Extraction taxes are on the ballot

North Dakota and Nevada voters might learn something from Wyoming.

 

Something strange is happening in Wyoming economy. There’s an extraction boom, without jobs.

Oil production in the Powder River Basin, formerly one of the nation’s hottest coalbed methane zones, has gone up from 38,000 barrels per day in 2009 to 78,000 per day earlier this year. An October report from the state’s Economic Analysis Division says that after the economy was battered by low natural gas prices during recent years, the oil industry is helping bolster it, “backed by about twice as many applications to drill as the previous year.”Yet the state’s overall employment remains stagnant. The number of jobs in the mining and logging sector, which includes oil and gas workers, grew by a mere .9 percent since this time last year, and it was already low due to the devastating natural gas price slump.

Is a boom even a boom when it has no jobs? In Wyoming’s case, the answer is yes, at least sort of. All of that extra oil production, which was sold over the last year at a high price, brought in enough severance taxes to offset the decline resulting from the natural gas slump, and then some. Sales taxes on oil drilling equipment also got a boost.

The Wyoming situation throws into question the notion that if you lower taxes or give generous tax breaks to mining or drilling companies, the jobs they will bring to the state as a result will more than offset the loss in tax revenues. That might work sometimes, but without a relatively strong policy for taxing oil and gas companies, Wyoming would be in the economic pits right now, watching empty-handed as companies siphon its oil across state lines in exchange for fat profits. Instead, the state’s bringing in over $1 billion per year to fund schools, roads, conservation and a trust fund.

Wyoming appears to have found the pot of gold in the gas well at the rainbow's end, in the form of severance taxes.
Jonathan Thompson

In three other Western states, tax policies regarding extractive industries — how much to tax them and how to use those tax revenues — are being hotly debated right now. Next week, voters in Nevada will decide whether to lift a tax cap on mining in the state, and North Dakotans will vote on whether to allocate some of their severance tax revenues to conservation. Alaska voters already shot down an oil tax initiative in August, but proponents of the measure continue to keep a close eye on the issue and could bring it up again in the future.

Nevada: As Judith Lewis Mernit wrote in High Country News four years ago, Nevada’s gargantuan mining industry pays far less in taxes than it would in just about any other state. In fact, the state’s constitution caps mining companies’ total state taxes at just 5 percent of their net proceeds, or operating profit. The measure on this year’s ballot would merely remove the cap, which would allow the legislature to raise taxes if it so chooses. Other states levy a severance tax on the gross value of the commodity extracted. If the ballot measure passes, and Nevada legislators were to adopt that approach, it could bring in ten times the revenue that taxes on mining do now. Of course, even if the measure does pass, the legislature may choose to do nothing.

North Dakota: Here the question is not how much money the state gets from oil, but what to spend it on. Thanks to burgeoning production, high oil prices and a relatively high tax rate, North Dakota will pull in some $3 billion this year from the industry. Sportsmen and environmentalists would like to see 5 percent of that devoted to conservation purposes, such as buying land to set aside as parks, habitat restoration and the like. Even by today’s standards, it’s a heated and nasty campaign. Opponents of the measure say it’s being pushed by out-of-state environmentalists intent on getting their hands on North Dakota’s oil money. Proponents have accused oil lobbyists of violating campaign disclosure laws and others of engaging in a smear campaign against a school teacher. The Washington, D.C.-based American Petroleum Institute has forked out more than $1 million to oppose the measure, while Tennessee-based Ducks Unlimited has spent at least twice that in support.

Alaska: Voters in August narrowly defeated a ballot measure that would have repealed tax breaks given to oil companies by the state legislature in 2013. The breaks were intended as an incentive to encourage more drilling, and thus more jobs, more oil production and, in turn, more tax revenues. But those who wanted the tax breaks repealed believed that it amounted to giving away Alaska’s oil, and robbing state coffers and citizens in the process. Though the vote was initially too close to call, fundraising was incredibly lopsided. Opponents of the measure shoveled more than $13 million into shooting it down, with BP, ConocoPhillips and ExxonMobil each donating more than $3 million to the cause. Proponents of the measure raised only about $600,000.

Meanwhile, back in Wyoming, commissioners in oil-rich Converse County just shot down a request by major driller Chesapeake for tax breaks for its flaring equipment. If other counties follow suit, it could have major fiscal ramifications.

In each of these cases it’s not just taxes being debated, but the relationship states and counties and communities have with the companies that mine and drill within their borders. When a mining or oil company comes in, provides a bunch of jobs (presumably) and takes exhaustible resources from within the states borders in order to sell for profit, who is the beneficiary? The mining company, the state, or both?

Jonathan Thompson is a senior editor at High Country News. Homepage image of drilling in New Mexico from Flickr user Drriss & Marrionn.

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