Who Makes More Money On A Ton Of Wyoming Coal, The Coal Companies Or The Government?
You guessed it. Last year, Wyoming state and local governments made more than five times as much money on a ton of Wyoming coal than did Arch Coal, Wyoming’s second largest coal producer. According to its 2014 annual Form 10K filed with the Securities and Exchange Commission, Arch Coal made just 28 cents of gross operating margin on each ton of coal at its Black Thunder mine in Campbell County. (That was better than in Appalachia, where Arch Coal’s mines lost $8.82 per ton).
In contrast to the $0.28 operating margin for Arch Coal, Wyoming state and local governments made approximately $1.63 on every ton of coal.
How does the government do that? Coal gets taxed twice. First, there is a 7% state severance tax on surface coal (a point higher than the 6% severance tax on oil and gas and three points higher than the 4% rate for trona). Then the county levies an approximate 6% additional tax based upon 100% of the value of the coal mined. At a cost of production price of $12.58 (Arch Coal’s 2014 average for its Black Thunder mine), the state and county governments get $1.63 on every ton of coal.
Wyoming’s constitution sets a floor severance tax rate of 1.5% on coal, oil and gas, the proceeds of which go to the Permanent Mineral Trust Fund (PMTF). Taxing coal above that is discretionary with the Legislature. As state government has grown, so has the severance tax rate, from 1.5% in 1974 to 7% today. According to the latest financial report from the Wyoming State Treasurer’s office, the PMTF is currently worth about $ 7 billion, and is on pace to generate $140 million of income this fiscal year. Over the years, coal has generated about half of the money in the PMTF, so the coal industry will effectively contribute $70 million to the State this year from investment on taxes that it paid in prior years.
Back to Arch Coal, which is bleeding cash at the rate of about $250 million per year. Wall Street has been shorting Arch Coal stock, which trades today for about $1 per share, down from a high of approximately $36 four years ago.
Will Arch Coal file for bankruptcy? With cash on hand of about $690 million, it can withstand losses for a couple more years. After that, if taxes remain high and coal prices low, Arch Coal may have few options. That would be bad, not just for the state’s coffers, but also for the thousands of mine workers, their families, and the rest of the community that depends on them.
As Wyoming’s Task Force on Mineral Taxes conducts meetings around the state this summer, it should be careful that we not kill the golden goose.
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