An extensive report by Headwaters Economics, an independent regional research organization, recommends that Wyoming follow Alaska’s example to revamp its severance tax formula and direct additional tax revenue to the counties and communities where most mineral extraction takes place.
“Some have argued persuasively that Wyoming ought to compare its tax structure not to its peers in the Intermountain West, but to Alaska, the only other state in the U.S. that relies as heavily as Wyoming on revenue from the oil and natural gas industry,” the report notes. (See WyoFile “Does Wyoming Get Enough for Its Mineral Resources.”)
In the 62-page report, Impacts of Energy Development in Wyoming with a Case Study of Sweetwater County (pdf), authors Julia Haggerty and Mark Haggerty argue Wyoming’s current formula distributes only a small percentage of the severance tax it receives to the local governments where the energy impact is greatest.
“Wyoming has the least favorable tax structure on oil and natural gas of anyone in the inter-mountain west,” Mark Haggerty said in an interview with WyoFile, “and yet, it’s the center of drilling activity.”
The report disputes the widespread notion that Wyoming’s counties and municipalities receive big bucks from energy development in their backyards.
“Despite the high production value of extraction in Sweetwater County,” the authors conclude, “return to the county through state severance taxes is a small part of total county revenue.” Following Sublette and Campbell County, Sweetwater is Wyoming’s third-highest producer of mineral revenue.
Yet, according to the report, Sweetwater isn’t getting much back:
“In 2007, state severance tax distributions (to Sweetwater County) of $444,866 made up seven percent of intergovernmental revenue, or ten percent of total revenue. Across Wyoming, the state returns only a small portion of total revenue to local governments (seven percent to counties and one percent to cities and towns in 2008 or $196 million and $25 million respectively).”
Mark Haggerty told WyoFile the researchers got the figure for Sweetwater Co. by stripping away all taxes or revenue not related to energy. He said the percentage of revenue that goes to cities and counties is often perceived as much larger than it really is because school construction, community college appropriations, and highway work — all highly visible — often have a high economic impact on individual communities.
“Relative to its peers, Wyoming does an excellent job of directing money toward education and long-term investments,” the report noted. “However, it has among the lowest rates of ‘direct energy spending,’ meaning it is directing less money than peers toward mitigating the immediate [environmental and social] impacts of the energy surge.”
This means short-term benefits but a failure to bring long-term prosperity and a “limited ability to find other paths to wealth.”
Headwaters Economics receives its funding from a variety of government and foundation sources. The non-profit organization choose Sweetwater County to study said Julia Haggerty, “because we wanted to get a sense of what was going on across the spectrum, from communities that are diversified to those where energy is the only show in town.”
Economists and policymakers often marvel at the amount of money Wyoming distributes to cities and towns.
Indeed. In 2006, Wyoming returned to cities and counties a total of $311,230,231 derived from oil, gas, and coal revenue, twice as much as New Mexico or Colorado.