Wyoming Liberty Group
Corporate Welfare in Wyoming
- The Zombie of Amendment Four Rises
The drafters of Wyoming’s constitution wisely tried to prevent future politicians from giving taxpayers’ money away to individuals or private entities. Article 3, Section 36 of the Wyoming Constitution prohibits appropriations to “any person, corporation or community not under the absolute control of the state.” It seems clear enough, and for the most part prevents lawmakers from providing corporate welfare directly to individual business entities. However, it hasn’t prevented legislators from using creative methods to hand out money to their favorites indirectly.
During Wyoming’s 2014 Budget Session a bill (SF97) passed, which would have given a loan of $24.4 million to a pharmaceutical company in Cody Wyoming, owned by a Philadelphia company called Lannett Co. During the Senate floor debate, Senator Hank Coe said this money “would fund a project up in my community, in Park County, called Cody Labs.” (Discussion of this bill starts at 4:00:00.) Cody Labs is planning to expand and the purpose of the loan, according to Sen. Coe, is to “incentivize” Lannett to make the investment in Wyoming instead of Pennsylvania.
Sen. Coe went on to rationalize the loan, saying the purpose was to diversify the economy away from the mineral industry and to, one would assume, create non mineral jobs. Cody Labs currently employs 110 people. Phase I of the new project will add 45 new jobs at an average salary of about $55,000 per job per year. The loan would assist the company to complete Phase II by 2018. Once all four phases of the project are completed in 2026, the company would employ 360 people. Sen. Coe’s proposal would spend $24.4 million to create 250 jobs—that is $97,600 per job to create a $55,000 per year job.
After legislators such as Senator Cale Case expressed concern that this bill would violate Wyoming’s constitution, it was heavily amended to disguise its original intent.
The passage of this bill is bad news for Wyoming taxpayers because it resurrects a once-dead-and-buried government-spending program that wasted millions of hard-earned taxpayers dollars.
In 1986, in the middle of some of Wyoming’s worst economic times, our constitution was amended to create an exception to Article 3, Section 36 and allow mineral funds to be loaned directly to fund economic development. Known as the Amendment 4 program, it was eventually canned because, according to an article by Joan Barron in the Casper Star Tribune, more than 40 percent of the $18 million in loans were written off as a loss. However, the amendment is still part of the constitution, which will allow the legislature to provide corporate welfare to Cody Labs and other big companies coming with hat in hand.
Corporate welfare wastes tax dollars when government hands out money to fund activities that the market would have supported anyway, competing with private sources of funds. Cody Labs has already started Phase I of the project.
But corporate welfare destroys wealth when tax dollars are spent on activities that the market would have rejected. By funding otherwise uneconomic proposals, taxpayers are left holding the risks that the money won’t be paid back.
The Wyoming ethanol tax credit is a recent example of how government wastes resources when it backs activities the market rejects.
In 1995, the Wyoming government created an ethanol credit to encourage ethanol production in the state to “create green jobs.” That year, Renova Energy, an Idaho company, took an unused ethanol plant from Louisiana, rebuilt it in Torrington, Wyoming, and christened it Wyoming Ethanol. As the only ethanol producer in the state, it got the tax credit, which was originally capped at $2 million annually, but then increased to $4 million per year in 2003. Over the past 19 years, Wyoming Ethanol received $38.5 million in credits.
But Renova Energy has been in Chapter 11 bankruptcy since 2008. Construction on a Renova Energy ethanol plant in Heyburn, Idaho was suspended in 2007 and in 2010, Renova auctioned parts that plant off because it couldn’t get financing. No doubt, if its Wyoming plant hadn’t been anointed with millions of dollars of corporate welfare, it would be gone too. Fortunately, the ethanol tax credit comes to an end in July 2015.
According to a Wyoming Department of Transportation report published in January 2014, the $38.5 million subsidies to Wyoming Ethanol took $38.5 million in fuel tax revenue from the state highway fund and cities and counties.
When government gives millions to companies like Renova, that money is not spent on roads, education, Obamacare insurance premiums, or left in the pockets of the people who earned it.
Wyoming’s best tools for economic diversification are a low tax regime and deregulation. Channeling funds to favorites slows the flow of resources to their most valued use and wastes hard-earned taxpayer dollars. Governments have proven again and again that they are a poor replacement for the market when they try to pick winners, but are an easy mark for those seeking quick cash.
Watch Wyoming Senator Cale Case discuss this in a short video.