The money, which came in the form of a tax refund, helped Antero maintain its lucrative cash dividend payments to investors despite a year of economic upheaval. At the end of April, Antero chief executive Paul Rady and President Glen C. Warren Jr. announced the tax windfall and assured investors that “we’re in good shape, and we feel good about it.”
Days later, the pair sold $114.8 million of Antero stock, according to Securities and Exchange Commission filings. Last month, Rady sold an additional $46.4 million.
Antero Midstream, a $2.5 billion company, is one of at least 133 corporations that received help this year from the little-noticed provision of the Cares Act. By the end of June, the companies reported receiving more than $5 billion in Cares Act refunds, according to the newsletter Tax Notes. And while the bill did not say anything explicit about a fossil fuel bailout, as many as 30 percent of publicly traded oil and gas companies said in corporate filings they planned to use this tax provision, according to researchers at the University of Chicago who reviewed hundreds of filings made between March and May. Oil and gas companies were substantially more likely to use the credit than other companies, the researchers found.
And for many of them, the law turned into a gusher.
Marathon Petroleum expects to cash in an extra $411 million in tax refunds this year. Oil States International will get $41.2 million, and Oklahoma-based oil and gas producer Devon Energy $96 million. Valero, the nation’s largest oil refiner, will rake in $110 million.
“Like countless other businesses across the country, including the energy sector which was has been hit especially hard by COVID-related market impacts, Antero Midstream openly and transparently utilized pro-job tax policies within the CARES Act aimed at sustaining jobs during one of the most difficult economic climates in modern history,” Antero Midstream said in a statement.
While Antero said it was using the money to “maintain employment levels,” the tax refunds do not necessarily add directly to economic activity. Antero Midstream slashed capital spending by 68 percent, according to a Citigroup report. Those cuts hurt oil and gas service companies and pipeline construction companies, which then had to lay off or furlough many of their workers. Marathon announced Sept. 30 that it would lay off more than 2,000 people, about 12 percent of its workforce.
Some of the largest staff reductions of the year have occurred at companies receiving Cares Act tax breaks. MGM Resorts applied for up to $250 million in tax refunds before announcing on Aug. 28 it would cut 18,000 staffers.
The Cares Act tax breaks highlight this crucial shortcoming of the historic U.S. economic relief effort. Nearly six months after the bill’s passage, more people are unemployed than at any time during the Great Recession, and there is little sign that billions of dollars in corporate tax relief have trickled down into the pockets of struggling families.
“The Cares Act tax provisions were too heavily tilted towards large businesses and away from at-risk individuals,” said Matt Gardner, a senior fellow at the Institute on Taxation and Economic Policy (ITEP), a Washington-based nonprofit organization.
Antero’s CEO keeps a low profile for an oil tycoon. But Rady has a track record as a successful executive, putting together companies that fracked shale rock to unlock valuable oil and gas. Another company he built, Pennaco Energy, was sold to Marathon Oil in 2001 for a half-billion dollars. And Antero sold some of its early land holdings to XTO, now part of ExxonMobil, for $685 million.
In a 2008 interview, Rady said: “We’ve put in our 20 years of ups and downs and hard times. This really is our golden age and I hope it never ends.”
He’s shared some of that wealth. Two Colorado universities have named engineering departments after him following $95 million in gifts.
Rady has also been a prolific donor to Republican political candidates. In March, he gave $12,500 to the Colorado Trump Victory Fund and $5,600 to Sen. Cory Gardner (R-Colo.), one of the most endangered Republican senators in this year’s election.
But in West Virginia, where Rady’s companies are major players in the fracking — or hydraulic fracturing — industry, they have a checkered environmental record. Last year, Antero Resources, the sister company of Antero Midstream, agreed to a settlement with the Justice Department for Clean Water Act violations in 32 sites dating back a decade or more. The Justice Department’s 2019 complaint alleged that the company discharged pollutants including dredged material into streams and wetland sites and in some cases built pipelines through streams. In the settlement, the company agreed to pay a fine of $3.15 million and to carry out an estimated $8 million restitution of the affected wetlands.
In a news release Monday, Rady said: “We are dedicated to adapting and leading, and operating ethically and responsibly. This commitment is evident in our performance and culture as we proactively care for our employees, contractors, community and the environment.”
Some groups, such as Greenpeace, have complained that the government should take into account environmental violations before giving companies million-dollar tax breaks. Marathon Petroleum, Greenpeace said, has been fined $1.4 billion over environmental, consumer-protection and workplace violations since 2000. That includes a $334 million settlement with the Environmental Protection Agency in 2016 to reduce air pollutants in five states.
Meanwhile, at Antero Midstream, the Cares Act money is also going to help keep both the natural gas and its dividends flowing. With the sharp drop in the company’s value, the dividends are paying a rate of more than 20 percent, equal to 98.4 percent of last year’s earnings. Yet at the same time, Antero Midstream has pretty much halted its pipeline construction plans, leaving it with a network of 430 miles.
The Cares Act tax provision also helps ease the hit that Antero Midstream took after one of its biggest investments went south. Last year, the company closed a West Virginia water treatment center just two years after it opened, because it failed to operate as expected. The facility, which was supposed to treat water used in fracking so it could be recycled, was costing Antero more money than it saved, so the company suspended the operation and lowered the asset’s book value by $457 million.
Now, thanks to the Cares Act, Antero can revise its earlier tax returns to get taxpayers to cover some of those costs.
From losses to tax bonanzas
This is the way, through the magic of modern accounting, companies can turn past losses into immediate tax refunds from the Treasury Department.
To qualify for the new Cares Act tax refund, companies must have net operating losses in the current or prior two years — not unusual for the fast-growing, competitive fracking business or the troubled airline industry. Then the losses can be “carried back” as much as five years to when the corporate income tax rate was higher — 35 percent instead of 21 percent — making the recent losses more lucrative.
Companies can file revised returns for those earlier years and get refunds immediately.
Martin Sullivan, chief economist at Tax Notes, said the difference in rates is “pure gravy, a real bonanza” for companies with losses.
Moreover, in the past, corporations could carry forward losses to shrink their profits by 80 percent in a given year; the Cares Act allows companies to reduce their taxable profits entirely.
The tactic is similar to one used by President Trump, who in 1995 declared a $916 million net operating loss from real estate and casinos that allowed him potentially to avoid income taxes for up to 18 years, according to tax records. Recent reporting by the New York Times based on tax return data also showed that Trump has paid little or no taxes in many of the past 20 years, because he was able to offset income with losses from his businesses.
The cost of the Cares Act provision to taxpayers will be $80 billion this year, according to the Joint Committee on Taxation. However, over a 10-year period, the government would recoup most of that from corporate taxes, reducing the final cost to $25 billion.
It is a modest amount by the standards of the current multi-trillion-dollar rescue programs and deficit-laden budgets. But by comparison, Republican lawmakers have resisted calls to expand food stamp benefits as part of the stimulus efforts amid a growing nutrition crisis. A proposal to expand the limits on food stamps by 15 percent would cost $5 billion, according to an analysis by the left-leaning Center on Budget and Policy Priorities.
Some analysts say the tax provision on net operating losses is the worst way to pump money into the economy, precisely because so few demands are made in return. In addition, the legislation does not zero in on companies or areas of the economy that have been hit hardest by the coronavirus. It also does nothing to incentivize types of behavior. For example, solar and wind tax credits created incentives to build renewable plants.
Instead, businesses that were struggling before the pandemic have received tax refunds for losses incurred in 2018 and 2019 — years in which no U.S. business were affected by the pandemic. The law “doesn’t make any distinction between companies that were hurt by the coronavirus and companies that simply lost money for unrelated reasons,” ITEP’s Matt Gardner said.
The benefits tended to go toward companies with big capital spending programs that gambled on cyclical markets — a recipe for losses and gains at big oil and gas companies, airlines and capital-intensive manufacturing.
The tax break meant that Antero Midstream, for example, could take losses it had suffered in the past couple of years and transform them into immediate tax refunds from the Treasury Department. It was money in the bank for a company whose stock price had been sinking for three years, losing three-quarters of its value. Since then, the stock has rebounded somewhat.
But the Cares money also went to companies beyond the energy sector. In some cases it went to companies whose losses were not even in the United States.
Stericycle, a medical waste disposal company based in Lake Forest, Ill., incurred before-tax losses of $275 million in 2018 and $363 million in 2019, mainly because of problems with its Latin American business. At the time, the company said it faced “challenging conditions” in the region, including strong local competition, and disclosed that U.S. authorities had begun investigating Stericycle for possible bribery.
Stericycle wrote down the value of its Latin American business, an accounting loss it could later use to generate a cash refund under the Cares Act. It had furloughed 2,300 employees but has since brought back more than half of them.
Kelly Hilton, a spokeswoman for Stericycle, said the company has provided bonuses and protective equipment to employees throughout the pandemic and brought people back to work as quickly as its business would allow.
‘Help for their buddies’
None of this was on the table when Congress and the Trump administration originally drew up the Cares Act.
In March, Sen. Charles E. Grassley (R-Iowa) led a group including other Senate Republicans, Treasury Secretary Steven Mnuchin and White House economic adviser Larry Kudlow that proposed the new tax breaks for past losses as Congress raced to put together the final coronavirus relief bill. Grassley, the chairman of the Senate Finance Committee, said in a March statement that the tax package would “unburden businesses so they can keep employing those who are home caring for their families and helping to prevent the spread of the virus.”
Democrats were focused on the cash subsidies to people who had lost their jobs and were collecting unemployment insurance.
“If I had been able to go off on my own, I sure would have written a different bill. I would have written a very different bill,” said Sen. Ron Wyden (D-Ore.), the Finance Committee’s top Democrat. But he said that while “millions of Americans were on a precipice” with difficulties paying rent, utilities and pharmacy prescriptions, Mnuchin made it clear that the Republicans wanted some kind of tax breaks for corporations.
“They wrote this so they could get help for their buddies across industries,” Wyden said. “They wrote this so they can help all their corporate friends and tell them, ‘Look at what we got for you.’ ”
Kudlow called the net operating loss tax break “one of the single best things we did” in the first round of stimulus. The provision did help American workers and families because it gave businesses the means to keep more people employed, he said.
“You cannot have a good paying job or for that matter any job unless there is a successful business to hire you,” Kudlow said. “It’s the business that creates the job that sustains the economy.”
Senate Republicans said they did not want to put a lot of limitations on which companies were eligible and how they could use the money, according to a Republican aide involved in the Cares Act negotiations who was not authorized to comment publicly and spoke on the condition of anonymity.
“If you are looking at the time when we were putting this together, the issue wasn’t who was worthy to receive the relief,” the aide said. “We didn’t know who would end up needing it. We had to assume that everyone would likely need relief.”
A spokeswoman for Mnuchin did not respond to an email seeking comment.
Jason Furman, a Harvard University economics professor who was chairman of President Barack Obama’s Council of Economic Advisers, said that the juxtaposition of Republicans opposing food stamps while pushing for the business tax break was “galling.” But, he said, the tax provision itself was “not a crazy, reckless, insane idea.”
But Mark Zandi, chief economist at Moody’s Analytics, ranked loss carry-backs dead last in his 2011 list of 22 economic policy levers most likely to help restart a sputtering economy. The tax break, he estimated, would probably generate only 25 cents of gross domestic product growth for every dollar invested; food stamps ranked first, with $1.71 in expected GDP growth for every dollar invested.
Today, Zandi said, nothing has changed. He still sees carrying net operating losses backward as “low on the list” of measures likely to give a boost to the economy. “Those companies that would benefit from this, they are not going to drive the train,” he said. “They were already struggling coming into this.”
“The companies that are doing the bulk of hiring, investing [and] growing, they are not laying off workers,” he said. “They are not constrained by cash or capital or credit. They’ve got a lot of all of the above.”
Congress could have required companies applying for tax breaks to show that they needed the cash and to promise that they would not distribute it to shareholders or lay off employees, said Dorothy A. Brown, a law professor at Emory University. Instead, the tax breaks were too broad in their applicability, she said, and “you see corporations taking money and laying off employees.”
And at a time when climate change is raising concerns about fossil fuels, the Trump administration and Congress could have avoided tilting the assistance toward oil and gas companies.
“You shouldn’t have to be a connected oil company or polluter to get taxpayer support to weather this pandemic,” said Kyle Herrig, president of the watchdog group Accountable.US. “Unfortunately, the Trump administration has pulled out all the stops for their extractive-industry special-interest allies who had upside-down balance sheets well before the ensuing economic downturn, while small businesses, the unemployed and underemployed have been left to fight for scraps.”