I’m talking about data showing a decrease in coal severance tax revenue. Last week the General Assembly’s Program Review and Investigations Committee met to receive a legislative staff report on Kentucky’s coal severance tax history and conclusions about its possible future. I would like to share with you some of that data.
First off, the staff report shows that the tons of coal produced in Kentucky, price of coal, and coal severance tax revenues in our state are declining.
Data culled for the report from 1960 through 2011 shows that tons severed in Kentucky have decreased 1.7 percent per year since 2000, revealing a significant shift in coal severance from the state’s production peak in 1990 when, the report shows, a total of 173 million tons were mined. In 2011, approximately 109 million tons were severed.
The price of coal is also declining, according to the report. In late 2012, prices were around $60 per ton which the report says is down from its peak. Eastern Kentucky coal was trading for around $80 per ton two years ago, according to industry news.
Now on to the issue of coal severance tax revenue declines. The legislative report lawmakers received last week restated what we have been hearing for quite some time: Coal severance tax collections are falling. The committee was given data from fiscal years 1988 through 2012 to make that point. In Fiscal Year 2012, the staff report shows Kentucky’s coal severance tax revenues were $298 million, down from a peak of around $350 million in the late 1980s/early 1990s when adjusted for inflation. Then, just last week, the State Budget Director’s Office released data showing that coal severance tax revenue fell almost 23 percent from Fiscal Year 2012 to Fiscal year 2013.
What is the effect on our counties? That depends on what coal severance funds are being used. The funds are distributed through the state General Fund and via two state government funds, the Local Government Economic Development Fund (LGEDF) and Local Government Economic Assistance Fund (LGEAF). Funds from the LGEDF go to single- and multi-county accounts in coal producing counties in the form of grants, while the LGEAF funds go to coal counties (90 percent) and non-coal producing counties with roads affected by coal haul (10 percent). A list of those roads and highways are kept on file by the state Transportation Cabinet.
As far as LGEAF funds are concerned, the staff report says that local officials in both Eastern and Western Kentucky coal counties are concerned that their counties will have less funding for public safety, health, industrial economic development, and other approved uses as severance tax revenue declines. They are preparing for lower LGEDF and LGEAF allocations in the future, based on the report.
The situation with LGEDF grant funds is even more perplexing. Most counties that receive these single- and multi-county funds are Eastern Kentucky counties, with Pike County at the top of the single-county allocation list. These funds are very important to these counties: Job incentive grants, industrial parks, public health and safety, public infrastructure, water improvements are all recipients of these funds in the Eastern and Western regions of our state where coal is produced, with tens of millions of dollars in projects authorized in each state biennial budget that the General Assembly passes every other year.
The problem with severance tax declines is that counties don’t have the money to finish their LGEDF “line item” projects authorized in the state budget due to a lack of funds. Legislative staff told the Program Review and Investigations Committee that there are approximately 27 counties in the current budget cycle that are short on LGEDF funds for projects authorized in the last state budget because of coal severance tax revenue declines.
It is uncertain where coal severance tax revenues will end up in the current fiscal year which began on July 1, legislative staff explained. When asked by committee co-chair Sen. Chris McDaniel of Taylor Mill if coal counties could possibly see Fiscal Year 2014 severance tax revenues in the $200 million or less range, the staff replied that is uncertain. Collections in Fiscal Year 2013 were $230 million, staff said, adding that it is difficult to predict what the trend will be in 2014.
It was refreshing to see sympathy among non-coal county members for the plight of our coal regions. The tonnage price declines and seemingly-inevitable switch to natural gas electricity generation plants from coal-fired power are indeed a “war” on coal counties and coal states, these members admitted. One Central Kentucky legislator even questioned the future of natural gas, stating that once most plants are switched over will it even be possible to switch back to coal if necessary. The questions abound.
One thing is certain: We have an obligation as a state legislature and as Kentuckians to work with all coal counties and see them through this changing tide of economics, regulation, and taxation. “United We Stand, Divided We Fall” remains our state motto. Let’s be sure that we live by it.
Rep. Brent Yonts
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