When Governor Gordon spoke these words in a post legislative session interview, he followed a long line of people to recognize the problem. Wyoming lives and dies by the mineral industry. What remains to be seen is if the new Governor can help us travel a path to that sustainable future we claim to crave but so far lack the fortitude necessary to take the first step. In another, more recent interview, the Governor went on to say we need to be “realistic and mature” about Wyoming’s reliance on mineral revenue. Governor Gordon is correct, and you can count me among the hopeful about his leadership in this regard.
The obstacles are significant. Debate over oil and gas issues at the legislature this year turned a spotlight on the perverse incentives policy makers, regulators, and industry alike must contend with when considering Wyoming’s tax laws and regulatory environment. If we are serious about correcting course, we must be willing to name and confront these perverse incentives.
Oil and gas, even in times of marginal prices, provides so much revenue to Wyoming that making difficult decisions about the sustainability of our tax code becomes all but impossible. In 2017 the oil and gas industry supplied over $1.1 billion in revenue to Wyoming. Meanwhile, the state’s annual general fund budget was just north of $1.5 billion. The comparison is simplistic given the state’s many revenue buckets filled by oil and gas. Still, those two numbers side by side is enough to scare the daylights out of policy makers whenever tax policy is mentioned above a whisper. If oil and gas were to crash hard, even the most ardent “government-has-a-spending-problem” devotee could not cut their way out of the crisis, and the most strident “keep-it-in-the-ground” activist would notice how much the industry provides.
This is precisely the problem. We are so dependent on oil and gas revenue that even when our legislature’s own studies find that investing in the natural resource sector using smart tax policy would likely return more – not less – revenue over the long term, we shy away because the risk of “losing” even one dollar in the short term is too great. At the very same time the tax code encourages complacency because, for the time being, Wyoming’s needs are met by minerals. The dual message is crippling, “Hey legislature,” we collectively cry, “Don’t reduce the burden on minerals even if Wyoming is uncompetitive, but don’t raise revenue from anywhere else either.” As the Governor says, it is not sustainable.
Wrong incentives are not unique to our tax code. The revenue necessary to educate our children, put police on the street, and even fund conservation measures is bolstered – no matter the tax code – by a regulatory system that incentivizes operators of every size to produce Wyoming’s abundant resources. Unfortunately, Wyoming’s regulations have not kept pace with industry’s technological advances, and operators are forced to shove the round peg of horizontal drilling into the square hole of regulations meant for vertical wells.
Some have argued that operators are intentionally taking advantage of loopholes to harm landowners. There are no loopholes. Operators abide by the State’s established rules or pay a steep penalty for ignoring them. More importantly, the oil and gas industry has paid tens of millions of dollars to Wyoming’s mostly-agriculture-based landowners over the years to access land for development, often keeping family ranches viable for generations in the process. It is not loopholes or moral deficiencies at issue, it is the rules themselves. Like the tax code, they create the wrong incentives. Rather than vilify operators for following the rules, let’s think critically about how to change the rules.
Like the tax code, rules can and should be designed and consistently applied to promote the right incentives. Incentives like prudent production, market competitiveness, strong landowner relationships and fairness under the law to surface and mineral property owners alike are just a few. Throughout this year, the Petroleum Association of Wyoming will offer meaningful recommendations to promote these and other goals. We will seek ways to create a more fair and sustainable tax code. We look forward to being part of Governor Gordon’s realistic and mature discussion.