and how we will support working families as the world shifts away from the use of coal to power our addiction to electricity. However, with our heads in the sand, instead of planning for the inevitable, perhaps persuing green energy (TerraPower) options, Gov. Gordon wastes our money suing the federal government at every chance. Not a good look if you’re hoping to get NRC clearances in a timely fashion. Wyoming must do something to help generational coal mining families and communities besides filing lawsuits.
Shannon is right. A severance tax break will not affect the national coal market, in decline mostly due to cheaper natural gas and renewable energy. Wyoming mines are already the low-cost coal producers, so it will not affect their share of that shrinking market. The Minerals, Business and Economic Development Committee would do well to consult an economist.
Subsidies and tax breaks. How TF do they plan on paying for public goods and services?
Coal costs more, or is at parity, with renewable energy cost-wise, not counting the cost of medical care expenses and deaths due to burning fossil fuels. Coal should have ended 30+ years ago.
Where would the savings go- into the pockets of CEO’s.
The coal industry is looking for corporate welfare. The fact is, coal can’t compete with natural gas and soon with renewable energy sources.
It’s time for individual and corporate income taxes, and time to let the coal industry fade away. And it’s time to wave goodbye to legislators whose political careers are funded by big coal. Wyoming’s future is young people with energy and new ideas.