Keeping 'em down on the High Plains
It's a largely Old West fantasy that if Wyoming just had more access to federal lands, fewer environmental regulations and minimal taxation for industry, the state would thrive. Right now it isn't. Wyoming has missed out on the boom (HCN, 7/7/97). While most state coffers bulge, Wyoming expects a $183 million revenue shortfall for the 2001-2002 biennium.
The irony is that in the history of the Western United States, probably no other state but Alaska has had such apparent good fortune. The reason has been the same: the mining of natural resources.
In the last 40 years, Wyoming has gone from having $80 in the general fund to having billions. But those billions don't spell general prosperity. The wealth derives not from a broad base of well-paid employees and entrepreneurs but from taxes on oil, gas, trona and coal, which pay about 52 percent of the state's annual expenses. In addition, the state has accumulated over several decades $2.8 billion in trust accounts, funded by a severance tax on oil and coal. This money isn't going away. Wyoming produces more coal than any other state, and as coal is replaced over time by natural gas, then Wyoming will capitalize on the huge gas reserves under its dry soil.
With this money, Wyoming strives to "rent-seek" its way to prosperity. That's economist-speak, meaning that the state assumes that a few very large corporations, rather than a broad and diversified economy, should pay for government.
There's good reason to tax large corporations. There's no other source of income. Wyoming is desperate for good jobs. Forty-two percent of the workforce accounts for 70 percent of the wages. The remaining 58 percent limp along with part-time or temporary jobs. Jobs in the minerals industry pay higher wages than any other sector of the economy - on average nearly $45,000 per year when the average median income for a family in Wyoming is just over $32,000.
Unfortunately, there are fewer and fewer of the better jobs. Fifteen years ago, more than 38,000 people worked in the minerals industry. Now the number stands at 15,000. Energy jobs once represented nearly 20 percent of Wyoming's workforce; today, they account for barely 7 percent.
It's a trend that Wyoming won't acknowledge. Year after year, the state protects the energy industry in hopes of retaining decent-paying wages. The favorite method of protection is the use of politics to keep the taxation and environmental burden as light as possible.
It is hard to overstate the influence these interests have in Cheyenne. "They are the most influential power in the legislature," says Bruce Burns, a Republican House member from Sheridan County. "They're above anything. They dominate." Just this year, the oil industry got a 33 percent reduction on its severance taxes as long as oil stays under $20 per barrel.
This will cost the state, according to Burns, "about $17 million per year. And that bill won't save a single well."
The industry's influence is centered in Cheyenne, but its impacts are felt throughout the state, where schools and local government and services generally are on a short leash, making it difficult for Wyoming to create alternatives to the coal, oil, gas, trona, rail and pipeline companies.
In late August, however, the Wyoming Supreme Court issued a decision that sent a chill down energy's collective spine. The ruling was a victory for counties that depend on energy production to finance their roads and sheriff departments and schools. It was a defeat for Exxon, for Gov. Jim Geringer, and for a state bureaucracy that had lined up with Exxon against the counties.
The court ruling overturns Exxon's and Wyoming state government's attempt to block Sublette County from examining Exxon's production records, already on file with the state, and thereby learn whether it had received the taxes to which it is entitled.
The Supreme Court justices, in their ruling, said the alliance between the state and Exxon represented "unconventional allies." The record showed that the Gov. Jim Geringer administration fought disclosure every inch of the way.
One Sublette County commissioner said: "By and large, our complaint is not against Exxon, it's against the state of Wyoming."
The Wyoming Constitution permits counties to tax oil and gas production in lieu of property tax. Sublette County, in western Wyoming in the heart of the Overthrust Belt, opted to do just this. But the county has no control over the valuation of that oil and gas production. County assessors determine the value of homes and retail stores, but the chore of valuing mineral production belongs to the Department of Revenue, the state's tax collector.
In 1993, Janet Montgomery, the Sublette County assessor, began examining graphs of local natural gas production. Since 1985, when energy prices scraped bottom, gas production had nearly tripled. This meant more revenue for a county that gets 85 percent of its income from mineral taxes.
But there was a glaring anomaly. Revenue from the county's biggest gas producer and user, Exxon, was sinking. Yet "everyone was telling us that the Exxon plant was running at full capacity," said Montgomery.
The "plant" is the $1.6 billion Exxon facility that processes the 650 million cubic feet per day of raw "sour" gas from the La Barge field in Sublette County. The plant, called Shute Creek, employs 130 workers and 75 contractors. It separates the methane, sulfur, carbon dioxide, nitrogen, natural gas liquids and helium that the LaBarge field produces.
When county officials brought the discrepancy to Exxon's attention, they were told their numbers were wrong.
"Exxon said they'd get back to us. They never did," said Montgomery. Using rough estimates, Sublette County estimated it was losing about $1.5 million per year in revenue.
In August 1996, the Sublette County commissioners went to Cheyenne seeking an explanation. The Department of Revenue sent some stuff, but withheld key records. The Department of Audit would send nothing.
The commissioners, all solid Republicans, then sought help from their fellow Republican, Gov. Geringer. "He informed us being in his office made us adversaries and that he shouldn't even be talking to us," said former Sublette County Commissioner Buzz Wassenburg. "He basically said that it was the Board of Equalization's bailiwick and that it was none of our business." The Board of Equalization is the body that handles tax appeals from the Department of Revenue.
So the commissioners went before the Board of Equalization. The board listened, often to many voices at once. "We had about 10 lawyers in the room telling us we should do this or that," said former Board of Equalization chairman Dennis Tippets. "The way I read the statutes, the board should have access to these records."
Tippets should know. Back when he was a legislator, he helped write the statute. "Some of those crazy Exxon lawyers were trying to tell me what the intent of the law was." The board issued subpoenas requesting that then State Auditor Dave Ferrari, State Lands Board director Stephen Reynolds, and Mike Geesey, head of the Department of Audit, answer a few questions.
The request didn't get far. The Wyoming attorney general's office immediately quashed it, saying the Board of Equalization didn't have the authority to issue such a subpoena. Tippets was stunned.
"How can we (the board) make a decision about taxes in Wyoming if we can't get information?"
The quashing of the subpoenas coincided with the end of the term of Marvin Applequist, who was known to have actively sought the subpoenas. Gov. Geringer opted not to reappoint him.
Then Geringer fired Tippets, the only board member ever to be released in mid-term. He was replaced by Ron Arnold, a lawyer who worked in the attorney's general's office.
The decision vexed many around the state, including Tippits' former fellow board member, Marvin Applequist. "The governor has vested himself in this Exxon case, and I think he's offended by anything that looks like the board was going to conduct a fair hearing on it," he told the Casper Star-Tribune.
Tippets seemed not so much upset by his firing as by the governor's attitude. "Philosophically, he (Geringer) fights the feds at the drop of a hat. But when one of his political subdivisions wants to be treated fairly, then he comes unglued and turns 57 lawyers from the AG's office against them. The bottom line is that the state doesn't want the counties looking at the information," said Tippets.
As for the Board of Equalization, Tippets said it now "has a staff of three lawyers who don't have a clue, in my mind, about the appraisal process."
A lot of tax money is riding on the competence of the Board of Equalization. Randy Fetterolf, who has audited oil company records for counties - the energy companies call freelancers like him "odious merchants" - is doing a study for Wyoming county commissioners on property assessment problems.
Blocked at the Board of Equalization, the Sublette County Commissioners went to court, and ultimately to the Wyoming Supreme Court. They not only won there on the particulars of their case but also drew the court's attention to the larger issue.
In the very last words of its decision, the court gently reminded the Board of Equalization of its "broad powers" and its responsibility "to carefully examine this case."
Samuel Western lives in Sheridan, Wyoming. He is currently working on a book titled Pushed Off the Mountain, Sold Down the River: Wyoming's Search for Its Soul.
Note: in the print edition of this issue, this article is accompanied by a sidebar, "Harsh words from inside the Beltway."