Select committee helped restore integrity to Wyo mineral tax system

Back in September, with the coal industry’s future dimming, Cloud Peak Energy in bankruptcy and Blackjewel months into a sudden and chaotic closure, the legislative Management Council established the Select Committee on Coal/Mineral Bankruptcies. 

Now that the 2020 budget session is in the rearview, it makes sense to ask: How’d the newly formed panel do?

We learned at its first meeting in mid-October that the committee had a multifaceted charter. One purpose was to study and craft new laws to minimize the human impacts of job layoffs, unpaid wages, payroll taxes, insurance and retirement benefits.

Another goal was to develop a protocol that would enhance the likelihood of collecting amounts due to employees and state and local governments in the event of company bankruptcies. 

Finally the committee sought to reduce the frequency of delinquent ad valorem or gross product taxes and to improve cooperation between the state and counties in mitigating tax delinquencies and bankruptcies. Overall the collection rate of ad valorem taxes has been quite high over time, but the rate of delinquencies has been increasing in recent years. Committee testimony indicated that more than $130 million in ad valorem taxes are now delinquent, affecting the majority of Wyoming counties.

The select committee had a short, three-month window of time to structure draft bills that could be managed in a 24-day budget session. They met three times and produced a total of eight bills for consideration by the legislature. A pretty impressive feat. 

Among all the bills considered during the session, this set was arguably the most important for the long- and short-run fiscal health of Wyoming. Four of the bills passed; four did not. The committee’s batting average was better than four-of-eight might suggest, however, as there was some duplicative overlap among the original eight. 

Two bills focused on labor and wage considerations. These were triggered by the abrupt layoffs of Blackjewel and the associated breaches of compensation. House Bill 132 – Unpaid wage claim amendments passed with little controversy. The bill provides that when back wages arise because of workers being prevented from working, employees have recourse to recover these back payments with interest. Further, it specifies that any  employee action taken to recover unpaid wages shall not be retaliated against by the employer. Finally, it provides a path for the Department of Workforce Services to initiate a court action to recover wages that are due.

The passage of HB-132 largely made House Bill 131, Wage claim assignment and investigations unnecessary, so it didn’t advance. 

House Bill 184 – Performance bonding requirements would have required certain non-resident employers to post surety bonds to guarantee wage payments. The select committee was split on this one from the outset and it never made it past a committee hearing during the session. 

House Bill 196 – transfer of mineral-interests tax obligations would have required the Wyoming Oil and Gas Conservation Commission to assure that all ad valorem taxes be brought up to date and paid at the time of a sale or otherwise transfer of a mineral interest. This bill also did not move beyond introduction — likely because a separate Senate measure that  accomplished much the same thing did progress. 

House B 182 – Tax lien enforcement and Senate File 139 -Tax lien enforcement 2 were actually identical bills, otherwise known as mirror bills. There are instances when a committee or even individual legislators have concerns as to whether a measure will clear the high-bar for introduction during a budget session. A mirror bill is used as an insurance policy of sorts to help assure a measure gets heard. In this instance, both bills passed introduction, so the version that recorded the strongest majority on introduction was chosen by floor managers to proceed in the process. 

That was SF 139, and its ultimate passage is significant for Wyoming’s future because it helps assure first lien priority for the state or its counties when mineral companies fail or are sold. An earlier legislature’s decision to cede lien superiority to company creditors — essentially agreeing to put the state near the back of the line when it came to collect in bankruptcies —  was a mistake that has proven expensive and extremely difficult to undo. 

The attempt to reverse this earlier statute began in earnest five years ago. Moderate progress was made in the 2019 session with a bill that established county lien superiority for minerals. However this superiority was subject to certain prior liens and also contained a phase-in window. Senate File 139 eliminated the phase-period and the prior lien exception. 

The new legislation also relieves county treasures of certain responsibilities and provides direction that county treasurers follow in foreclosing a tax lien. There are also taxpayer rights and conditions in the bill regarding their ability to satisfy liens. Finally, costs of recovering taxes subject to the lien are reimbursable from the delinquent taxpayer upon foreclosure.  

This new law will do much in the future to protect state and local governments in Wyoming when mineral companies are sold or enter bankruptcy protection. Yet there are no guarantees we will be protected when companies go through the federal bankruptcy process.

House Bill 181 – Attorney general authority in bankruptcy action is another bill that passed and will bring future benefits to counties dealing with mineral bankruptcies and associated delinquencies of ad valorem taxes. This bill clarifies that the office of the state attorney general has the authority to assist or act on behalf of a county in the event of delinquent taxes that arise because of bankruptcy. It provides for a sharing of the costs whenever this assistance is provided. Among all of the select committee bills, this was the least controversial, having no amendments through the all readings and only four negative votes during the entire process. 

This legislation was especially critical for county governments, who at this point are the sole entities responsible for seeking taxes due in the case of bankruptcy. Counties in the past have often dealt with extremely expensive litigation in these matters, despite the bulk of any taxes recovered being applied to the state education foundation program. 

The most significant bill brought forward by the select committee — and perhaps the most controversial — provides for monthly payments of ad valorem taxes by mineral producers. The controversy is evidenced by the fact that 14 amendments were brought forth during various readings of House Bill 159 – Monthly payment of ad valorem tax on mineral production in both chambers. The major overriding challenge concerned the transition period between the old and new schedules. If, as originally written, taxes on new production were due monthly, yet taxes on previous production held to the current 18-month lag, there would be a year and a half window during which producers would have to satisfy two tax-bills simultaneously. This double-payment span of time presents cash flow difficulties to mineral taxpayers and an agreeable solution was elusive. 

The House version incorporated a tax credit incentive as an option along with payment spans of up to six years. The Senate version did not contain a tax credit incentive, but essentially mitigated the double payment issue by allowing a month of the back taxes from the catch-up period to be paid in each successive year until payment has been made in full or until the Legislature revises the payment plan. The Senate version of the repayment schedule ultimately prevailed in the final version of the bill.

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The conversion from semiannual back payments to monthly payments has been tackled unsuccessfully over recent years. Legislation such as contained in HB 159 is never easy to enact. In the case of this bill, the cash flow difficulty posed the stumbling block that has tripped up similar measures since 2015.

When one looks at the overall accomplishment of the Select Committee on Coal/Mineral Bankruptcies during the 2020 session it is apparent that the bills brought forth were well-focused and zeroed in on the main problems. Few select committees have been so effective and successful. 

Given that the committee only had three months to come to a consensus in drafting bills that would have a good chance of passage, this group did what was asked of them. Like all complex legislation, there are sure to be adjustments and amendments that will further fine-tune the ad valorem taxation policy for Wyoming mineral producers. The most important observation about the committee and their work is that they took seriously the need to restore integrity to the Wyoming mineral tax system.