Allegiant Air is pulling out of the Casper market, ending discount service to Las Vegas and effectively slashing the number of cities served out of the Casper/Natrona County International Airport by one-third.
Wyoming faces a shortfall of Medicaid funding that might be as high as $30 million now and is likely to grow in the coming years.
Officials say there are no good options to address the situation without harming other programs or potentially hurting already cash-strapped hospitals and nursing homes. Compounding the problem, Wyoming is still dealing with sluggish state revenues brought on by a downturn in the energy economy.
Costs are going up as Wyoming’s population continues to age, said Tom Forslund, the director of the state Department of Health. The current shortfall — the exact size of which is hard to pin down — is in the two-year budget cycle that ends next June. But as baby boomers continue to age and seek long-term care, the problem will only worsen over the next decade.
“It’s a reflection of the changing demographics in Wyoming. We have an aging population,” Forslund said. “As people age, more of them end up in long-term care, and long-term care is expensive.”
What’s more, the health department is less capable of absorbing a $20 million to $30 million shortfall because it suffered a $90 million cut passed down from the Legislature in its most recent session, Forslund said.
Seventy percent of Wyoming nursing home residents are on Medicaid, officials have said. Many have burned through whatever savings they had when they retired and are thus dependent on Medicaid to pay for their care needs.
Forslund said there’s only so much the department can do to handle the situation. Officials can’t stop people from aging. But they can try to control the costs.
“Certainly one of the strategies is the longer you can keep people in a home setting and out of an institution, the less expensive it is,” he explained. “So strategies have been put into place to beef up home- and community-based services and to try to keep those people home.”
Every month a person stays at home rather than moving into a long-term care facility is a month the state saves money. But it’s also a month closer to that person spending their own, often limited resources.
Eventually, though, a nursing home and Medicaid enrollment is likely.
“With the changing demographics and the population getting older and the older population living longer, the state has to ready itself for continued increases in this particular area in the state budget,” Forslund said.
In the past several years, state lawmakers repeatedly rejected attempts to expand Medicaid to more Wyomingites under the Affordable Care Act. Expanding the program likely wouldn’t have helped, he added. The people who would have benefited were generally younger.
There are a few options the department can pursue to try to cut costs. None of them is ideal, he said. One is to pump more money into the program, either by cutting inside of the health department or by the state reducing programs elsewhere and providing more money for Medicaid. But that means somewhere, whether in the department or elsewhere in Wyoming, a program is getting gutted.
Gov. Matt Mead, in a recent interview with the Star-Tribune, said that if the situation wasn’t solved somehow, he didn’t know “how as a state we’re not going to be subject to providing additional money vis-a-vis the current Medicaid system we have.”
The other option, perhaps even more unpalatable, is providing less Medicaid reimbursement to doctors, hospitals and nursing homes. Forlsund said Wyoming has historically had high reimbursement rates and, as a result, 99 percent of providers here accept Medicaid patients.
To understand what would happen if those reimbursement rates were cut, Forslund said one has only to look around the country. As state governments have dealt with tight budgets and have cut that rate, participation rates by physicians have dropped drastically, to lower than 60 percent in some states.
It’s a particularly risky proposition in Wyoming. While on the one hand the population is aging and the need for care becomes more pressing, the state has just over two dozen hospitals. Many of them, as well as nursing homes, are operating on thin margins.
Because so many nursing home residents are on Medicaid, the facilities rely on reimbursements for a large portion of their revenue. Any cuts to that reimbursement rate, then, can have a dire effect on facilities that may already be on the edge.
“Generally speaking, Wyoming has a fragile health care system,” Forslund said. “Essentially, the infrastructure is not robust. There’s not a whole lot of providers and options for people to go to. One provider says we won’t accept Medicaid patients anymore. There then aren’t a whole lot of other options in some communities and some areas of the state.”
Many of those facilities are operating on 1 percent margins, said Eric Boley, the executive director of Leading Age Wyoming, which is an organization of 29 long-term facilities in the state. Cuts to reimbursement can drive facilities out of business or force them to cut staff, which in turn can bring penalties for not meeting care requirements.
If facilities close, it puts further pressure on remaining nursing homes. It can also drive people to go out of state for care. Boley said research has showed that nursing home residents flourish when they live in or near their own community. In effect, moving out of state can shorten their lives.
Forslund said he doesn’t know what option officials will pursue to address the situation, both in the short term and in the future. He’s working now to ring the alarm bell. His staff is preparing a comprehensive report on the situation that will be presented to lawmakers in October.
“We just need to make sure people need to start thinking about it now and start planning for the larger numbers coming forward and develop some strategies to deal with it,” he said.
“It’s a difficult situation where on one side our costs are going up and we have to cut multi-millions out of the budget,” he added. “It’s getting to the point where it just doesn’t work, and we are struggling with that.”
Before the largest companies sought bankruptcy, before the layoff rumors proved true, before the Obama administration placed a moratorium on new leases, coal companies’ appetite for leasing opportunities began to fade.
They were pretty well-stocked for the time being, and the coal market was facing instability.
In 2013, Kiewit Mining Group asked the Bureau of Land Management to delay leasing Hay Creek II, a tract north of the Buckskin Mine near the Wyoming-Montana border, saying the coal market was getting worse.
It did get worse, as most in Wyoming know.
The bust hit in 2015, and firms absorbed the shocks of the market as it contracted. Wyoming suffered the consequences, losing jobs, revenue and the certainty of what had once been a bedrock industry for the state.
The coal industry is stable now at a “new normal.” Employment is down but not declining. Production, too, is more modest than it was, but much better than 2016, when power companies simply were not buying coal.
Company choice to lease or not had been taken away in 2015, by a temporary federal moratorium on leases during which the federal coal program was reviewed. Earlier this year, President Donald Trump reversed his predecessor’s moratorium.
The question is whether companies facing a different market and a more favorable political climate have regained an appetite for leasing.
They have, sort of. The trend that started as the coal market began to slide hasn’t reversed course, but there are tentative and modest expansions planned by Wyoming producers. The most loyal coal supporters, and environmental groups with less than favorable stances on the future of coal, agree. Despite the lifted ban, brand-new coal leases are unlikely. Firms are looking at shoring up their existing mines and improving their existing assets, not staking new claims or betting on a flush of demand for coal.
“Frankly, given the general poverty of the industry and prevailing market conditions, as well as the fact that such bids usually cost hundreds of millions of dollars, I don’t expect any of these types of leases (those for brand-new mines) in the near future,” said Richard Reavey, spokesman for Cloud Peak Energy, a Gillette-based firm with two mines in Wyoming.
Wyoming is the leading producer of thermal coal — a lower-heat-value fossil fuel burned for electricity production. The problem the state is facing — and has been facing for some years — is competing with low natural gas prices.
Power companies are gradually shifting away from coal and focusing their resources on gas-fired plants and renewable sources. They are not only cheaper, they fall in line with existing, and potential, environmental regulations. New coal plants, meanwhile, simply can’t meet new environmental standards without deploying technology that isn’t viable for commercial use yet.
The fleet of coal-fired plants that exists right now is the market for Wyoming coal, and producers in the Powder River Basin are facing increasing strain as those coal-fired units are planned for retirement in coming years across the Rockies and the Midwest.
Xcel Energy, Colorado’s largest utility, recently reported its plans to retire two of its older coal units at Comanche Generating Station in Pueblo, while investing upward of $2 billion in renewables.
Comanche buys a significant amount of its coal from the Belle Ayr Mine, a Contura Energy operation just south of Gillette.
Coal producers are responding to this trend by scaling back on operations and in many cases retracting future leases.
Communication between the BLM and Wyoming mines in recent months, obtained in a public records request by the Powder River Basin Resource Council, reveals companies cancelling applications.
Contura Energy withdrew an application for Belle Ayr West on June 7. The tract of land straddles Highway 59 just south of Gillette. The previous month, Kiewit officially withdrew its application for a lease of Hay Creek II, just north of Buckskin Mine near the Montana border that was delayed in 2013.
Kiewit also sold Haystack late last year to a private firm based in Colorado. The mine had been idle since 2013, when the company closed down citing a challenging coal market.
The cancelled applications point to what environmentalists argue is a clear path of decline for Wyoming coal.
“It’s just more evidence that there may not be a legal moratorium anymore, but there is certainly a market moratorium,” said Shannon Anderson, lawyer for the Powder River Basin Resource Council. “That’s been in place for several years now, and it looks like it will continue into the future for most of these mines.”
There was a flush of coal leasing before the downturn. The reality is that the mines in Wyoming shored up sufficient mineral leases to last for decades, and if demand continues to drop, that’s all they will need, she said.
“What people don’t realize is Obama actually leased a lot of coal,” Anderson said. “These mines got fairly significant reserves and stockpiles of federal coal to take them through the next 20 years or so, and with that there is just not a need for new coal leases right now.”
A spokeswoman for the BLM said she couldn’t comment on how market conditions may have colored lease interest in recent years. There were seven lease applications in process with the agency before the moratorium.
“The coal moratorium in Wyoming didn’t necessarily affect what we were doing at the time, because those coal lease by applications came in before the moratorium,” said Kristen Lenhardt of the BLM. “We continued to process those as usual.”
Companies have been less active on the leasing front in recent years, according to BLM records. The BLM has not issued a new coal lease in five years. Between 2007 and 2012 it approved 11. It has also approved a handful of coal lease modifications in those years.
There are now five applications in with the BLM. The agency contacted the applying coal companies after the coal moratorium was lifted to verify continued interest.
Three canceled, as noted above, and one new lease application was submitted for Dead Man’s Wash in western Wyoming.
No one in the coal industry is denying that coal has been under significant pressure in recent years, but they refute predictions of eventual extinction.
The moratorium on new coal leases was a sticking point for Wyoming, both economically and politically, despite commonly understood challenges to new leasing. The state’s coal lease bonus money has built and maintained Wyoming public schools for years. That money is gone, so whether new leases were plausible or not, Wyoming wanted the opportunity to be there.
For others, the moratorium sent the wrong message to power companies who were buying the coal.
Coal doesn’t have to continue into decline, proponents say. But the moratorium and other policies in recent years made it appear as though that was the only likelihood, said Travis Deti, executive director of the Wyoming Mining Association.
That false flag has changed, he said.
New leases are being considered now, he argued, just not the billion-ton leases of years’ past.
“You are going to see an industry that is going to adapt to a new environment. With all of the gas coming online, with renewables coming online, that share of the pie is smaller,” Deti said. “So, some of those leases are going to be smaller. You are going to be looking to add on to existing mines.”
The BLM recently kicked off the scoping process for a 3,500-acre lease of 441 million tons of coal for Cloud Peak Energy. The lease is not a new mine but an expansion of Antelope, a mine that straddles Campbell and Converse counties.
“Obviously, there is huge investment in developing a mine. So once it’s up and running, economics requires that you maximize the assets and facilities at that mine by expanding the mine if possible rather than leasing and developing a new mine. In today’s market, this is even more true,” said Reavey, with Cloud Peak.
“We have a number of lease applications pending associated with the three mines that we currently operate, and all are designed to ensure the continued efficient operation of those mines now and in the decades to come.”
That’s likely the type of leasing that’s going to occur in the Powder River Basin, Deti said.
“It’s the nature of the industry,” Deti said. Additionally, the borders of mines owned by different companies are getting closer with expansions. Antelope sits just south of Peabody Energy’s North Antelope Rochelle Mine, which is adjacent to Arch Coal’s Black Thunder Mine.
“They are starting to butt up against each other,” Deti said. “So in the future you are going to see those leases become more competitive.”
For coal producers, the coal market isn’t as desperate as some have said. It’s just different — a perhaps smaller but viable industry in Wyoming.
“The ‘death of coal’ narrative being peddled by extremist, keep-it-in-the-ground groups is patently false,” said Reavey, of Cloud Peak. “Leasing, mining, and life in the Powder River Basin goes on.”
The impending departure of Allegiant Air from Casper, announced last week, signaled more than the end of popular discount flights to Las Vegas. It showed the extent to which Wyoming is dependent on the whims of commercial carriers to serve relatively rural areas.
Rep. Pat Sweeney, R-Casper, said that airport officials had done everything possible to retain Allegiant service, including attending the company’s annual meeting every year in Las Vegas.
Allegiant Air is pulling out of the Casper market, ending discount service to Las Vegas and effectively slashing the number of cities served out of the Casper/Natrona County International Airport by one-third.
“What more can we do?” Sweeney asked at a legislative committee meeting Friday.
The Wyoming Department of Transportation has a possible, if ambitious, fix. The agency wants to contract with airlines to provide regular service to airports in the state, similar to how large airlines like United contract with smaller carriers like GoJet to provide regional air service.
That would be a different approach than the revenue guarantees currently used to subsidize commercial air service in most Wyoming airports where the local, state and federal government chip in to the tune of $46 million per year to guarantee carriers a minimum amount of business each year by covering any shortfall.
WYDOT’s idea is to start entering what are known as capacity purchase agreements. Those deals give the entity commissioning the contract more control than by offering revenue guarantees alone. WYDOT and local airports in Wyoming would dictate the frequency of flights, number of seats, price and destinations while paying the contracted carrier a set amount.
“This idea of capacity purchase agreements, for decades, has worked very well for airlines,” said WYDOT director Bill Panos. He pitched it as a public-private partnership that could reduce the amount now spent by the state on ensuring air service to small Wyoming cities.
The new approach is intended to head off a series of factors working against reliable commercial air service in the Cowboy State.
One is price. The average air fare to or from Wyoming airports is nearly 30 percent more expensive than the national average, while southern neighbor Colorado has fares that are 20 percent below the national average, leading to a gulf that makes it hard to persuade state residents to fly out of local airports rather than driving to Denver or Salt Lake City, Panos said.
Only about half of Wyomingites taking a flight use airports in the state each year, according to WYDOT data.
Moreover, as commercial airlines begin phasing out the smaller jets that have long served many Wyoming airports in favor of at least 70-seat aircraft, it will become more difficult to continue attracting carriers to the state, even with revenue guarantees.
“That’s why I think the program we’re talking about is so significant,” said Sen. Hank Coe, R-Cody, at the Joint Interim Minerals, Business and Economic Development Committee meeting Friday in Casper. “How do we end up with air service? Because right now the 50-passenger airplane is the size that fits the market we have.”
And finally, even in Wyoming cities with regular air service, a common problem persists: It’s far easier to fly out than fly in. A businesswoman in Rock Springs can fly through Denver to an afternoon meeting in Dallas and arrive back home the same night. But her counterpart in Dallas couldn’t fly into and out of Rock Springs in a single day.
A capacity purchase agreement, Panos said, would solve many of these issues.
The core goal would be bringing three daily round-trip flights to Denver to all nine Wyoming airports with commercial air service, ideally with prices aligned with national averages and few to no cancellations or delays. While the program’s proposed model could eventually be built out to include connection to other hubs such as Minneapolis or Dallas, Denver remains the largest regional hub for Wyoming, with connections to carriers like United, Southwest and Frontier.
Currently, four carriers service eight Wyoming airports — Casper, Cheyenne, Gillette, Rock Springs, Riverton, Laramie, Cody and Sheridan — all with their own schedules. WYDOT’s goal is to transition to a single carrier with regular Denver service.
RIVERTON — The first thing you notice about Riverton Regional Airport is the free parking. Inside the terminal, taxidermy animals line the walls — a stuffed mountain goat is perched near the ceiling. Jackrabbits hop along the edge of the runway. A friendly police officer greets passengers.
Jerimiah Reiman of Gov. Matt Mead’s ENDOW Council, which is working on economic diversity in the state, said lack of reliable air service in Wyoming led many business people and companies to move out of the state or cluster around Jackson, Wyoming’s busiest airport. Jackson was largely left out of the WYDOT proposal because it already has frequent, primarily leisure-based, flights.
“Commercial air service is a significantly limiting factor,” Reiman told the committee. “There’s a lack of air service particularly to global destinations.”
Nick Wangler of the Forecast consulting firm, which worked with WYDOT on developing the proposed program, said that Wyoming is unlikely to see this kind of regular service to regional hubs without more state intervention.
“The way (airlines) do it is, ‘If it’s not broken, we don’t want to fix it,” he said. “What’s ‘not broken’ to them is we’re paying really high airfares and we have really full flights.”
But instead of having, say, a single flight with high fares, the state could use a capacity purchase agreement to create three flights with lower fares, Wangler said.
As now proposed, individual Wyoming communities would enter into the capacity purchase agreements with a carrier that would operate and staff the flights, while the local airport — or a community-based board — would brand the flights, distribute tickets and plan schedules and routes. Wangler said under the current plan, passengers would still purchase tickets on the airline’s website and board an aircraft with a national brand’s name painted on the side, though that’s subject to change.
“The best solution is invisible,” Panos said.
WYDOT is now completing a study of the model and the legislative committee agreed to form a working group, though lawmakers wavered between support and skepticism over whether the model will — or should — ever be implemented.
If the model is seen to completion, it would include creating hubs in Casper and possible Cheyenne that would allow flights to and from cities within Wyoming.
Rep. Chuck Gray, R-Casper, said that the timing likely wasn’t right for the Legislature to fund a new air service program.
“We need to continue to look at the current situation and continue to pursue competition,” Gray said. But with the exception of Casper, commercial airlines have shown little interest in serving Wyoming without government subsidies — much less in competing with one another.
Regional carriers, which formerly served the small markets that larger airlines were not interested in, have been battered by new federal regulations passed after a 2009 regional plane crash that require pilots to have significantly more experience before flying any commercial routes.
Gray said he believed the solution to Wyoming’s air service troubles lay in attracting Southwest Airlines to the state because it was already a discount carrier.
“You plop down Southwest and I think that’s the biggest thing you could do to control price,” he said.
State officials emphasized that the airline was uninterested in local markets and used only large planes that even Casper was unlikely to be capable of mustering demand for.
CHEYENNE – Cheyenne Regional Airport leaders heard some good news recently.
Despite volunteering to serve on the working group, Gray cast the lone vote against moving forward with developing the capacity purchase agreement model.
In contrast, Sen. Michael Von Flatern, R-Gillette, was one of the more enthusiastic supporters of exploring the model. He said that as carriers move to larger jets, many states will be competing to attract carriers to capacity purchase agreements and that Wyoming risked falling behind and losing out on a vital transportation option.
Von Flatern said he’d been involved in discussions about air service in Wyoming for decades and that this was the first time he aware of an option like the capacity purchase agreement to work — something other rural states were likely realizing as well.
“It’s of the utmost urgency we get on this,” he said. “This presentation could be given in Arkansas this morning, or South Dakota.”