Corporate Welfare in Sheep’s Clothing

Governments everywhere favor some companies over others by showering them with other people's money. In Wyoming, the constitution forbids legislators from giving tax dollars away directly, but this hasn't stopped indirect giveaways. One giveaway is called Public Purpose Investment, or PPI. Although sold on the basis of its supposed benefits, these corporate welfare programs hurt competition and divert money to less productive uses.

PPI's theoretically have a public purpose because they will supposedly diversify the economy, create jobs, speed up construction, increase economic activity during slumps, generate tax dollars in the state, and/or increase productivity. Left off the list are the flag, apple pie and oh, for the children, but probably only because they couldn't be spun in grammatically.

Handouts to fund these projects come in the form of loans and spending on infrastructure and water treatment. But more deceptive are those for so-called economic development. One handout program dressed up as economic development is the Industrial Development Bond (IDB). This program is currently funding two projects with money from the Permanent Wyoming Mineral Trust Fund.

How does an IDB work?

If a county wants to help a company in its jurisdiction with other people's money, it issues an industrial development bond that the State of Wyoming buys. The favored company then issues a promissory note to the state and the county loans the company the money.

Why the shell game? The money comes from the Permanent Wyoming Mineral Trust Fund (PWMTF), a public trust. According to Article 15 Section 19 of the Wyoming Constitution, the Legislature may loan monies in the fund to political subdivisions of the state.

Private companies are not political subdivisions so technically cannot receive money from the PWMTF, hence the rigmarole between the county, the state and ultimately, the private company.

The Wyoming Treasurer now holds two IDBs, both with a 5.75 percent interest rate and a seven-year term. Johnson County requested one bond for $20 million on behalf of the uranium company Uranerz. Unanerz used the money, according to its SEC 10-K report, in part to pay off the promissory note to private investors of $6,150,00, a note with a 10 percent interest rate. The interest rate was this high because the company missed its August 16, 2013 payment.

Sweetwater County requested the other bond for $34 million on behalf of another uranium company, Ur-Energy, for its Lost Creek project. In the case of Ur-Energy, the loan was used to pay off two other loans. The first had a total effective interest rate of 21.6 percent. The second loan had an effective interest rate of 16.1 percent. The wolf certainly seems to be fleecing the sheep.

Is this a bad deal for taxpayers?

First off, loan interest rates reflect the risk involved in the project. It would seem the risk facing the people of Wyoming is much bigger risk than the reward.

Second, five uranium companies exist in Wyoming and government has favored two with this program. This has perhaps left the other three at a disadvantage in what, according to the Uranerz's 10-K report, is a very competitive market.

In addition to the risk, favoritism and possible violation of the Wyoming Constitution, this entire boondoggle shows why corporate welfare is bad for the people of Wyoming. If the oil and gas industry had more of its money to invest in Wyoming instead funding the state's risky business, we might have seen greater innovation and had a more vibrant economy in the future.

But here's another thought. If the severance tax funding the PWMTF had been distributed, in part, to the people of Wyoming instead of all squirreled away in savings accounts to later be raided by legislators, we could have spent it on the goods and services we wanted and increased economic opportunities for small businesses in the state. If government wants to "create jobs" or "increase productivity" which it can't do, it needs to get out of the way so entrepreneurs can.

Government can only spend what it has taken away from someone else and the IDB program is one example of how government diverts money from the productive to the unproductive. If a group goes to the public trough for funding instead of the financial markets, this choice should send a powerful message to legislators. This message however, is lost under the sheep's clothing of job creation, economic diversity and productivity improvements. Corporate welfare hurts competition, wastes scarce resources and slows the inevitable failure of less efficient producers. Now is the time to eliminate all corporate welfare schemes.