PINEDALE – Commissioner Doug Vickrey asked consecutive questions at the end of the May 4 board of commissioners meeting about what ad valorem tax payments could mean for Sublette County. He prefaced each by saying his question could cause more confusion. He thought his final question would add the most confusion to the matter.

By that point, the board had asked county treasurer Emily Paravicini and deputy county attorney Clayton Melinkovich questions for about an hour and a half. Between all of them, rabbit holes were peaked into, cans of worms were torn slightly open and fringe weeds were tamped down with footprints.

The discussion occurred because representatives from Jonah Energy sought an exemption from monthly ad valorem payments as laid out by Senate File 60, which passed the Wyoming State Legislature in February. The board elected not to grant an exemption application for now but a consensus was made to explore the possibility further.

What would this cost Sublette County? What would be the benefit? The discussion unfolded into a live cost-benefit analysis for a county that receives 90 percent of its funding from the energy sector.

SF60’s birth

Numerous bills were drafted in the Wyoming State Legislature after coal companies in Campbell County declared bankruptcy and walked away from Wyoming, leaving the county and the state out of millions of tax dollars. Possible safeguards were drafted, many of them undergoing various amendments, to keep such an event from happening again.

Senate File 60 was born out of that.

“The intent was to make that monthly, there were only a few bad actors, so the state could not end out at such a large risk,” Sen. Fred Baldwin, R-Afton, said. “That was the intention, to bring it so the state wasn’t hanging out there so far it wouldn’t happen again. That includes mining and all energy.”

Baldwin said that among the amendments made to the bill was the transition period. Now, as the legislation stands, monthly payment of ad valorem taxes begins on Jan. 1, 2022. That pertains to ad valorem taxes from calendar years 2020 and 2021.

Pinedale Rep. Albert Sommers said the bill was drafted through consultation with county treasurers and was intentionally penned with enough leeway that counties could make their own decisions based upon their individual needs and circumstances.

“The idea of the Legislature was to give counties that local option with their companies and give them that ability to work out an agreement,” Sommers said. “It didn’t have to be an agreement between all, it could be an agreement among one.”

The NOVC problem

One of the recurring issues the board of commissioners brings up in discussions is the notice of valuation change – or NOVC. Commission chair Joel Bousman was adamant during a previous meeting about adding language lowering the risk of NOVC to a possible exemption from monthly ad valorem payments. Melinkovich said conversations he had with Jonah Energy’s legal team at the time couldn’t guarantee anything like that.

That brought up one of the major issues. Under the standard system, a company could have accurate reporting on production over 18 months because they’d have those numbers tallied. In the monthly system, production could drop four months into a fiscal year, drastically undercutting the county’s budget projections.

Currently, if a company under reports production they pay back the remaining amount at 18-percent interest on what is under reported. By statute, Melinkovich explained, that incentivizes companies to not under report production. Meanwhile, companies also have an incentive to not over report because the company would be out some amount of money that could be immediately used for production or investment.

“It’s very akin to the decision when a person fills out their W4 on an annual basis on how many exemptions they’re taking on their personal income taxes,” Melinkovich said. “The question ends up becoming: Do I want the money for my use or do I let the IRS hang onto it and then pay me a refund in April?”

Melinkovich said another issue with an NOVC comes with an audit, which could show some failure in reporting.

“Any agreement we enter into isn’t really creating more incentive to accurately report what already exists,” he said.

Diversification

It was Paravicini’s opinion that if the county wanted to grant an exemption to monthly ad valorem payments, it would be a blanket exemption available to any operator in Sublette County in good financial standing with the county.

If the county wanted to, however, it could grant an exemption to one company while others may not seek an exemption. After all, only Jonah Energy had approached commissioners for an exemption so far.

As Melinkovich explained it, some producers gaining an exemption and some reverting back to the larger payments made more sporadically could cover a budget shortfall between this July and December 2023.

“Frankly, if we had some companies paying on the old schedule and some companies paying on the new schedule then we’ve essentially diversified our revenue stream,” he said.

Paravicini echoed that.

“As long as we’ve got some paying and some of them not paying monthly, that does give us some wiggle room, I feel,” she said. “And I know our big players – Jonah and Ultra – if we’ve got one of them giving us biannual payments, that gives us a solid number for budgeting off at least what they have.”

She also said some paying once a year would help because that large amount would add cushion whereas the smaller, monthly amounts give the benefit of regularity. All that could help keep people on payroll and keep the lights on, she said. 

Protections

As previously stated, this situation was put into place to safeguard the county in the event of a bankruptcy. It’s something that Sublette County is familiar with, as the county is in ongoing litigation with Vanguard Operating. It’s not a new risk based upon a change in the statute.

Commissioner Sam White has brought up inflation throughout the meetings and how the value of a dollar means more now than it will further down the line. He’s stated his preference for the county to get money from producers and operators as soon as possible.

If a company were to go bankrupt with unsecured debt, there’s no guarantee the county would see the unpaid tax dollars. Monthly ad valorem payments allow the county to gain at least some tax revenue before bankruptcy is declared and a producer could potentially not pay.

But there are safeguards that could be put into place. An exemption, Melinkovich explained, could include a set timeframe. An operator could apply for an exemption every year, every three years, or however long. Safeguards could also be set into place that as soon as the county sees insolvency – like a missed payment – the agreement could be automatically terminated.

“There’s no way to identify all the risks,” Melinkovich said.