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New-carbon jobs may not rescue state’s coffers

For a state wanting to diversify its economy to reduce dependence on the energy industry, any venture that would bring new jobs seems like a good thing. But whether new jobs help or hurt Wyoming’s constricting revenue pool would depend on who fills them, various government officials say.

Higher paying jobs for residents could be a boon for sales and property tax receipts. But without tax reform, any business that draws new workers from out of state means a further revenue drain, two veteran lawmakers say. That’s because the mineral industry subsidizes services to residents through the state’s tax structure.

An example of the dilemma is Ramaco Carbon, Wyoming’s newest coal company. It proposes to create a new coal-based workforce by manufacturing products, as opposed to just selling coal to power plants. Company officials have suggested Ramaco’s plan could create thousands of jobs. If those jobs went to new residents, it would increase the shortfall between tax income and state expenditures.  

Rep. Mike Madden (R, HD-40, Buffalo) is chairman of the House Revenue Committee.

Some of the shortfall for new residents is covered by property taxes on the business employing them. However, it isn’t nearly enough, said Rep. Mike Madden (R, HD-40, Buffalo), the House Revenue Committee chairman and an economist who holds a Ph.D. “They don’t come close to paying for schools, and we haven’t even talked about the costs for county services,” like roads, police, water and so on, he said. Seen another way, Senate Vice-President Michael Von Flatern (R, SD-24, Gillette) said a family of four in Wyoming pays roughly $3,000 in taxes, but receives about $30,000 in services.

Much about Ramaco Carbon’s business plan remains unknown, and some critics doubt its legitimacy. However, CEO Randall Atkins has discussed building an industrial park, which would include a research center to develop products from coal. Carbon fiber could be used to make car parts, for example. The coal would come from a mine next door, the permit for which is currently in dispute before the Environmental Quality Council.

The company declined a request to interview for this story. However, company officials have said mining the coal and developing and manufacturing the products could create 3,000 jobs, according to the Sheridan Press.  

Those would be welcome jobs in a county struggling with a mineral downturn. But if there were an influx of emigrants to fill them, it could also mean a further drain on the state’s currently unsustainable revenue picture.

Education costs — which without a solution will begin running at a $400 million deficit per biennium — are a good example of the imbalance, Madden said.  

On average, four new students enter Wyoming’s public schools for every ten people that relocate to the state for manufacturing jobs, he said. At an average cost of $15,000 a year to educate each student, those four new students would cost $60,000 a year. But the property taxes those workers would pay a year would be around $1,000 a year, he said. The numbers leave a $50,000 deficit for their children’s education.

The state also needs to find funding for more than just the day-to-day costs of education, which have been covered in large part in the past by property taxes on the mineral industry. The fund for building new schools and maintaining the state’s existing ones is also running dry, after being funded for years by a special fee on coal leases.

While lawmakers grapple with these deficits, Wyoming continues to offer plenty of tax exemptions to maintain a business-friendly environment.

Exemptions

A business like Atkins has envisioned for Ramaco would receive several sales tax exemptions. Wyoming has long bet on luring companies with low taxes and generating revenue off sales and property taxes from the workers employed. But with the current tax structure and costs for state services, that system doesn’t work without revenue infusions from a robust minerals industry.

“We certainly have all the right ingredients — low tax structure, low regulatory structure — all that sort of stuff,” State Treasurer Mark Gordon said. He would like to know why the state doesn’t have a more diverse tax base that avoids the boom-bust economy that’s based on mineral revenues.

“There’s obviously something in the stew that isn’t cooking,” Gordon said.

Among the ingredients are Wyoming’s roughly 52 sales tax exemptions. Some are designed to avoid double taxation or conflicts with federal law. At least 25 exemptions, however, exist to draw new businesses to the state, encourage investments in manufacturing, and spur existing businesses to expand.

Ramaco would be eligible for several of them, including a sales tax exemption on manufacturing equipment. If Ramaco buys machines and equipment to produce coal products, those would be exempt from the state’s 4 percent and the county’s additional 2 percent sales tax.

Products consumed during manufacturing or processing also are exempt from sales tax. Once the plant was up and running, if Ramaco’s projects were structured in a way that the mine was selling coal to the industrial park, those sales would also be exempt, said Dan Noble, Director of the Wyoming Department of Revenue

There’s an exemption for transportation of freight and property, also. So whatever fee Ramaco paid to a railroad or trucking company to transfer its products would not be taxed. Neither would be the purchase of any equipment the company might use for pollution control, Noble said.

A schematic of Ramaco’s proposed facilities, including an industrial park and research center to try and find new industrial uses for coal. The schematic was provided to the Sheridan newspaper. (Sheridan Press)

Wyoming wouldn’t generate any revenue from the sale of the products Ramaco developed either, unless they were sold in Wyoming, Noble said. “If they’re gonna sell [car parts] to Michigan to incorporate in some automobile or something, then Michigan would be responsible for it,” he said.  

Wyoming would generate property taxes on the value of the new business’ property, buildings and equipment, Noble said. It would also generate severance taxes from the coal Ramaco mined to produce its products. Because minerals are well-taxed, whether a business with Ramaco’s unique proposed model — both mine and manufacturer — would pay the way of its employees could depend upon how much coal is mined.

Noble was unable to estimate the severance tax revenue for a non-operating mine because the tax is heavily dependent on the mining cost, he said.

Ramaco proposes mining up to two million tons of coal a year. That’s a small number compared to mines around Gillette. Kiewit’s Buckskin Mine, for example, produces more than 27 million tons a year, according to Kiewit’s website. Ramaco, however, proposed the two million tons when it was considering selling coal to utilities. The plan has now changed. While the mine permit application remains the same, Atkins has said the company might only extract a few hundred thousand tons a year, at least to begin with.

Despite the exemptions, Noble said a new company would improve the state’s revenue picture by creating new jobs. “Having more employment would contribute to the property tax base and the sales tax base for the state,” he said.

It’s the argument Wyoming has used for a low-tax business environment in the past. There are still, however, the questions raised by Madden about how much revenue the state raises from new workers versus the cost of serving them and educating their children.

Von Flatern, chairman of the Senate Minerals, Business and Economic Development Committee, said he would like to see Ramaco succeed, but he does not think the state will benefit much if it does.

Only through selling coal to power plants — the state’s traditional coal export — will a company mine enough that severance taxes make up for the services the state provides employees, Von Flatern told WyoFile via email.

In Ramaco’s case, the sales tax exemption on manufacturing equipment creates particular drawbacks, he said. “There is not even sales tax to the locals or the state, for all that expensive equipment they may purchase, while not producing enough coal to pay the state a sizeable amount of money,” he wrote.

Senate Vice President Michael Von Flatern (R, SD-24, Gillette)

“Yes, the locals will benefit from an increase in land value [property tax] and the state and local governments will profit a little for the increase in sales tax for non-food purchases, but that is it,” he said.

In the past, the gap between the taxes residents pay and the costs of serving them and educating their children has been covered by the energy industry. As the deficits in education funding prove, that’s no longer the case. Today, lawmakers are considering reconciling the revenue gap through changes to the tax structure and cuts to agency budgets and education funding. Meanwhile, entities like the newly-created ENDOW committee and the Wyoming Business Council plug away at economic diversification.

At the Wyoming Business Council, a government agency tasked with promoting economic development, officials said Madden’s concerns were in some part unfounded. That’s because they said they’re seeing a large percentage of new jobs go to residents, not emigrating workers.

“We would disagree with the assessment that every time we bring a new company to town it’s a net negative,” said Thomas Johnson, the Business Council’s chief performance officer. “In fact we think it’s the exact opposite.”

Eighty to 85 percent of the jobs with companies the Business Council has brought into Wyoming go to current residents, he said. “The other point to make is when the business council does a project we’re looking for jobs that pay above the average weekly wage,” Johnson said. “We’re not just bringing in jobs that pay $8, $9, or $10 an hour.”

The increased wages boost the sales and property tax bases. As much as politicians like to talk about business recruitment, Johnson said his agency also focuses on expanding businesses already in the state, because of the benefits expansion brings to communities.

It is difficult to assess the cost of serving residents, Johnson said, and it’s risky to assume that when new employees come from elsewhere it is at a cost to the state. “Add 20 jobs and it’s not gonna mean another police officer,” he said. However, “there are some instances in which you could see a company come in that could be a cost,” he said.

Jeremiah Rieman, Gov. Matt Mead’s director of economic diversification strategy and initiatives, is helping direct ENDOW. During the 2017 General Session, the Legislature approved Gov. Matt Mead’s plan to create the new initiative to push diversifying Wyoming’s economy. The committee had its first meeting in May, and will begin by discussing barriers to developing economic diversification, Rieman said. Mead’s hope is that its work could end up with a long-range blueprint of how to move Wyoming past the booms and busts cycles.

But Rieman said he’s aware of the question of whether new businesses will actually help diversify the tax base away from minerals.

“You can’t get away from this tax structure issue,” he said. “There is perhaps a legitimate concern that if you add additional jobs … do you exacerbate the problems that we have at the state revenue level?”

However, solving that problem is not ENDOW’s priority, he said. “That really is something for the executive and legislative branches to work on.”

For now, ENDOW hasn’t discussed creating even more tax incentives to target specific industries or lure businesses to the state. “It’s entirely possible that as we move forward tax incentives will come up,” Rieman said, “but at this point in time they have not.”

ENDOW has still not decided whether the state should target specific industries, and if so, what those industries would be, Rieman said.

Value-added coal

The idea of a new use for coal, as the market from coal-fired power plants dwindles, has long been a popular talking point for Wyoming’s politicians and boosters. “Adding value to Wyoming’s vast mineral and agricultural resources” is first on the list of goals the Business Council posts on its website.

When combined with the desire to diversify the economy, value-added coal products have even more allure. This is most recently evidenced by a pair of state-funded investments being considered for entities in Campbell County.

The Wyoming Business Council recommended a grant, for $1.5 million, to establish a research facility called the Advanced Carbon Products Innovation Center, on the site of a reclaimed coal mine. The grant would pay for construction of a lab and office building, according to a report from the Business Council. Much like Ramaco’s proffered plan, the goal would be finding new uses for Wyoming’s coal.

The project will be developed next door to Atlas Carbon. The company is a poster child for a new coal economy — where black ore leaves the state as products, not just on rail cars bound for power plants.

Atlas Carbon turns coal into activated carbon, useful as water and air filters. Its proven effective at removing mercury from industrial emissions, including from coal plants, according to company literature. The Obama administration enacted new standards for capturing mercury from coal plants, though they are being reviewed by the Environmental Protection Agency under Scott Pruitt.

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At Atlas Carbon, coal is heated, sand blasted and cooled in a 15-second, patented process. The plant operates 24 hours a day, seven days a week to produce 16 million tons of activated carbon a year, according to the Business Council.

The company is now in line for a large state loan to expand its plant. Atlas Carbon asked for a $25 million loan, to bring production from 16 million tons a year up to 108 million tons. That expansion would have increased its number of full-time employees from 12 to 32. The Business Council recommended the company receive $15 million, and the treasurer’s office is now evaluating the loan’s suitability and security.

Atlas’s jobs are also high-paying. The projected mean wage for those new jobs, at $37.03 an hour, exceeds Campbell County’s average wage of $22.57 an hour, the Business Council says.

Atlas Carbon has been a great example of a company producing a value-added coal product, said Josh Keefe, a finance manager with the Business Council. The need for filters to remove mercury and other contaminants from industrial emissions — “We just don’t think that’s gonna slow down,” Keefe said.

Gordon, the state treasurer, agreed. The potential return on investment for value-added coal products could be “dramatic,” he said.

For now, Ramaco isn’t applying for any state aid they know of, Rieman and the Business Council said. The Business Council has had discussions with the company over the last few years, Johnson said, but they’re mostly the same kind of inquiries the board sees from any business interested in Wyoming.

“We’re excited to work with anybody, frankly, who wants to come into Wyoming and work with our clean coal,” Johnson said.

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Andrew Graham is reporting for WyoFile from Laramie. He covers state government, energy and the economy. Reach him at 443-848-8756 or at [email protected]

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One Response to New-carbon jobs may not rescue state’s coffers

  1. Mike Madden June 8, 2017 at 2:18 pm #

    Mr. Graham:

    I read your article and it is very good. However Johnson, from the business council again has a total fallacy in his argument which distinguishes between a new worker moving here vs. one that already lives here. Economically speaking there is no difference whatsoever.

    If he\she already lives here and takes one of these new jobs, the result is a new job is created from the fact that his/her old job has been vacated and will be filled with somebody else etc. etc. The result is that if a new job is created it brings an incentive for new workers to enter the market, – – just as has been the case during every one of our economic booms in the past, along with the added costs of providing educational and other public services.

    m. madden

    Buffalo, Wyoming

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