When a company wants to dig for coal in Wyoming, it pays a one-time competitive fee to help its bid stand out from what is usually a crowd of companies vying for the right to mine.
Over the past 10 years, those fees — called coal lease bonuses — have paid for more than $1 billion in school construction around the state.
But if the industry continues its current trend, that money will dry up in 2018.
Back-to-back unsuccessful bids on coal-rich lands resulted in no new coal leases in Wyoming in 2013. As a result, the state’s latest fiscal profile shows coal lease bonus revenue dwindling to zero by 2018.
That has Sen. Bill Landen, R-Casper, concerned.
“As it stands today, it doesn’t look good,” Landen said.
Landen chairs the state Legislature’s Select Committee on School Facilities. Without significant coal leases in the near future, Wyoming must change the way it pays for new schools and school renovations, he said.
Lawmakers say they will resolve the situation. Many point to school funding as a high priority, and several said enough savings likely exist to fund some school improvements until a long-term strategy can be developed.
In 2013, for the first time in Wyoming history, no coal company applied for the right to mine coal on federal land in Wyoming.
At the time, companies said market conditions and an uncertain political and regulatory environment surrounding coal-fired electricity made mining Wyoming’s Powder River Basin uneconomical.
A month later, a federal Bureau of Land Management panel rejected a coal company’s bid for the right to mine another Powder River Basin tract, saying that what the company proposed paying per ton was too low.
Typically, after accepting a bid, the BLM sends about half the lease bonus back to the state in equal installments over five years, said Wenlin Liu, principal economist at the Wyoming Center for Business and Economic Analysis. In recent years, coal bonus revenue has delivered as much as $240 million to Wyoming in a single year.
Currently, seven active coal leases are being paid out, for a total of about $227 million in coal lease revenue, Liu said.
The recent unsuccessful bids — and changing federal regulations surrounding allowable emissions from burning coal — are in the forefront of legislators’ minds.
“It’s been sort of a sacred cow with this coal lease bonus money,” said Sen. Eli Bebout, R-Riverton, a co-chairman of the Joint Appropriations Committee. “But if that goes away, the schools would be competing with other capital needs of the state.”
Wyoming has never counted on coal lease bonus revenue to pay for school construction, said Rep. Steve Harshman, R-Casper, another co-chairman of the committee.
The state has simply been lucky to have the money, he said.
Prior to funding school construction using state coffers, local school districts raised their own finances for school building projects. That changed after a series of Wyoming Supreme Court decisions ruling that the state must ensure equal access to education for all Wyoming students, whether they are in Meeteetse or Cheyenne.
How to pay?
Legislators saved $475 million this year for school finance, in part to address the shrinking capital construction budget, Landen said. They put another $100 million into an education savings account for the same purpose.
Landen hopes that will help the state pay for school construction and maintenance during 2018 and beyond, in case no new coal leases are secured.
“That’s going to get us through this next period of time,” he said.
Things may change, Landen said. New coal leases may come up between now and 2018.
But even if that happens, companies are likely to offer less in bonuses than before, Landen said, and lawmakers want to be ready.
An ongoing review by economists at the University of Wyoming will present options for other funding streams and estimate how much is needed annually to keep the state’s public schools in good shape in the future.
Harshman said the state needs about $150 million annually to maintain its school buildings.
Bill Panos, director of the Wyoming School Facilities Department, said the UW study will drill down that number more precisely.
“I’m concerned that we are able to sustain the level of investment that we’ve been making (in our school buildings),” Panos said.
The group will project school costs and state revenue “as far as the math will let us,” Panos said.
Coal lease bonuses have been a significant source of revenue for Wyoming but have also varied significantly. It’s not the only major source of revenue out there, Panos said.
Regardless of whether coal lease bonuses shift, the state has sufficient revenue to cover school construction, said Sen. Chris Rothfuss, D-Laramie.
“There’s no reason to panic,” Rothfuss said. “We will identify an alternate source of funding.”
Education is one of the Legislature’s highest priorities and is a constitutional obligation, he said.
School construction funding and declining coal lease bonuses will be on the agenda at an upcoming Appropriations Committee meeting, Harshman said. The School Facilities Department hopes to present its findings in October, Panos said.
“There will be a lot of debate over it,” Harshman said. “There will be a lot of ideas out there. And who knows? We might have a new president. The EPA might change.”