October 16, 2019 - Members of the Wyoming Legislature will try again to require mineral production taxes be paid to counties on a monthly basis.

The Select Committee on Coal/Mineral Bankruptcies, co-chaired by Rep. Eric Barlow, R-Gillette, and Sen. Drew Perkins, R-Casper, directed legislative staff to draft a bill that would require mineral production companies to pay their ad valorem taxes every month. They’re now allowed to pay in six-month lump sums 18 months after the fact.

Other Gillette Republican lawmakers on the committee include Sen. Michael Von Flatern and Rep. Scott Clem.

The bill will be opposed by those in coal, oil and gas, as was evident in the committee’s meeting Monday morning.

The current system of tax payment works, said Travis Deti, executive director of the Wyoming Mining Association, and the “vast majority” of coal producers pay their taxes on time.

He called the proposed change a reaction to “an extremely minor percentage of delinquent filings.”

“It’s mistaken to believe that a shift to monthly payments will alleviate this issue,” Deti said, adding that the legislation is “not a solution to the problem.”

The industry’s opposition comes down to a cash flow issue. The transition to monthly payments would create an 18-month period when companies would be required to essentially make double payments. That’s because when the new monthly schedule will be in effect, the taxes for the previous 18 months still haven’t been collected.

Pete Obermueller, president of the Petroleum Association of Wyoming, said the change would be punitive, but it “won’t be punitive against the companies that the commissioners are mad at.”

He said it would hurt the “good-faith” companies, the ones that aren’t behind on their taxes.

“The operators who will incur the biggest cash flow hits are the very ones that have been here for decades and are deeply invested and committed to Wyoming for the long haul,” Deti said. “Good operators should not be punished for the actions of bad operators.”

Commissioners and legislators have heard this argument before. Campbell County Commission Chairman Rusty Bell has watched the debate go on for the almost six years he has been on the commission.

He said he’s “hardened” on the monthly payment issue in the last few years, particularly because some of the companies that made the punitive argument are the same ones that have now filed for bankruptcy and “chose not to pay.”

Of the millions of dollars in delinquent ad valorem taxes Campbell County is owed, 73% passes through to the state to be distributed to Wyoming school districts, Bell said.

The monthly payment schedule bill, if signed into law, would give school districts a one-time payment of $630 million. Other entities, such as counties and special districts, would receive about $285 million, said Josh Richards, senior staff attorney for the Legislative Service Office.

It’s been referred to as a “windfall,” but someone has to pay that, Obermueller said, and in this case, that someone is the energy industry.

The coal, oil and gas industries are in a “very tough operating environment,” he said, and it’s critical to them to have “a degree of certainty.”

Switching to monthly payments would only make the future more uncertain, Deti said.

“Gas prices are dismal,” Obermueller said, and oil prices are at $52 a barrel.

“The attitude is that every single well produces an unbelievable amount of money and that simply isn’t true,” he said.

The last thing the counties and state want to do is force already struggling companies into bankruptcy with a switch to monthly payments, Obermueller said.

“If the state makes a policy choice that accelerates that demise, that would be a shame,” he said.

In December 2018, the Joint Revenue Committee voted down a proposed bill that would have required monthly payment of production taxes.

In 2016, House Bill 64 was introduced in the legislative session, but it spent more than two weeks unassigned to a committee and was eventually withdrawn. If it had passed, it would have taken effect this year in January.

The bill that is being drafted will be similar to the 2016 bill.

Bell said changing to monthly payments will “remedy most of the other issues we’ve run into” when energy companies shut down or file for bankruptcy, leaving at least 18 months worth of ad valorem taxes unpaid.

“It’s going take a little bit of getting used to for the companies, but ultimately, it’s the best solution going forward,” he said.

Jeff Leisemer, an attorney for Campbell County Commission during multiple bankruptcy proceedings, said the county is at a disadvantage when it comes to collecting its debts during bankruptcy cases. Current policy makes it difficult for a county to perfect its liens, or obtain the authority to seize a debtor’s property. If a bankrupt company does not file for delinquency with a county before it goes bankrupt, a county’s lien is at risk of not being honored. In other words, a coal company can argue that a lien was never attached to its coal property.

A new law passed this year aims to change that loophole. The legislation perfects a county’s lien as soon as extraction of coal occurs, opening up more options for a county (the creditors) to pursue unpaid tax money from a company. But the new law does not go into effect until January 2021, leaving Leisemer worried.

“I think (Senate File 118) is an important change and it will be helpful for Jan. 1, 2021,” Leisemer said. “The problem is, as of right now, for any bankruptcy that is filed within the next 15 months or so, we’re still under a different statutory construct that requires the county to file the notice of lien in order to perfect it ... It really shouldn’t be that way.”

“Counties of Wyoming need and deserve clarity on this subject,” he said.