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Legislators on dwindling state revenues: ‘It’s real, it’s bad’

in Energy/News/Taxes
Silhouette of a Pump Jack
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By Ike Fredregill, Cowboy State Daily

As coal, oil and natural gas revenues decline, state legislators could have some hard decisions ahead, according to information generated by a strategic planning effort created by Gov. Mark Gordon. 

Dubbed “Power Wyoming,” the planning effort forecasts several scenarios for mineral-based state revenue streams during the next five years, all of which predict a deficit in coming years. 

The information compiled by Power Wyoming was presented to the Wyoming Legislature’s Joint Revenue Committee on Nov. 11. 

“The best projections in this model are very unlikely, and the worst are the most likely,” said Sen. Cale Case, R-Lander, the Senate committee’s chair. “That’s very scary.”

Case worked on Power Wyoming with Rep. Dan Zwonitzer, R-Cheyenne, chairman of the House Revenue Committee. Also on the team were members of the executive branch and economists familiar with the state’s energy sector such as Rob Godby, the University of Wyoming director for Energy Economics and Public Policies Center and a College of Business associate professor. 

Zwonitzer said the planning effort is the starting point to prepare for diminishing mineral revenues. 

“Power Wyoming is just the first step of saying, ‘Here’s what’s going to happen to Wyoming,’” he said. “The group was formed to get the message out there: ’It’s real, and it’s bad.’”

Renny MacKay, Gordon’s policy adviser, said Power Wyoming was not established to be a group of individuals working on potential solutions to the state’s revenue problems, but rather a group of experts working to gather to analyze data.

“This is a cone of different scenarios for both revenue and energy production,” MacKay said.

In its current iteration, Power Wyoming provides insight by compiling information from the state’s Consensus Revenue Estimating Group and the U.S. Energy Information Administration, among others.   

“Energy production is declining … and if there is production decline, the traditional jobs we have in Wyoming would be impacted,” MacKay said. “Information gives us power. The more we look at it, the more we talk about it, we can figure out what our opportunities are as a state.”

Worst case scenarios

While the coal industry’s struggles are being felt across the state, Case said Power Wyoming illuminated potential problems with the natural gas sector as well.

“I did not realize the issues with natural gas were as serious as they are,” he said. “Everybody else is thinking natural gas is doing great, and it’s not.”

The planning effort’s initial simulation results highlight some scenarios where the state’s total mineral revenue drops by 10 percent as early as 2020-2022 before a potential partial recovery by 2024. Some scenarios show a full recovery to expansion in revenues, but Power Wyoming reports they are the least likely cases within the current market conditions and expectations.

Most scenarios predicted a decrease in both Wyoming’s total employment and population, but in the worst case scenarios, the state’s total employment could decrease by about 20,000 jobs by 2024, followed by a similar decrease in population.

“In the next five years, there’s no way to absorb those (lost) jobs,” Zwonitzer said. “That means we’ll either have to have an increase in taxes, or a decrease in government services.”

In the worst case scenarios, he said the state would most likely need to pursue both. 

“We’ve lived a certain way in this state for 100 years with minerals paying the taxes,” Zwonitzer said. “That major revenue source is going away. So what does that look like for our future, and what do we want to do about it?”

Unreliable oil

Some of the scenarios, including those in the best case category, relied heavily on increased oil production balancing decreased coal and natural gas production. But Case warned against putting faith in the oil market.

“I think oil is very susceptible to environmental and carbon risk,” he said. “Changes in policy from Washington, D.C., and from other states could make it impossible to grow petroleum.”

A low-carbon policy consideration was also provided for the Revenue Committee as part of the Power Wyoming data package. Case said the presentation offered a more realistic outlook of oil than the initial simulation results put together by Godby.

In the policy consideration, Shell Global estimates a high usage of liquid hydrocarbon fuels, such as gasoline, in 2020 by about 25 million barrels a day. After the peak, however, the oil company predicts a gradual decrease down to 10 million barrels a day in 2060 and about 2 million barrels in 2100 as part of its strategy to comply with the Paris Climate Accord.

Most scenarios presented by Power Wyoming indicate the mineral sector is going to take a significant hit in the next five years, but even if the best case scenarios come true, Case said the future of energy is moving away from Wyoming’s traditional mineral offerings.

“This will tell you that the bad times are here,” Case said. “This is not just a tool for the Revenue Committee, but it’s also a tool for us. If you’re an employee in the coal industry, it’s probably time for you to get your own house in order.”

MacKay said Gordon is already working on the next steps of the planning effort. 

“We are bringing folks from the private industry now,” he explained. “Power Wyoming will definitely stick around for the foreseeable future.”

Losing coal could cost Wyoming dearly, take decades to recalibrate labor force

in Energy/Jobs/News
coal industry labor force
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By Ike Fredregill, Cowboy State Daily

Wyoming’s coal market has suffered devastating layoffs and mine closures in recent years, and by all accounts, the industry is shrinking. 

But, what if it dried up overnight? 

“If you were to instantly remove the coal industry, it would immediately cause job losses across the state,” said Robert Godby, the University of Wyoming director for Energy Economics and Public Policies Center and college of business associate professor. “You’re looking at about 5,000 miners directly involved in the coal industry. If you were to lose that all at once, people would feel that.”

It’s not just the miners, either. Godby said a sizable chunk of Wyoming’s labor market is reliant on coal.

“Approximately, there’s about 10,000 jobs directly or indirectly related to the coal industry — mining, electricity generation, railroads, plus all the businesses reliant on those workers’ wages,” he explained. “As coal declines in the state, we’ll have to transition those workers to other industries. And, there will not be enough jobs to absorb those workers.”

The good news, Godby said, is coal won’t disappear that quickly, but it could taper off sooner than Wyoming is prepared for. 

“In 2015, there were almost 5,600 miners in Powder River Basin, now there’s 4,400,” he said. “There are 12 mines up there that produce about 40 percent of the country’s coal. We could be below half of what we were producing in 2009 by the mid-2020s.”

High-paying careers

Data from the Department of Wyoming Workforce Services indicates once these workers lose gainful employment, many leave the state to work in the field elsewhere.

But, across the nation, there are fewer jobs for coal workers and retraining for other careers can mean starting all over.

“Those jobs pay really well,” Godby said. “It’s not only difficult to absorb and replace all those jobs, but you won’t be able to find jobs that pay nearly as well.” 

The average income for a coal industry employee is about $80,000 a year, he said. 

“The people who stay, if those jobs were to disappear, may have to do something else,” Godby said. “Many of those workers may have to accept the fact that unless they go back to school, retrain or re-skill, they won’t find jobs that pay as well.”

When a layoff occurs in any industry, Workforce Services deploys a rapid response team, agency spokesperson Ty Stockton said.

“In Wyoming, we don’t have very many businesses that have 600 employees that could get laid off,” Stockton explained. “We don’t have a real threshold for deploying the team. When Laramie County Community College (LCCC) laid off 17 employees in 2016, they went in for that.”

A team was also sent out in 2016 when about 500 workers were laid off from the North Antelope Rochelle and Black Thunder mines in Campbell County. More recently, Workforce Services deployed a rapid response team to Gillette when Blackjewel, LLC, abruptly laid off about 600 workers at the Belle Ayr and Eagle Butte mines in Campbell County.

“Rapid response is about giving those folks options and information,” Stockton said. “If they don’t have information, there’s nothing they can do.”

Teams can include mental health counselors, Wyoming Department of Family Services staff to help families, Wyoming Department of Health staff to help with health insurance questions and Workforce Services employees to discuss unemployment options and help laid off workers start the search for their next job, he said.

‘Generation of pain’

But all of those are stop-gap measures designed to lessen the blow to recently out-of-work families. 

In the long term, Workforce Services also provides funding for a number of vocational rehabilitation programs. 

“We’re trying to keep (the workers) here and give them some options,” Stockton said. 

The agency has access to about $2 million for retraining coal workers through the Partnerships for Opportunity and Workforce Economic Revitalization Grant, aka the POWER Grant.

“The only people eligible for the POWER Grant are the primary industries associated with coal-fired power plants and the coal mines,” Stockton explained. “But we also have the Workforce Innovation and Opportunity Act, and that covers everybody.” 

Additionally, Workforce Services helps fund some apprenticeship programs through grants. 

“Training an apprentice is expensive,” Stockton said. “The apprenticeship program was set up to help offset those costs, so if you need a few apprentices, you can apply for these grants and have their training paid for through the apprenticeship grant.”

About 80 trainees are currently enrolled in apprenticeship programs for electrical, plumbing and heating and cooling careers at LCCC and Northwest College, he said. 

Even with training programs already in place, Godby said recovery from the loss of an industry as big as coal would take years.

“To transition a labor force to work on anything else is going to take about at least about a decade,” he explained. “If we look at other industries like the furniture industry in the Southeast, soft wood lumber in the Pacific Northwest and the industrial decline in the Midwest, those transitions typically take a generation to overcome. That’s a generation — 20 to 30 years — of pain.”

Hits to coal prompt leaders to look elsewhere for development

in Energy/Economic development/News
As revenue from coal continues to decline, many people around the state are looking at new ways to use the state’s rich resource and think outside of the coal box for future portfolio diversification.
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By Seneca Flowers, Cowboy State Daily

As revenue from coal continues to decline, many people around the state are looking at new ways to use the state’s rich resource and think outside of the coal box for future portfolio diversification.

Many people watching renewable energy expect it to eliminate the need for coal, but they are often not thinking out of the box, according one state representative.

State Rep. Mike Greear, R-Worland, said people are often neglecting coal’s future possibilities. Greear is co-chair of the Legislature’s Minerals, Business and Economic Development Committee. He said the state has many developments it is exploring that still involve coal.

Greear said the University of Wyoming is continuing research on carbon capture sequestration and the utilization of the C02 for enhanced oil recovery. He visited the Petra Nova carbon capture and sequestration facility in Houston and believes Wyoming facilities would be great candidates for the same technology.

The Petra Nova facility is currently the only existing American coal-fired power plant using the carbon recapture technology, according to the U.S. Energy Information Administration. The facility captures the C02 from the plant, liquifies it, and then injects it into oil fields. 

The process causes oil to swell, increasing the oil recovery volume. The process has reduced C02 total emissions at the Petra Nova facility by 33 percent.

Rob Godby, director for the UW’s Center for Energy Economics and Public Policy, said the state is actively helping develop new products for coal to maintain tax revenues. He said once promising technologies become developed, companies are more willing to adopt them. 

He pointed as an example to pipelines in Wyoming delivering C02 from natural sources to enhanced oil recovery operations. If C02 captured from coal-fired plants could be sold, the revenue could offset the overall cost of coal-generated electricity and make it more competitive with natural gas. 

Not a coal problem

However, if the state continues to focus only on coal as a large revenue source, leaders may be missing other great possibilities, according to one person working directly with growing businesses.

Fred Schmechel, assistant director of the Wyoming Technology Business Center, works at the UW in a program that helps businesses grow with a goal of bringing more revenue to the state and employing residents. So when state revenues decline, he sees the results directly in his workplace. Yet, he cautions everyone who considers this a “coal problem.”  

“Wyoming doesn’t have a coal problem,” Schmechel said. “Wyoming has a revenue problem. When we reframe it like that and figure out how we pay for our services, that opens up much broader funnel of possibilities.”

 Schmechel sees diversification of the economy and expansion of revenue streams as vital to the future growth of the state.

“If we keep trying to sell to the same 10 people, none of us are going to get rich, but if we broaden our scope and sell beyond our borders, bring that cash here, that’s where we increase our lot,” Schmechel said.

Schmechel said if wages increase, people can pay more for services and make the state less dependent on coal revenue. He also suggested that getting businesses to use services based in the Cowboy State can help expand revenue streams. 

“If we continue to focus on developing companies that solve problems outside of Wyoming and bring more revenue in, that ultimately brings more cash on hand to play with,” he said.

Greear also thinks the state needs to explore alternatives to coal, but bringing new business to Wyoming is easier said than done.

Severance taxes or bust

“We are going to still be mineral reliant in this state so long as we hold onto our current tax policy,” Greear said. 

He added he does not see the tax policy changing, but that he believes a policy change is needed. 

Change, however, would alter the dynamic and culture of the state. That places Greear at odds with some of his constituents who simply aren’t ready for change. As an elected official, Greear said he must listen to them.   

“Most people understand the changes with society,” Greear said. 

He added it is easier to push those concepts in towns like Laramie and Cheyenne because of their proximity to Fort Collins and Denver, but such changes might not fly in a town like Worland. 

Towns are also dependent on larger populations to attract and sustain more tech and business, leaving smaller towns out of the mix. It also makes it unrealistic to apply a one-size-fits-all approach to the issue, he said.

Holding out for the youth

Schmechel also said he wants to keep young people in the state and create jobs for them so they can to “plant their roots” for future generations.

Schmechel sees economic diversification and development as a way to expand a town’s culture, not diminish it.

“There are lots of people who look at anything that we are doing like this and assume we are losing our culture of Wyoming, and I think those people are mistaken,” Schmechel said.

“We don’t have to be Boulder or San Francisco. We are never going to be those communities. We have found in Laramie, Casper and Sheridan, where we have our three incubators for the WTBC, that each of those communities bring on their own feel.” 

As those communities grow and develop, their core values are moved forward, growing and strengthening their existing culture.

Godby also sees the need for diversification as necessity to independence.

“Do we need to diversify more, yeah,” Godby said. “The problem is when you rely on energy, you are going to be bound by energy cycles that are out of your control and typically driven by things outside of your state.”

The Blackjewel effect

Rick Mansheim, manager of state Workforce Centers in Gillette and Newcastle, has watched the Blackjewel layoffs from the front row. He has a lot of conversations with the workers and businesses around the state. He also believes Wyoming needs more jobs outside of energy.

“The key is diversification,” Mansheim said. “We need to broaden our scope.” 

He believes internships and early career path exposure is key to getting young workers involved in that effort.

Greear believes economic development around the state is productive, but often suffers from growing pains.

“There are some really good economic development organizations within communities,” Greear said. “But it’s kind of the hand your dealt. Cheyenne is going get a lot more looks at things you are not going to get in Worland.”

 He added that state leaders sort of had tunnel vision attracting specific types of businesses that were not fits for every community. 

“What is going to work in Cheyenne is not going to work in the Big Horn Basin,” Greear said. 

ENDOW’s impact across industries

But he believes creative ideas are still important. He cited the Economically Needed Diversity Options for Wyoming — ENDOW — initiative as helping leaders think outside of the box. 

ENDOW was created in 2016 to diversify and expand the state economy.  Greear said ENDOW challenged people to think outside of the box and pursue opportunities such as value-added agriculture, which is changing a product to enhance its value through niche marketing, uniqueness or improving a supply chain.

Schmechel, whose organization assists many businesses with incubator programs and creative solutions, sees both existing and new economic sectors as exciting opportunities for business growth.

He added Wyoming’s vast spaces would be great for autonomous vehicles and drones. In addition, he suggested exploring UW’s cache of intellectual property for application in industries such as agriculture and making sure it is being used correctly.

He said the state’s agriculture community is doing great things and should be expanded upon.

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