Drilling's bounty: Easy come, easy go

Students get lots of cash for school, while town coffers are full. But the money needs to be taxed and managed properly.

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By Steve Hargreaves, CNNMoney.com staff writer

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University of Wyoming freshman Keely Cox, second from left, and Ben Rose, second from right, get a big chunk of their tuition paid for with tax money from the oil and gas industry.
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Pinedale spent $20 million on an elaborate Aquatic center, and paid for it all in cash.
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The pool and waterslide inside the aquatic center.
Photos
A slice of life in energy-rich Wyoming A slice of life in energy-rich Wyoming A slice of life in energy-rich Wyoming
The race for domestic oil and gas is changing the way of life of many towns here.

PINEDALE, WYO. (CNNMoney.com) -- Nearly every college-bound student in Wyoming can get money to attend a state school. For many, tuition can be nearly cut in half.

Thanks to Wyoming's huge oil and gas resources - and the state's willingness to allow access to them - Wyoming has amassed a trust fund worth nearly $4 billion. It's a move many say other states should emulate as they develop their own oil and gas industries.

The $4 billion helps pay for things like schools, roads, or, in the college tuition case, a Hathaway scholarship for every student with good grades.

"If Hathaway weren't an option, I might have gone to community college," said Keely Cox, a freshman at the University of Wyoming pursuing a Bachelors degree in accounting.

Nearly all of the nearly 1,000 freshman at Wyoming's state university in Laramie, the only four-year public school in the state, take advantage of the scholarship. Students are eligible for between $800 and $1600 a semester, based on their grades. Set up in 2006, the scholarship is funded with a severance tax the state imposed on its natural resource industry.

Students say the program encourages people to stay in Wyoming for school, and perhaps stick around after and help diversify the economy.

"It limits the brain drain on Wyoming," said Ben Rose, another university freshman with an interest in history.

Most students think the program is fantastic, although many are aware that it's tied to that natural resource industry. The extraction industry enjoys a long history in the state, but has also been criticized for fouling the air, land and water.

"It's a good enough end, and there are a lot of new student's that are getting an opportunity they wouldn't otherwise get," said Dan White, a university junior majoring in history. "But there are energy problems in this country, problems the oil industry has contributed to. We aren't doing enough to find alternatives, and what we have isn't going to last."

Wyoming's rich uncle

But whatever people think of the oil and gas industry, its contribution to Wyoming's tax coffers is huge.

Nearly 70% of spending at all levels of government - local, county and state - is financed directly from taxes on the mineral and gas industry.

'It generating so much money," said Steve Sommers, budget manager at Wyoming's Legislative Service Office. "There's no way we could spend what we've been spending without the mineral revenue."

Since 1969 the state has had a severance tax on minerals, including oil and gas, mined in the state. This tax is above and beyond what companies would normally pay in other state taxes.

The tax varies depending on the resource and particular site, but it is currently averaging about 4 to 5% of the value of minerals extracted, said Phil Roberts, an oil historian at the University of Wyoming.

Passing a severance tax, and managing the money wisely, is the main thing Roberts urged other states to do when confronted with a drilling boom. Several states currently seeing increased drilling, including New York, have no such tax.

The tax allows state governments to better plan for an influx of workers, said Roberts. And by investing the money in a trust fund, it allows the state to continue reaping profits even if the industry turns sour.

"We never think the boom is going to end," he said, noting this is the sixth or seventh boom Wyoming has seen since the first oil well was drilled in 1884. "But just wait and see."

Racket ball, whirlpools and water slides

If the boom does have an end, it's certainly no where in sight in Pinedale, a small town bordering the Wind River mountain range about an hour south of Jackson Hole.

Thanks to prolific drilling in natural gas fields south and west of town, Pinedale, population 1412, is hopping.

Getting a hotel room is nearly impossible - one establishment said it was booked through 2008.

Local shopkeepers say business is brisk, and it's hard to even get good service in the town because so many people have been siphoned off to work in the gas fields.

There were certainly reservations about the boom, with people noting how it's hard to find help and how it's changing Pinedale's old cowtown character.

But in terms of public facilities, the town has clearly made out.

Thanks to local taxes on the oil and gas industry - taxes that are separate from the state severance tax - there's a new public health center, an $8 million dollar expansion to the middle school, and a $20 million "aquatic center."

Vern McAdams, the business director for Pinedale's schools, led a tour of the gleaming facility, which is free for students and adults can join for $400 a year.

With an Olympic-sized lap pool, climbing wall, racket ball courts, whirlpools, and giant wading pool and waterslide, the place looks like it belongs less in a small town in western Wyoming and more at a resort in Disney World.

"And we wrote a check for it," said McAdams. To top of page

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