Posted on Thu, Jun. 25, 2009

Report: Coal industry costs state government

By John Cheves
jcheves@...

FRANKFORT — The coal industry takes $115 million more from Kentucky's state government annually in services and programs than it contributes in taxes, according to a study to be released Thursday.

The Berea-based Mountain Association for Community Economic Development, or MACED, spent a year examining the coal industry's impact on the state's general fund and road fund.

"The coal industry is pretty free about discussing the positive impact of coal on the state. But there's almost no public discussion about the cost," said MACED President Justin Maxson.

Bill Caylor, who lobbies Frankfort for the Kentucky Coal Association, said he didn't know about the study and thus had no specific rebuttal, but he's sure it's inaccurate. The coal industry contributes plenty and is the largest private employer in some Eastern Kentucky counties, Caylor said.

"I've got a lot of choice words that I could offer on this, but it would sound pretty bad," Caylor said. "It's voodoo economics."

MACED is a nonprofit organization focused on developing economic opportunity in Central Appalachia. It periodically issues policy studies, and with an affiliate, it makes several million dollars in small-business loans.

In its latest study, MACED determined that coal delivered $527 million to the state in 2006, mostly through coal severance, corporate income, sales and vehicle taxes, plus taxes on 17,903 people employed in mining and 52,429 people in jobs that depend on mining.

The same year, MACED said, the coal industry cost the state $642 million.

This includes $239 million for frequent repairs to about 3,800 miles in the coal-haul road system, where trucks weighing up to 120,000 pounds crush the pavement as they carry coal from mines to tipples, trains, barges and power plants. Companies purchase state decals for the right to run coal trucks overweight, but that revenue offsets very little of the cost of road repairs.

Unknown to most taxpayers, MACED said, the state also gives the coal industry a variety of tax breaks, subsidizes the regulatory agencies that deal with its impact and even pays for pro-coal materials through a "coal education program" aimed at schoolchildren.

The severance taxes and mine permit fees the industry pays Frankfort to cover its costs have not increased in about 30 years. Of top coal-producing states, Kentucky gets the least from severance taxes — 2.9 percent of its tax income, compared with 7.1 percent for neighboring West Virginia.

Generations of Kentucky politicians have felt obliged to keep the coal industry happy, and that is reflected in the state's fiscal policy, said Ron Eller, an Appalachian historian at the University of Kentucky.

"The coal industry's resources are often used to support candidates, especially in Eastern Kentucky, who are favorable to its interests," Eller said. "To refuse to take coal money, or to speak out against coal's interests, often results in the defeat of a candidate."

The coal industry spent more than $1 million on state political donations in recent years and $255,145 to lobby the last two legislative sessions. Several top Kentucky lawmakers either own coal mines, hold white-collar posts at coal companies or do private business with coal.

'A complete picture'

Maxson said MACED favored the coal industry in several ways while conducting its study.

It did not account for costs related to air and water polluted by mining and coal-fired power plants, or workers sickened or crippled by coal jobs. It credited the industry for the full $224 million in coal severance taxes paid that year (after $18 million in special deductions), although half that money went to coal-producing counties and did not stay in the state's general fund.

Also, because MACED looked at 2006 data, it did not count the hundreds of millions of dollars in coal incentives approved during a special session of the legislature in 2007 at the request of Peabody Energy Corp. Like half of its fellow members in the Kentucky Coal Association, Peabody — which last year reported record cash flows — mines Kentucky coal but is headquartered in another state.

"Our purpose here isn't to beat up on coal," Maxson said. "It's education. We want to lay out a complete picture so our elected leaders can make informed decisions about how we proceed with our energy policy, our economic development policy and our fiscal policy."

Coal counties poorest

For all the wealth that coal produced over the last century, Eastern Kentucky's coal counties remain among the nation's poorest, Maxson said. Destructive mining practices, such as mountaintop removal, sacrifice the region's natural beauty, and with it other possible employers, such as tourism, he said.

Kentucky must diversify its energy sources and economy so that the decline of Central Appalachian coal — in the face of more accessible Western U.S. coal and the arrival of federal carbon-emission controls — does not devastate the state, Maxson said.

Caylor, of the Kentucky Coal Association, said he agreed with this in part. Kentucky coal is in trouble because Western coal can be cheaply retrieved, and impending environmental laws are likely to reduce the amount of coal that is burned, Caylor said.

But that's why this is the wrong time to raise taxes on the coal industry, he said. Coal companies can't send any more money to Frankfort, he said.

"They want to tax us into prosperity. I don't buy it," Caylor said. "Look, coal has produced billions of dollars for this state. We create a lot of high-paying jobs, jobs that pay $58,000 a year on average. Do they want us to close down and go away?"

The MACED study acknowledges that mining jobs can pay more than $50,000 a year, which in coal counties such as Pike, Harlan and Perry is upper middle class.

However, as coal companies came to rely on mechanization, the number of mining jobs fell from more than 50,000 in the 1970s to 17,903 in 2006.

Today, less than 1 percent of all employed Kentuckians work in coal mining, MACED reported.

Still, the coal industry's boom-and-bust cycles make residents of the coal counties hopeful that a new golden age is about to begin, and 20th-century employment levels will return if the industry is just given enough slack, said Melissa Fry Konty, a sociologist who helped conduct MACED's study.

Maxson said MACED will send copies of its study to Gov. Steve Beshear, his cabinet and the legislature and post it online at www.maced.org/coal