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Wed March 14, 2012
Report Urges Policymakers to Consider Long-Term Sustainability of Coal Severance Fund
State lawmakers are considering a bill that would designate some coal severance tax money to scholarships for coalfields residents; the measure has already passed the House. But a report by a non-profit group warns that Kentucky needs to think about the long-term future of the state’s coal severance fund. Coal producers pay a tax of four and a half percent value of coal that’s sold into the state’s coal severance fund. Half of that money goes to Kentucky’s general fund, and the other half goes to various programs in coal-producing counties. Last year, the state’s coal severance tax generated more than $295 million. But the Energy Information Administration has predicted a steep decline in Appalachian coal over the next several decades, and that also will eventually mean declining coal severance revenue for Kentucky.
Jason Bailey is the research and policy director for the Mountain Association for Community Economic Development, and one of the report’s authors. He says the coalfields scholarship lawmakers are considering may be a great idea. But: “No matter what programs we come up with, as coal declines, if it declines as the official projections say it will, there’s going to be less money to spend on whatever we think is the most important investment,” he said. Instead, Bailey says it’s important to set some of the severance money aside to grow.
In the report, he lays out the case for a permanent fund, where some of the severance money is invested. Dividends are taken out to fund programs, but the principal grows over time and can fill in the gaps as tax revenue declines.A permanent fund could help Kentucky—in particular, the eastern, coal-producing counties—create greater economic diversity to fuel the economy and employ those who used to work in the coal industry. Bailey says there could be other solutions to the issue, but the state’s policymakers need to begin planning for what forecasters are predicting is the inevitable decline of coal.
“The region needs to be having a bigger and broader conversation about what’s been happening and what’s likely to happen to the main industry that has provided employment for lots of people,” he said. “And that conversation’s just not happening deep enough or with enough people or with a long enough time frame in mind.”
Six states—all out west—have already established permanent funds to supplement their own extractive industries.