Coal Tattoo

The decline of coal and W.Va.’s budget shortfall


A C.S.X. train loaded with coal winds its way into the mountains in this Nov. 21, 2004 file photo taken near the New River at Cotton Hill in Fayette County, W.Va.  (AP Photo/Jeff Gentner)

It’s always interesting to see how coal industry officials will jump to use any little tidbit in the media to try to make their argument that the Obama administration’s “war on coal” is somehow unfairly punishing West Virginia, destroying coalfield communities and dismantling our state budget in the process.

Some folks are doing that today with parts of Gazette statehouse reporter Phil’s Kabler’s latest effort at covering the state budget, in which Phil told us:

Based on current revenue projections, legislators will need to cut spending by about $80 million in the state budget that begins next July, and that budget gap is projected to grow to $265 million for 2015-16, state Budget Office Director Mike McKown told legislators Monday.

“The way you do that is to cut budgets or to raise taxes, and there’s no appetite to raise taxes,” McKown told a legislative interim committee.

Here’s the part about the coal industry:

… The state economy of late has been flat, primarily because of declining coal sales, he said.

For the first three months of the 2013-14 budget year, tax collections are down 3.4 percent.

“As long as our revenues are flat and our expenses go up, we’re getting into structural problems with our budget,” McKown said.

Electrical power plants are converting from coal to cheaper, cleaner natural gas, and while the state collects a 5 percent severance tax on each source of energy, statewide coal sales last year were about $8 billion, while natural gas sales totaled only about $2.3 billion, McKown said.

Severance taxes account for about 11 percent of the state’s general revenue budget, he said.

Also, natural gas production is much less labor-intensive, McKown said, pointing out that consumer sales taxes and personal income taxes combined account for 72 percent of the state budget.

“Coal miners make a lot of money, pay a lot of income taxes, and buy a lot of things,” he said, outlining the impact of declining coal employment on the budget.

Fair enough. There’s simply no question that the coal industry has a big impact on our state’s economy and, especially, on the state government budget.  In a coal industry-sponsored study published in 2010, researchers from WVU and Marshall documented this impacts. Of course, that’s not the whole story. Downstream Strategies explained in a separate report that the coal industry actually costs the state government budget more than the industry provides to the state.

But the media reports  don’t exactly tell the full story about the current budget situation. They leave out some important facts that would help readers understand that a big hunk of the budget problems West Virginia officials now face are really self-inflicted ones. For example, as the West Virginia Center for Budget and Policy has tried to explain, state leaders decided to phase out the business franchise tax and reduce the corporate net income tax rate. The center warned back in early 2011:

Because the Legislature did not replace the lost tax revenue with corresponding tax increases, it will become increasingly harder for the state to fund services and programs.

To his credit, Phil did mention this in a column back in July — noting that cuts in the food tax, corporate net income tax, and business franchise tax alone accounted for $110 million in lost revenue per year — but that item was buried toward the end of a column, and hasn’t really been mentioned since. And let’s not forget that the West Virginia budget loses money in other ways, like the tax credit for mining thin seams of coal. As the center has reported, the value of the tax reduced rate was nearly $75 million in 2010 alone.

UPDATED: Ted Boettner of the center just came out with a new blog post called The Missing Tax Cuts…The Source of State Budget Woes, which explains that the tax cut hit to the state budget is far larger than Phil reported a few months ago:

According to the 2013 Tax Expenditure Report, the food tax elimination – which took place this year – reduced sales tax revenue by $145 million last year and will cost the state $174 million in 2013 (FY 2013/FY2014).  The low-income tax credit – which our organization has supported – cost the state $16.3 million according to a recent fiscal note. Meanwhile, the large business tax cuts have cost us at least $126 million. I say “at least” because this is the amount the WV Commerce Department says businesses saved in FY 2012 (which was 1.5 years ago). It is unclear whether this figures includes the manufacturing investment property tax credit that was established in 2008 to reduce inventory and equipment taxes and cost the state an estimated $3.3 million in 2008.

As folks may recall, the corporate net income tax rate has dropped from 9% in 2007 to 7% in 2013 and will make its final plunge to 6.5% next year. The business franchise tax (a tax on the net-worth of a business) rate has dropped from 0.70% in 2006 to 0.21% in 2013. Beginning 2015 the tax will be eliminated. 

It’s also interesting to see state officials saying – unchallenged by the media — that there is “no appetite for tax increases” in West Virginia.  Back in June, the Union of Concerned Scientists released the results of a public opinion survey that showed most West Virginians actually support an increase in taxes on coal operators to help support  economic development projects, infrastructure improvements and worker training programs in coalfield communities.

Nor for nothing, but the sorts of long-term economic improvements coalfield communities might see from those kinds of efforts might also create new economic engines that would help pay for important state government services, making up for at least some of the budget holes left as the coal industry continues to decline.