Legislators Cycle Through Same Solutions For Ad Valorem Tax Delinquency

Dec 7, 2018

Wyoming's Joint Revenue Committee will not change how ad valorem taxes are collected just yet. The one-time mineral property tax has left counties over $50 million in the hole, as of July, due to systematic issues like an 18-month wait for tax collection and prioritizing creditors in debt collection. An agreeable solution is still out of reach, with legislature cycling through the same options year after year.

Members of the committee sat around a raised crescent-shaped table while hearing testimony about a draft bill. It's one that would accelerate its collection to every month rather than every 18. Larry Wolfe, a former attorney dealing with the minerals' industry at the law firm Holland & Hart, called that 18-month schedule a historical artifact.

"It has always, always disadvantaged the state of Wyoming, the school districts, the counties," Wolfe said.

He said it disadvantages them given ad valorem taxes help fund county services and education. Another advocate for change explained the 18-month collection, rather than monthly, leaves counties vulnerable to companies that abandon the area without paying its taxes.

Naturally, not everyone felt similarly to Wolfe. The Department of Revenue said a transition would cost 5 to 6 million dollars to make the change. Oil, gas, mining and business advocacy groups all argued the move would be unfair to extractive companies. They added it's them providing the most taxes to the state.

"To change the system because of a minor percentage of delinquent filings… it's punitive and it's unfair to the scores of operators that comply and pay on time," said Travis Deti, executive director for the Wyoming Mining Association.

Considering the billions in assessed ad valorem taxes, WMA and the Petroleum Association of Wyoming (PAW), argued delinquency is only a tiny percentage and that companies would have to hire new employees to handle a transition.

One of the committee members, Gillette Senator Jeff Wasserburger, gave an impassioned speech arguing the accelerated collection schedule would cost thousands of jobs; he said two of the four companies he spoke with aren't financially healthy enough to manage the transition. Eventually, the chairman and retiring Buffalo representative Mike Madden called everyone to order.

"Anyway, everybody ready to vote?" Madden asked.

With four ayes and nine nays, "That bill was defeated," Madden said.

"When the bank foreclosed on them that totally shut off my taxes because I was not in the first position," Jensen said.

But the meeting didn't feel quite over. Throughout the testimony, this other idea kept popping up. One that industry, legislators, and environmentalists all seemed to agree on. The concept of putting county governments first in debt collection - they called it giving counties lien superiority. Right now, counties could end up behind several bona fide creditors, receiving cents on the dollar of what's owed after bankruptcies are resolved. Fixing that could solve the problem.

"We would support a lien superiority," said Deti.

"You know, lien superiority does look like the next best solution," said Hesid Brandow, an organizer with the Powder River Basin Resource Council.

Chairman Mike Madden has been a driving force behind solving ad valorem tax delinquency. He said he liked it too.

"This is really something that's laying there for us, and something that would not harm coal companies that are in existence," he said.

But lien superiority is far from a new idea. It failed in the legislature just last year. This year's concept of monthly collection isn't new either. It was introduced and withdrawn the year before. It's all part of the same ongoing cycle.

In 2017, the lien superiority bill failed due to pressure from the Wyoming Banker's Association. Its director Mike Geesey said nothing's changed and he plans to make the same arguments if it comes up again.

"What's gonna happen is some small producer is gonna come in and want to buy some equipment or something and borrow the money to do it." Geesey said, "and the bank's gonna have to say, 'Hey, guess what? It's now a riskier loan. I'm gonna either have to charge you more or I can't do it.' So that's the reason why it's in the place the way it is."

He said monthly collection is the only way to fix it. The Petroleum Association of Wyoming also opposed lien superiority in 2017. Bruce Hinchey, PAW president, said that likely won't change either if a bill came up.

While either side bats options back and forth each year, counties like Sublette in western Wyoming are actively struggling with millions in unpaid ad valorem taxes. Roxanna Jensen is the treasurer there. She recently got back from Houston due to a lawsuit with Vanguard Natural Resources. The company only paid half its taxes before going bankrupt. It's now suing her and several other counties to get the ad valorem tax money back it paid initially.

Jensen said she's not sure if monthly would help her anyway. But she says lien superiority surely would. She remembers a bank foreclosed on a company in Sublette County five or six years ago and she never saw a dime of what was owed.

"When the bank foreclosed on them that totally shut off my taxes because I was not in the first position," Jensen said.

A bill on lien superiority could appear this legislature, though no instructions were given to the Legislative Service Office. It could also become an interim topic next year. But for now, Chairman Madden said the cycle continues.

"We go around in circles." He said, "it could be like a volleyball thing, I guess."

Madden said he hopes everyone remembers their support for lien superiority next time around.