A coal train snakes through the hills north of Gillette. A decade ago, the black rock propped up Wyoming state government to the tune of roughly half a billion dollars more a year than it does today. (Dustin Bleizeffer/WyoFile)

From its peak a decade ago, coal revenue for Wyoming has traced a steady decline.

How big a hole has that left in Wyoming’s government budget?

All told, the state today collects at least half a billion dollars less from coal sources each year than it did at the high point. That’s about a third of the state’s annual general fund budget for most government agencies excluding public education funding.

Coal’s dwindling prospects carry dire impacts for Wyoming workers and towns. Coal company bankruptcies impact workers’ retirement and health care benefits. Mine and plant closures are an even larger threat that could dry up livelihoods for Wyoming families and put entire communities dependent on coal jobs at risk.

For state government coffers, coal’s decline is a slower-moving catastrophe. But the decline has already had an enormous impact and will leave lasting change, lawmakers and analysts say.

Wyoming pays for state government — everything from public schools and road maintenance to public health and the criminal justice system —   primarily with revenue collected from the oil, gas and coal industries. Of those three, coal has been both the stable bedrock — not prone to the up-and-down swings of the oil and gas markets — and at times the largest contributor.

“Coal provided a firm base of revenues,” Bill Mai wrote in an email to WyoFile. Mai, now a retired university administrator, spent decades studying state revenues as a fiscal analyst for the Legislative Service Office and from 2009 to 2012 as co-chairman of the Consensus Revenue Estimating Group. CREG tracks energy markets and estimates state revenues for the Legislature, which then uses those estimates to write budgets.

“It certainly seemed to have its own trajectory,” compared to oil and gas, Mai wrote, “and I guess it still does. Only now, instead of regaining some traction like oil & gas, it’s slipping.”

From 1999 — as far back as recent CREG reports track severance taxes — to 2011, the severance taxes collected on coal did nothing but rise.

For a long time you needed just one trend line for coal, said Rob Godby, director of the University of Wyoming’s Center for Energy Economics and Public Policy: an arrow pointing up and to the right. “It was that stable,” Godby said. “You could depend on that because electricity was most cheaply produced by coal and Wyoming coal was cheaper than anywhere else’s.”

But around 2011, that trend reversed course. The new normal for coal, analysts say, is a steady decline as it’s pushed out of energy markets by cheaper natural gas and now, increasingly, by renewable energy sources.

In Wyoming, warning signs for coal mines abound, from companies offloading mines at a loss, to a new swathe of bankruptcies, to the entrance of new players lacking the blue-chip reputations of past mining giants.

Where the bottom lies for coal is, at this point, anyone’s guess. What’s not in doubt is what’s already been lost and what few, if any, observers believe is ever coming back. From peaks between 2008-2013, Wyoming’s coal revenues have plunged.

Four streams

Wyoming state government gets money from coal in four primary ways. Companies pay severance taxes to Wyoming on the coal they remove from the ground. Roughly half the federal mineral royalties paid to Washington D.C. on the coal owned by the federal government, returns to Wyoming.

Then there are coal lease bonuses — lump sum payments the state receives on the sale of new coal leases. Finally, revenue comes from ad valorem taxes, a form of property tax paid at the county level, but which is redistributed throughout the state.

Each revenue source reached its peak at different times. Though both ad valorem and state severance taxes peaked in 2011, that was a low year for coal lease bonus payments and a high year for federal mineral royalties, but not the highest. The state is today collecting roughly $450 million less a year from the four revenue streams than it did in 2011. Look at 2009, a good year for all sources though the peak for none, and the revenues today total roughly $610 million less.

Compare today’s income to the combined peaks for each coal revenue stream and there is $770 million less entering the state’s coffers.

This analysis does not include the sales or personal property tax dollars generated by the economic activity coal mines spark in nearby communities, or property taxes levied on mine lands and equipment.

Of the four revenue streams, coal lease bonuses have suffered the steepest decline. During the heyday, when companies snapped up leases to secure future access to the black rock, coal lease bonuses were a significant boon to Wyoming. Though the amounts varied, at times sharply, the state received more than $200 million most years since 2005.

That $200 million contribution to state balance sheets is now a zero. The CREG report does not anticipate any coal lease bonuses entering state coffers in the next 5 years — the farthest out it hazards a projection.

The Legislature used that money to build schools, and has yet to find a reliable replacement.

“Those lease sales funded school capital construction at a very aggressive pace,” Mai wrote.

“Construction will have to find another revenue source,” he wrote, “or slow considerably for the next 10-20 years as compared to the last 20. That really produces a double-hit to the state’s revenues/expenditure picture.”

Ad valorem taxes on surface coal are down to levels last seen in 2005-2006. Those taxes peaked on 2011 coal production, when the state levied an estimated $251 million in ad valorem taxes, according to annual reports by the Wyoming Department of Revenue. In 2017, the last year for which data is available, counties levied $71 million less in ad valorem taxes, at $180 million.

The CREG report does not segregate coal revenues from oil and gas in its federal mineral royalties figures. Data provided to WyoFile by the federal Office of Natural Resources Revenue, however, shows a significant drop in coal-generated federal royalties since a peak that came in 2012. ONRR provided total federal mineral royalties collected from Wyoming but not the amount returned to the state. WyoFile calculated that amount by dividing the total amount of federal mineral royalties collected in half. An ONRR spokeswoman told WyoFile that approximately 50 percent of any royalties collected on BLM land, which includes the federally owned coal in Wyoming, is returned to the state.

A dragline sits behind a row of coal cars at the Black Thunder mine near Wright, Wyoming in this photograph taken in October 2016. (Andrew Graham/WyoFile)

In 2012, according to that math, Wyoming collected approximately $586 million in coal from federal lands. Coal’s contribution made up 72 percent of the $809 million total Wyoming collected in federal mineral royalty money that year.

In 2018, Wyoming collected only approximately $202 million in coal royalties. The drop in collections of $384 million put the state at a level last seen in 2005.

State severance taxes have dropped by more than $95 million a year since a 2011 peak. Coal’s slide as a power source actually started a few years before that, Godby said, but existing contracts between power plants and mines kept revenues from declining for a few more years. That year, the state collected $294 million. Last year, severance tax from coal came in at $198 million. It’s the first time the amount has been below $200 million since 2006.

No end in sight

The decline is predicted to continue. The January 2019 CREG report estimated an additional $13 million or so drop in severance tax collections by 2024.

Godby envisions a steady decline across the remaining revenue sources, he said, a trend line the opposite of coal’s once-reliable rise. But he noted troubling signs among companies at Powder River Basin mines that could speed decline or lead to sharp drops followed by plateaus before the next drop, like a down staircase. Wyoming could face financial risks with the rapid erosion of the PRB’s industry, Godby said.

“If you look at revenues it looks like a slow decline but it’s declining,” he said. “The real problem is within the mines, the financial footing that the mines are on.”

Cloud Peak’s bankruptcy is a telling sign, Godby said. The company was seen as a solid operator, until a gamble on export markets went south. “We’ve got companies that are kind of on a knife’s edge,” Godby said.

Another bad sign is a sale of two mines by Contura Energy — itself an entity spawned by Alpha Natural Resource’s bankruptcy — to Blackjewel Energy, Godby said. The sale is a loss for Contura, which seeks to benefit from future tax write-offs, showing the tough times in the PRB. At the same time, a recent hearing raised questions about Blackjewel’s record of paying its fines in other states.

New operators with dubitable track records could carry environmental and financial risks to the state, Godby said. Those risks come at the moment when, thanks to the decline in coal revenues, the state is less financially equipped to absorb them.

“What we’re seeing now in the Powder River Basin is what happened in Appalachia where you see these vulture capitalists come and try to get whatever value they can get out of the mine,” he said. “They are much more risky and they’ve left a lot of reclamation and didn’t pay taxes.”

Unlike coal, oil and gas are stabilizing. CREG projections show a rise in severance taxes from both. But historically the fuel sources are more volatile than coal, vulnerable to sharp dips and rises on the winds of political fortune, foreign relations and global finance.

The reduced role of coal will leave the state more vulnerable to the next bust in those fuels, Mai said. “It’s extremely concerning,”

Even if lawmakers continue to reduce the size of state government, some worry that the next drop in fossil fuel markets could hit even harder. If oil and gas do start sinking again, Wyoming will find its revenue bedrock will be roughly half a billion dollars deeper than it was last decade — maybe even farther down depending on when the bust arrives and how coal’s fortunes unfold.

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Meanwhile, lawmakers remain stuck in their efforts to move the state off its dependence on energy revenues. Mai does not believe the public has grasped the significance of what the change entails, he said.

“It is going to be pretty difficult to fill those revenue holes in the event of the demise of coal, oil, and natural gas,” he wrote. “That’s why I say it’s a problem of scale. I’m not sure people understand that to replace these revenue streams, our entire way of living in [Wyoming] will change. I’m also not sure people are going to like that very much.”

UPDATE: This story has been emended on June 6, to clarify that the annual loss in coal revenues is equivalent to one third of the state’s annual General Fund budget for state government. That budget does not include nearly $2 billion a year that Wyoming spends on K-12 public education, among other expenditures not covered by the General Fund. —Ed.

Andrew Graham is reporting for WyoFile from Laramie. He covers state government, energy and the economy. Reach him at 443-848-8756 or at andrew@wyofile.com, follow him @AndrewGraham88

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  1. Regarding the suggestion that Wyoming invest in alternative uses for coal: How much more money do you want the state to pour down that rat hole? I can recall various schemes going back to the 1970s that were going to turn PRB coal into diesel fuel, cheap natural gas, high-energy briquettes and all manner of other stuff. Some of these were outright scams, others were totally uneconomic or technologically unfeasible, but all were failures, despite substantial financial backing from the state or the feds in a number of cases. When it comes to coal, You cannot repeal the basic laws pf physics or economics. Those coal states that are unwilling to accept that, are suffering the consequences in the form of lost jobs, lagging economies, increasing poverty in the coalfields and financial crises in local and state government. I used to live in Wyoming and I’ve been in Kentucky for nearly three decades, and the obstinacy of those in thrall to coal is truly incredible.

  2. Mr. Madden and Mr. Vanderhoff’s comments are exactly right so I will not re-hash their narrative.
    An important part of the problem being overlooked is how can we re-purpose this natural resource to other industries rather than thermal fuel. Research that should have been started years ago but quashed by the legislative and executive leadership in favor of the status-quo.

  3. Great story and analysis, Andrew. Much needed. As you pointed out, with the drastic dropping of federal mineral royalties and ad valorem taxes, school stand to suffer the most.

  4. A valuable adjunct to Andrew’s analysis would be to project the continued drop in coal revenue that will occur as generating facilities all over the country are de-commissioned. The data is readily available since most power generation facilities using coal already have a projected year in which they are programmed for retirement and the information is available from the Energy Information Administration. It is also known which of these plants use Powder River coal and the respective amounts each of them use annually.

    The result of this exercise would be an accurate forecast the of the year-by-year drop in revenue that the state of Wyoming will experience in the future – similar to Mr. Graham’s analysis of what has already happened during the last few years.

  5. How the State’s lack of forward planning plus the legislature’s ‘ friends with benfits’ relationship with mineral and energy corporations has delivered a double whammy to Wyoming : since the latest coal bust began in 2015, roughly 1,000 mining jobs have disappeared. Including jobs directly dependent on mining jobs, perhaps 3500 workers have lost their jobs in four years, with ripple effects throughout the Wyoming retail and services sectors. To scale, that is the equivalent of ten Wal-Mart stores’ employee head counts or ten good sized school districts staffing. ( Just jobs count, not total wages generated for comparison )

    Meanwhile, one state south opf here, Colorado added 18,000 new jobs in Alternative Energy…wind and solar. Inf act, since the financial crash of 2008-2009 the State of Colorado has added 35,000 new jobs in the rapidly growing alternative energy sector.

    How many Green Energy jobs did Wyoming add in that same time frame ? A few dozen ? I really don’t know, but someone does. Please tell us. I’m sure it’s a fraction of what Colorado ramped up.

    The most disturbing aspect of Wyoming’s latest energy/mineral bust to me is that the State leadership and especially the Legislature has actually gone sharply negative on Alternative Energy as the Fossil Fuel hegemony declines sharply . The Governor’s office and our Congressional delegation keep beating the drum of hydrocarbons , singing the praises of fossil fuels out of one side of their mouth while badmouthing and blustering against green energy out the other side of the same mouths. Wyoming loses on both counts. Fossil fuels are going away because of global market changes, not because Obama’s EPA and anything Obama targetted our coal. Au contraire, natural gas boomed. There was no War On Coal declared by the Obama admin. The energy industry itself moved the goal posts and changed the game. Wyoming is in denial about all that , and to this day makes sport of blaming Obama for coal’s demise ( and everything else ). Seriously , the Legislature was downright averse to green energy , trying to tax wind power and other things to dissuade wind and solar in a vainglorious attempt to keep propping up carbon.

    MEMO to Wyoming leadership : we cannot expect to mine and sell coal to a global market that does not want it. So quit whining about mining and roll out a progressive green energy development plan and a policy that reflects the 21st century. Losing our eminence as the nation’s leading Fossil Fuel energy producing state hurts. The insult to that injury comes in realizing Wyoming is now at the back of the pack in Alternative Energy. We should have been in lockstep with Colorado in ramping up noncarbon energy. We’ve known that for twenty years, but our damnfool cowboy pride and blind obediance to the Hydrocarbon Hegemony the State is in bed with have been harmful. We made a big mistake, choosing to kick a down and dying horse named King Coal when we should’ve been investing in Green Energy.

    It’s not too late . A total reformation of Wyoming’s energy policy and tax policies has risen to the level of greatest urgency. Sorry to append that tourism and cattle will not compensate for the loss of coal money.

    1. Above are two good “adjunct analyses” from Buffalo and Cody observers – about projected/predicted coal sale declines, and Wyoming failing to keep up with Colorado’s growth in alternative energy …