Daily Independent (Ashland, KY)

April 20, 2013

Far less mining

Region experiencing rapid drop in coal severance tax funds

The Independent

ASHLAND — A 47 percent decline in coal severance tax revenue in eastern Kentucky since July of 2011 has prompted the Kentucky Center for Economic Policy to renew its call for regional political and economic development leaders to develop a plan to diversify this region’s economy and reduce its dependence on coal. One hopes that the rapid decline in coal mining in the eastern third of the state will inspire area leaders to finally get serious about finding ways to broaden our economy.

The 26th annual East Kentucky Leadership Conference — which will be April 26-27 in Middlesboro — will be an excellent opportunity for area political and economic development leaders to begin work on the type of economic plan that the KCEP says this region so greatly needs. Unfortunately, through the years, the annual conference of area leaders has done a lot of talking about this region’s many problems, but with a few exceptions, there has been little evidence of developing actual programs and projects to solve those problems.

Maybe that can change this year. After all, one of the topics for Saturday’s concurrent sessions at the conference is using the coal severance tax for “true economic development.” Jason Bailey, research and policy director for MACED of which KCEP is a part, is a facilitator for that session, and the timing could not be better for it.

The facts are alarming. Eastern Kentucky has lost more than 4,000 coal mining jobs in the last year as mines throughout the region ceased operation. As a result, the amount of revenue produced by the coal severance tax in eastern Kentucky during the first three months of 2013 was 39 percent less than the revenue generated by the same tax in January, February and March of 2012.

The new data “should raise alarm among public officials about the longstanding need for an economic transition plan,” the KCEP says in a new report. From April of  012 through March of this year, “eastern Kentucky generated only $154 million in coal severance revenue compared to $228 million during the same period in the previous year.”

The report says  28 percent less coal was mined in eastern Kentucky than in 2011, KCEP reports. And the decline is likely to continue.

 With Kentucky Power Co. planning to shut down at least one of two electric generators at its Big Sandy plant near Louisa, this region is on the verge of losing its largest and most dependable customer for coal. The closing will eliminate some of the best paying industrial jobs in Lawrence County, but it also will eliminate hundreds of jobs for coal miners and for truckers who transport the coal from the mines to the power plant. One would hope leaders in Louisa and Lawrence County are already discussing ways to deal with the closing of the Big Sandy plant.

KCEP is convinced this region has not used revenue from the coal severance tax wisely.

“When the coal severance tax was established in 1972, public officials should have dedicated most of its revenue to investments that could help transition coalfield economies as coal reserves decline,” the KCEP said. “But for the most part, the coal severance tax hasn’t been used for strategies to diversify the economy. A substantial portion of the tax has gone to the state’s General Fund and to help coalfield local governments fix roads and pay for basic services.

“Only in 1992 was a portion dedicated to a fund established for economic development. But use of that fund has been limited to building industrial parks and sites, many of which have sat empty or seen outside businesses come and go after only a few years,” it adds.

“In  more recent budgets, the legislature has earmarked dollars that would otherwise go to the economic development fund for a wide variety of local projects and programs — from senior centers to fire trucks, water projects, ball fields and more — all without a broader plan for how those projects add up to a new economic future.”

One of those projects in the new Ashland Community Kitchen in The Neighborhood, the name given the former Johnson’s Dairy Building that is now the home for five nonprofit agencies that help this community’s neediest residents. Boyd County and Lawrence County combined forces to fund the construction of the new Community Kitchen with funds from the coal severance tax. Like most of the other projects funded with the coal severance tax, KCEP says there is no question the Community Kitchen was needed and provides a valuable community service, but the Community Kitchen does nothing to diversify this region’s economy and make it less dependent on coal.

Declining coal severance tax revenue will mean less money and more tough decisions for state and local governments, Earlier this year, the Kentucky General Assembly enacted a law that allows local governments that have experienced a decline of at least 25 percent in their coal severance tax revenue to shift funds from the economic development fund and local projects to fill holes in county budgets. While that many be the only way for some county governments to balance their budgets, it means less money for projects designed to diversify the region’s economy.

In 2012, KCEP wrote a report calling for the state to create a permanent fund using a small share of coal severance tax dollars, following the lead of other natural resource-dependent states. “A permanent fund means a pool of financial resources that can pay dividends and make investments indefinitely through the long period it will take to diversify the economy.” the report said. “ Just as important as the fund is the need for a democratic planning body that can create and implement a sound economic transition strategy.

Declining coal severance tax funds no longer is just a theory, it’s a fact. Dealing with that decline is a serious regional issue that should be discussed at the annual meeting of the area’s top officials with the discussion evolving into a plan of action that is actually implemented.

 Leaders of the region have talked for more than a quarter of a century. It’s time to act.