Wyoming's low taxes could be coming to an end

CASPER — Wyoming is one of only seven U.S. states with no state income tax, and as a result residents here enjoy the second-lowest effective tax rate in the nation: The overall tax burden on an average Cowboy State household is around 7.5%, which is half of what’s paid at the other end of the spectrum in New York, where average resident shells out 15.9% of their earnings in taxes, according to the non-profit think tank the Tax Foundation.

But just because Wyoming residents pay less doesn’t mean they get less — quite the contrary.

Leaving out federal taxes and using data averages from all 23 counties, the median Wyoming family of four has a household income of $125,000, of which it pays $4,429 in state-related taxes each year, or 3.54%.

Yet for every tax dollar paid, the Cowboy Family receives two dollars worth of public services in return in the form of police, schools, public infrastructure and other amenities, according to analysis from the Wyoming Taxpayers Association (WTA).

There’s one reason Wyoming residents pay less but get more: Minerals.

For decades, surplus revenue from taxes on oil, gas, trona and coal have kept state coffers flush enough to support public services without high levies on individual households; between property, severance and secondary sales taxes, the collective mineral industry accounts for close to 60% of Wyoming’s annual revenue, according to Ashley Harpstreith, executive director of WTA.

But that cash flow won’t last forever.

For starters, mineral resources are finite. While many basins still have robust reserves, production is slowing in key areas like the Big Horn Basin, where most wells are at the ends of their production lives, with many wells rendering less than $10,000 in profits annually, according to analysis from the energy think tank Carbon Tracker.

Although for revenue authorities, the most pressing concern stems from one mineral resource in particular: Coal, whose rapid decline is forcing policymakers to think fast about a new tax structure.

“Our tax structure is dependent on minerals. There’s going to be a shift in burden and it will upset the apple cart,” said Harpstreith of WTA.

Since its peak year in 2008, Wyoming coal production has fallen by half, plummeting from 466.3 million tons to 237 million tons in 2023. And the near-term doesn’t show improvement.

Economic analysis from the state’s Consensus Revenue Estimating Group (CREG) paints a forbidding picture of coal production dropping to 205 million tons in 2025, and falling further to 165 million tons in 2028.

In addition to declining volumes, the state will be hit by falling prices, too, which are projected to drop from their current price of $14.50 per ton to $13.75 per ton by the year 2026, CREG forecasts suggest.

“Given recent production trends this spring pressured by low natural gas prices and robust coal stockpiles, the decrease in Wyoming coal production has commenced more rapidly than the forecast anticipated so far in CY 2024,” Don Richards, CREG co-chairman, told the Star-Tribune.

Beyond taxable volumes, less coal production means fewer coal jobs, which have been one of the state’s steadiest job sectors for half a century.

According to the State Mine Inspector’s Office, in 2023 the coal industry employed 5,118 direct workers. That is destined to change. And nowhere will the job shock be felt stronger than in Wyoming’s Powder River Basin.

More than 97% of the state’s coal is produced by 11 mines in Campbell County, which hosts 8 of the 11 largest coal operations in the U.S. For this reason, Cowboy State representatives are considering a gamut of ways to bolster the industry, from lowering state severance tax to investing in carbon capture utilization and storage (CCSU) technology.

While the industry faces a plethora of headwinds — namely, competition from renewables and natural gas — as state leaders see it, the biggest barrier is big government.

In May, the Biden administration and Bureau of Land Management proposed a plan that would officially end all new coal leases on federal land in Wyoming’s Powder River Basin, as part of an update to a land use plan that allows existing leases to move forward but effectively ends all production in 2041 when current leases expire.

The announcement set off a fury of searing rebukes from every corner of the state and vows by elected officials to stop at nothing in fighting the proposal.

“This…is not about making a well-informed decision. It is about Joe Biden’s partisan, vindictive, and politically motivated war on America’s abundant, cheap, efficient, and consistent energy sources — one that holds practical and achievable goals to remove carbon dioxide from our atmosphere. This administration touts its preference for ‘best available science’ yet only chooses to highlight the science that advances their job- and career-killing agenda,” Gov. Mark Gordon said of the proposal at the time.

Virtually all of Wyoming’s coal is sold to domestic energy producers as a thermal input, including 26 states as of today. Historically, it’s played an outsize role in the nation’s grid. In 2001, coal accounted for more than 50% of all U.S. electric generation.

But it now makes up less than 19% of the U.S. electricity, according to the Energy Information Administration and is expected to fall into the single digits before 2050.

Irrespective of the outcome in battle over the BLM’s “no future coal leasing” plan, the long-term trajectory appears headed downward.

So tax experts are begging to have hard conversations about how to adjust.

“Our dependence on minerals is very real. And whether or not you think these [public] services are validated, we’re either going to see cuts coming or we’re going to see those taxes shifted onto other industries or individuals,” said Harpstreith.

The decline will also impact the Wyoming State Investment Fund, which currently holds around $29 billion. The fund’s investment revenue is sizable and contributes as much as 30% of the state’s annual budget. The fund’s genesis was in surplus mineral taxes, and it too is liable to shrink as coal does.

“Our dependence has been on the boom and bust economy, and we’re either going to fix the roof while the sun is shining, or we’re going to wait for those old leaks. As we’re looking at an impending downturn, tax structure needs to be at the forefront of everybody’s conversation,” Harpstreith said.