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Wasting Money on Coal Export Schemes

With mineral tax revenue plummeting, the Wyoming government is madly conjuring up schemes to keep spending at all time highs. One boondoggle approved during the 2015 legislative session involves borrowing money to build a coal terminal on the West Coast to support Wyoming coal exports to Asia. But if the private sector is dropping out of these projects, perhaps forcing the people of Wyoming to go into debt to fund them is a bad idea. Here’s a thought; instead of dreaming up revenue generating schemes with little chance of success, Wyoming’s government should bring spending down to a level the people can afford to fund.

During the 2015 legislative session, the Wyoming legislature passed SF 24: Wyoming infrastructure authority amendments. This benign title obscured an unpleasant change to Wyoming law. Now, for the first time ever, the Wyoming Infrastructure Authority can borrow up to $1 billion to finance infrastructure projects entirely outside of the state. The change is to allow the state to invest in coal port infrastructure on the West Coast of the United States.

Wyoming leads the nation in coal production, sits atop of more than one-third of recoverable U.S. coal reserves, and ships coal to more than 30 states. As we already know, due to EPA regulations, domestic coal consumption is falling as older coal-fired electricity generating plants are shut down. On the surface, exporting to other countries seems to be a reasonable option—but does that mean Wyoming citizens should go into debt to fund a new coal terminal on the West Coast?

Wyoming already exports a small amount of thermal coal to Asian destinations through British Columbia, Canada. Wyoming’s coal exports, at about 1 million short tons (MMst), are about one percent of total U.S. coal exports. West Virginia is the largest US coal exporting state, at about 29 MMst. But U.S. coal exports are on the decline due to a slowdown in world coal demand, lower international coal prices, and higher coal production in other coal-exporting countries. The U.S. Energy Information Agency projects U.S. coal exports to fall to 87 MMst in 2015, and then recover to 89 MMst in 2016. This is down from 127 MMst in 2012 and 117 MMst in 2013.

Increased international competition for Asian coal markets may be in part why private companies seem uninterested in spending their own money on an U.S. West Coast coal terminal. For example, Kinder Morgan dropped out of a $200 million coal port proposal in Oregon in 2013.

Even if the Asian coal market were in better shape, would building a new West Coast port be a better option than exporting more from existing West Coast ports in Canada or even from East Coast ports in the U.S? If it looked like a winner, we would likely see coal companies willing to put up their own money to build it.

A lack of private sector interest is a good indicator of the likelihood of success of a new West Coast coal port. But a past government-sponsored West Coast coal port that ended in a costly fiasco is an even better reason for the Wyoming government to drop its coal port scheme.

Back in 1993, the City of Los Angeles partnered with a number of private-sector companies to build a coal export terminal in the Port of Los Angeles. With typical bombast, government officials bragged about how the new coal facility would generate an estimated $15 million annually in income starting in 2005. The project never covered its expenses and after the coal terminal went bankrupt, the City of Los Angeles wrote off $19 million in 2003 and then, in 2006, paid $27.7 million to settle a lawsuit with its private sector partners who accused the city of interfering with changes to the site. The city also agreed to waive $46 million in unpaid rent from the two firms that sued it.

Borrowing money from people to build a coal export port to serve the Asian market is unlikely to create economic opportunity. The Wyoming government must look to efficiency gains, and a good place to start is cutting public benefits to private concerns. The corporate welfare route and related boondoggles will leave our children and grandchildren with a legacy of debt and higher taxes, not a more prosperous Wyoming.

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Thursday, 18 January 2018

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