Tuesday, November 18, 2008

ESPC opposes tax breaks for clean coal plants

Once again Wyoming's "struggling" coal industry seeks to escape paying taxes by convincing our legislators that it needs tax breaks as incentives to develop the new technology that will keep its product viable in a world dealing with global warming and climate change.

The ESPC believes that Big Coal, like other businesses, should not evade its social responsibilities. The state is a great partner for the coal companies, and is actively engaged in developing carbon sequestration laws that will promote the viability of fossil fuels like coal. And Wyoming has committed huge sums of money to new research at the University of Wyoming to find ways to keep fossil fuels in the nation's energy mix for the forseeable future.

That partnership should continue. But the industry should not be allowed to pick the state's pocket by taking away the tax revenues it needs.

You can see the news release we issued Monday by going here.

Here's a copy of a memo sent to the Legislature's Joint Minerals Committee offering our comments on legislation the committee will consider tomorrow, Nov. 19.

TO: Members of the Joint Interim Minerals, Business and Economic Development Committee
FROM: Sarah Gorin and Dan Neal, Equality State Policy Center

We regret that, due to conflicts with other events, we will be unable to attend your meeting in Casper on November 19. We are sending this message to:

(a) express support for the continuation of the Clean Coal Task Force (09 LSO-0070.W7 – Clean coal task force); and

(b) encourage you to approach the three proposed tax exemption bills in a businesslike manner. These proposed bills include:
  1. 09LSO-0262.W3 – Clean coal facility-tax exemption;
  2. 09LSO-0263.W3 – Clean coal facility-coal taxation;
  3. and 09LSO-0264.W1 – Clean coal facility-sales and use taxes) in a businesslike

We agree that the future marketability of Wyoming coal is a critical issue, primarily because coal production currently provides substantial revenues to state and local governments. The hope is that development of clean coal will extend Wyoming coal mining jobs and coal-generated revenues long into the future.

But therein lies the logical problem with the proposed tax exemptions. If clean coal facilities are built but not taxed, and coal consumed in these facilities is produced but not taxed, Wyoming largely has lost the benefit of moving to clean coal. Since Wyoming does not have an income tax, even the creation of additional coal-based jobs will not have a significant effect on restoring the tax base.

Most of the public debate on the development of clean coal technologies has focused on the need for investment, and Wyoming has taken steps in this direction by establishing the School of Energy Resources and the Clean Coal Task Force, which help attract funds for clean coal research.

Investment is not the same as granting tax exemptions. Investment requires thoughtful evaluation of alternatives, weighing the likelihood of success of various avenues of research and development. The recipients of the investment are accountable to the investors for performance. This is why the Clean Coal Task Force is the way to go.

Tax exemptions, on the other hand, compel other taxpayers to invest in the exempt activity whether they choose to or not. A tax exemption is a governmental expenditure just as surely as an appropriation, because it “spends” revenue either by giving it up (along with the programs or services the revenue would have funded) or by shifting taxes to other taxpayers. This type of involuntary investment is yet another example of the recently prevalent practice of socializing risk while privatizing profit.

Moreover, the recipient of the tax exemption has no accountability to the other taxpayer/investors. What if equipment is purchased, not taxed, and left to sit? What if a plant is partially built and then put on hold or abandoned? Bad experiences in other states have led to the creation of so-called “clawbacks” and other attempts to recover lost tax revenues when the recipient of a tax break fails to deliver.

The proposed tax exemptions also beg the question of who will bear the costs of impact litigation if clean coal plants are built, since the legislation clearly anticipates that these will be large industrial facilities.

If no sales and use taxes are paid, how will local governments fund the services needed to serve the expanded population?

If no property taxes are paid, what will fund the schools? (Remember that fifteen years is

longer than one class’s journey through its entire K-12 education.)

If no severance taxes are paid on the coal consumed, what replaces the revenues to the earmarked accounts, most of which provide essential services?

One answer could be that the Industrial Siting Council will order the applicant to supply funding to meet these needs; historically, taxes paid (or to be paid) by the applicant have been taken into consideration when calculating impact mitigation payments. In the absence of tax payments, presumably impact mitigation payments would be proportionately higher, in which case one is left wondering why the tax structure was not left in place to begin with.

Alternatively, there is the unpleasant and irresponsible possibility of simply leaving local governments and school districts high and dry.

A businesslike approach to income and expenditures would entail a careful evaluation of expected benefits (and the likelihood of achieving those benefits) before foregoing income. In this particular case, taxes on nonrenewable resources are Wyoming’s bridge to the future, a future with coal we still can use along with a more diversified energy portfolio.

We urge you to hesitate before burning that bridge. We are unaware of any independent assessments suggesting that clean coal development will be affected -- much less driven -- by state tax policies. We therefore suggest that before taking action on these potentially substantial tax exemptions, the committee secure the services of a qualified, financially unrelated third party to assess developments in the clean coal industry, investigate and evaluate the impact of Wyoming state taxes on development decisions, estimate the revenue losses if tax exemptions are granted, and propose alternative sources of revenue.

Thank you for this opportunity to comment.

(Note: Formatting of this memo was adjusted to make it easier to read on this blog.)