An interview with Dave Freudenthal on his new book exploring the state’s dependence on energy
A book written by Former Wyoming Democratic Governor Dave Freudenthal that was released late last year details the history of Wyoming’s tax structure and how the state’s economy has become so dependent on mineral extraction and the fossil fuel industry. Wyoming Public Radio’s Hugh Cook spoke with Freudenthal about his thoughts on the state’s current situation and its future.
Editor’s note: This story has been lightly edited for clarity.
Hugh Cook: Your book is titled “Wyoming: The Paradox of Plenty.” Why did you choose this title?
Dave Freudenthal: Because I was an economics major as an undergrad and was exposed to various sorts of theories of how economies and states develop. And the primary characteristic of the paradox of plenty is a huge influx of outside capital to develop a resource and have it processed and utilized outside of that region. It has some characteristics that fit Wyoming, and then it has one significant characteristic because I talked about in the book, it doesn't fit Wyoming, but you need a construct in order to talk about ideas, and that was the construct that I chose.
HC: What led you to write the book?
DF: It was kind of a two-step process. Thinking about it came about literally from a friend of mine. We were in one of those discussions during COVID and he and his wife and family were within what, our pod, I guess is what they called them at the time, got into discussion. He's a successful businessman here in Cheyenne [and] want[ed] to know how we got so hooked on minerals. And I, of course, responded that it was the passage of the severance tax in 1969. And then I got to thinking that that's kind of a flip answer, so I set about finding out how it really happened and that's what led me to do the research. The writing of the book came a little later in the sense that I found some things surprising in the course of the research and thought, ‘You know, I think I'm going to write this up.’ Writing it up wasn't too bad. The editing process is a bit painful in that you got to find all the footnotes and you got to get it written right and thanks to the editor, a lot of that happened.
HC: In the book, you discuss the history of the state's tax system from the territorial era through the 1980s. Severance taxes have been a major part of the equation for years, and Wyoming is in a fairly unique position because of them.
DF: That was one of the things that I found interesting in the research was that our founding fathers, the original tax structure was built around property taxes, including homes and residences and agricultural operations and such weird things as pocket watches and whether you had a gas stove. And so what happened is that the premise was that all property would be valued at its full market value and taxed accordingly. And that's why if you look at the [state] constitution, counties are limited to 12 mils because the idea was 12 mils applied to fair market value… the property would be all it was necessary. Well, starting within 10 years, more or less, of statehood, we created a de facto system where instead of valuing all property at 100 percent of its fair market value, we started reducing the taxes applied to everything. But minerals retained that position of being taxed at 100 percent of fair market value. And then without benefit of statute or without benefit of constitutional change from what the founding fathers envisioned, the policy became just a quiet move toward houses. But then we get the severance taxes. Most property in Wyoming was probably being valued at, I don't know, 20 [or] 25 percent of its fair market value, and so the state property tax didn't generate the kind of money that it would have otherwise. And that's why I think they [the state] went to a severance tax, but the point that I'm trying to make is look, it wasn't the passage of the severance tax in 1969 that made us so dependent on minerals, it was that we reduced the tax without benefit of law on everything else and left minerals as the sort of the mainstay. And the reason we could do that was we had growing oil and gas production in the first half of the last century that allowed that to happen. And if you look, we passed the sales tax in 1935, largely in response to the fact that property had been devalued and you were in the Depression. And before that passage of the sales tax, you'd have a statewide tax on property to support [the] state government. The original theory of the founding fathers is that most of the money to support [the] government would go to the counties and to support government services, would go to the counties, and the state would be a much smaller player than it's turned out to be. Once we passed the severance tax in 1969, there has never been a statewide mil levy, statewide tax applied to property for the support of state government.
HC: In the book, you challenged the notion of Wyoming as an independent state, talking about the dependence on the mineral and fossil fuel sector overall.
DF: And I think that it's true. We see ourselves as self-reliant, independent and Westerners with this sort of, ‘We carry our own weight and we pay our own bills.’ But that's not true in Wyoming and the taxpayers and the Division of Economic Research at the state have documented that we're paying roughly 20 [to] 22 percent of the cost of all of the services that we obtained as citizens. The rest of it is paid for by mineral severance taxes, federal money that's diverted to the state for various purposes, as well as the interest income off of the permanent mineral trust fund. So this notion that 'I'm carrying my own weight and paying my own way,' it's just not true about us as individuals.
HC: In the book, you also mentioned the future of Wyoming and the notion that the state needs to find a way not only to diversify its economy but to rely less on minerals and the fossil fuel industry, just generally speaking. What would you say needs to happen to make that more of a reality?
DF: I need to pay more taxes. [It’s] not something I want to do but I need to begin to live up to the cowboy mythology that we have and free up some of those resources that we're getting from the mineral sector and start investing in everything from livable communities to [the] internet. If you look at Gillette, the great thing about Gillette is they got a great workforce. It's a great community but the real plus it has is rail access, and we should be putting money behind efforts to help Gillette figure out what they can do next. There's always going to be some coal production, but it's hard. We're not going to get back to 488 million tones [of coal mined in the Powder River Basin] but there's always going to be some. But you're going to have to come up with other activities and we should be, to some degree. We're going to have to pay for some of that infrastructure ourselves. I don't like the idea of paying more taxes, but I also don't like the idea that all my kids have left because there's not jobs for them.
HC: You also talk about some of the positive aspects, if you will, about the future. One of which is something that you called ‘advanced communication technologies,’ i.e., broadband, things like that. Would you say that is something that the state needs to invest more in for its future?
DF: Absolutely. I mean the thing that has changed over my lifetime is that people can be remote from commercial centers and still be connected and work there. And a lot of those people want to take advantage of this remarkable lifestyle we have in Wyoming. Great people, great scenery, just a wonderful place. But they can only participate if we've really got connectivity. And the connectivity is broadband or whatever the current evolving technology turns out to be, that allows somebody to sit in any place in Wyoming. Particularly, they want to be in places that they like or places that have the recreation that they want and frankly make money out of the larger economy. That connectivity, I think it helps us get away from the fact that we're so far from both the financial and other kinds of markets in terms of distance. And up until now it's been easier to move people to those locations, whereas now I think you can figure out a way to move the intellectual work or the design work or whatever else they're doing to those areas without having to physically move the person and allow the person to enjoy Wyoming.