On this episode of The Legislature Today, higher demand for coal and natural gas, as well as higher prices, produced a severance tax windfall for the state over the past few years. But prices have fallen, and with it, tax revenues. To get a better idea of where things stand, Curtis Tate spoke with Kelly Allen, executive director of the West Virginia Center on Budget and Policy.
On this episode of The Legislature Today, higher demand for coal and natural gas, as well as higher prices, produced a severance tax windfall for the state over the past few years. But prices have fallen, and with it, tax revenues.
To get a better idea of where things stand, Curtis Tate spoke with Kelly Allen, executive director of the West Virginia Center on Budget and Policy.
In the House, among the bills on third reading Thursday included a proposal to allow schools to hire trained security guards. The bill led to a social debate over the issue of training in systemic racism. Randy Yohe has more.
In the Senate, the chamber advanced 13 bills. They sent Senate Bill 596 to committee. That bill is the same as House Bill 5045, which would give the EPA assurances that carbon capture and storage will not pollute groundwater. The House version was amended to be fused with the Senate bill.
Also, House Democrats held a press conference to highlight their priorities going forward. Randy Yohe has that report.
Finally, the House of Delegates held a public hearing on a bill that would restrict transgender West Virginians access to bathrooms, changing rooms and locker rooms that match their gender identity.
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Decreases were expected in personal income tax revenues – and in severance taxes relating to a fluctuating coal, gas and oil market.
Breaking down West Virginia’s $1.8 billion surplus from the past fiscal year, while projecting a 2024 budget, Department of Revenue Deputy Secretary Mark Muchow told members of the legislative Joint Committee on Finance that while funding increases were consistent across the board, decreases were expected in personal income tax revenues – and in severance taxes relating to a fluctuating coal, gas and oil market.
“We also expected a big reduction in severance tax due to lower energy prices,” Muchow said. “Here we have a reduction of $633 million, and the official estimate is 66.9 percent.”
Muchow said recent monthly severance tax collections are currently exceeding budget estimates and will be closely monitored going forward. He said energy production was not the problem.
“Coal production is up 5.9 percent,” Muchow said. “We’re on target for 90 million tons of coal. And natural gas production is up 9.9 percent. It’s all about the price. The math is pretty easy, our tax is 5 percent of the price. So we will rise or fall on price. And we had a very warm winter last winter. Who knows what’s coming in the future?”
Gov. Jim Justice has said new workers and their families coming to West Virginia will offset the 21.25 percent personal income tax cut implemented this year.
Revenue Secretary Dave Hardy noted that these revenue streams tend to slow down in July and August.
“As of the end of August our consumer sales tax revenue was up 2.5 percent from a year ago,” Hardy said. “Our personal income tax revenue as of the end of August, was down 16.2 percent. Well, we did a 21.25 percent income tax reduction. So, the fact that our revenue is only down 16.2 percent in the personal income tax category means that we still have real growth in income in our state.”
Hardy said the personal income tax cut will put a projected $696 million back into citizens pockets through the PIT reduction.
The release noted that at the close of the fiscal year, June 30, 2023, at midnight, total collections for the revenue year will come in at approximately $6.5 billion – 10 percent ahead of prior year adjusted collections – marking the first time in state history that final collections for a single year have exceeded $6 billion.
Gov. Jim Justice announced on Friday that West Virginia’s cumulative revenue collections for Fiscal Year 2023 will come in at $1.8 billion over estimate. He said the budget surplus breaks the record for biggest single-year revenue surplus in state history for the second year in a row.
“I’m going to work with the Legislature to take what’s left unappropriated and continue to make wise investments in what we know will bring us more goodness,” Justice said in a press release. “Things like infrastructure, federal matches, and tourism, because the more we tell the world about West Virginia, the more people will want to live, work, and raise their families here.”
Looking at the fiscal 2023 year end numbers, Kelly Allen, the Executive Director of the West Virginia Center on Budget and Policy, called this a manufactured surplus. She said because Justice set revenue estimates artificially low, that essentially capped the size of the budget and left state financial and employment crisis situations unresolved.
“Legislators have to pass a balanced budget,” Allen said. “They have to stick with that top line number that the governor gave them when they passed the budget that had to stay at $4.8 billion, even though we knew more like $6 billion was going to come in. And we’re seeing the results of that with the budget crisis at WVU, with vacancies at our correctional facilities with other crises that are going on. We think of that surplus as a missed opportunity of taxpayer dollars that aren’t getting to where they’re supposed to go, because agencies and other organizations that depend on state dollars haven’t been able to build those into their budgets.”
The release noted that at the close of the fiscal year, June 30, 2023, at midnight, total collections for the revenue year will come in at approximately $6.5 billion – 10 percent ahead of prior year adjusted collections – marking the first time in state history that final collections for a single year have exceeded $6 billion.
In an income breakdown, the release noted:
Severance Tax collections set a record of nearly $950 million, a 24% increase from the prior year, with taxes from natural gas accounting for roughly 60% of total collections.
Corporation Net Income Tax collections grew at 14% and totaled $420 million, eclipsing a record set 15 years ago in 2008.
Personal Income Tax collections set a new record of $2.66 billion, despite a rate reduction of 21.25% that kicked in after the West Virginia Legislature passed and Gov. Justice signed HB 2526, the largest tax cut in State history.
Consumer Sales Tax reached an all-time record of $1.75 billion, growing by about 5.7% from last year, and Interest Income Tax Collections reached an all-time record of more than $132.4 million.
Allen said those record collections are skewed because responsible budgeting requires accounting for inflation’s impact on the budget.
“With inflation, the cost of everything goes up,” Allen said. “Things that the state pays for goes up – salaries for state workers, the cost of health insurance and medical costs, utilities. The costs go up every year a little bit just like they do for households. And by holding the budget flat, that means that the agencies and public organizations that rely on state dollars are able to do less and less with the same amount of money because the dollar just doesn’t go as far. It’s a problem for maintaining services, as we’re seeing in these crises and different sectors all over the state. But it also means that taxes that are being paid by all of us aren’t aren’t getting to the public services that we intended for them to pay for.”
The Justice press release added that, by law, a percentage of the year-end surplus must be transferred to the state’s rainy day fund, this year that amount is approximately $231 million. This leaves approximately $454 million unappropriated. June 2023 total collections are expected to come in at approximately $580 million.
On a recent Saturday, over Zoom, a group of seven high schoolers from Wyoming, eastern Kentucky and West Virginia gazed at an image of a gleaming, pale blue, coal-fired power plant.
“OK, so this one really interested us,” said Sarah Belcher, a senior from eastern Kentucky. “So we noticed your all’s coal facilities, they’re really new, state of the art. And around here, like they’re older, they’re really rusty. What has caused you all to be able to have that there?”
The power plant in the photo is Dry Fork Station, one of the newest coal-fired plants in the country. It’s located seven miles north of Gillette, Wyoming. The self-proclaimed “energy capital of the nation,” Gillette is surrounded by some of the most productive coal mines in the United States. In fact, Wyoming accounted for about 40 percent of all coal mined in the country in 2018.
This, like Appalachia, is coal county. But Wyoming’s coal industry, which it shares with nearby Montana in a region called the Powder River Basin, is only about 50 years old. In contrast, coal has flowed from mines across Appalachia since the mid-1700s. Appalachian coal, for decades, powered the rise of American industry and fueled the country’s growth and prosperity.
In recent decades, and sharply over the last 10 years, the coal industry in both Wyoming and Appalachia has faced severe declines. A combination of the rise of inexpensive natural gas as a result of the fracking revolution, the falling cost of renewable energy, and stricter environmental regulations has displaced coal as the primary fuel for electricity in the United States.
Last year, U.S. coal production nationwide reached its lowest since 1975, according to the U.S. Energy Information Administration. Since reaching a record-high in 2008 of around 466 million tons, coal mining in Wyoming has been on a steady decline. In 2019, mines in the Powder River Basin produced 277 million tons. Federal data show since 2009, mining employment and coal production has fallen by about 50 percent in the Ohio Valley, outpacing the nation as a whole.
This decline has left coal communities reckoning with their future. And it’s why the Ohio Valley ReSource, with our partners at America Amplified and Wyoming Public Media, wanted to convene a group of young people from these two regions. Each participant submitted photos that showcased their community. While flipping through these images, we discussed stereotypes, community and the ways the coal industry impacts our lives. While bonded by coal, the two regions have taxed and benefited from the industry in vastly different ways, and that could determine how they fare after coal’s decline.
Regional Differences
“Since coal mining has gone down, towns are losing a lot of their older population, and they can’t keep [a] newer generation,” said Brooke Thomas, a senior at Oak Hill High School in Fayette County, West Virginia.
The four young women from eastern Kentucky and West Virginia explained the pain felt by coal’s decline, whether it’s crumbling schools, neglected infrastructure or seeing friends and family move away in search of better jobs, and suffer from the deadly coal miners’ disease, black lung.
“I want to stay. I just love it here. I don’t know what living here is going to look like or how I’m going to provide income for myself and my family,” said Makenzie Kessler, a senior also in Fayette County, West Virginia. “But I just love the area even though we’re on such a downhill when it comes to [things] economically.”
Vivian Stockman and Southwings
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Aerial view of mountaintop removal in West Virginia. The “lake” in center is a coal sludge waste impoundment.
Halfway across the country, in Gillette, three students from Thunder Basin High School presented photos that told a different story. A storefront with brand new ATVs for sale parked out front, the smooth ice of an indoor hockey rink, the modern facade of the local high school.
“We have a lot of coal,” said senior Halle Hladky. “We’ve made a lot of money on it.”
Millions of dollars in taxes from the industry have paid for new roads, bridges and schools. Western states knew they had a unique opportunity to benefit from the industry when it was heating up in the late 1960s and early 1970s, said Mark Haggerty, an economist with the think tank Headwaters Economics.
At the outset, Wyoming and Montana both set high severance taxes on coal and created permanent savings funds.
“So in the ‘70s, there was a really strong agreement among the states in the West, that we were happy to have major coal development, we were looking forward to the opportunity for the jobs and the revenue, but the states were going to set the terms about how it took place,” he said. “Because it was new, there was a chance to really design the policies around it almost from scratch.”
He said they were intentional about making sure the revenue would last after the mining ended.
In Appalachia, fiscal policy around coal has looked very different, said Ted Boettner, a senior researcher with the Ohio River Valley Institute, a new Appalachia-centered think tank with a focus on equitable and sustainable policies.
“We’ve engaged in something that’s called regulatory capture where industry ends up playing a dominating role in the regulation of its industry, and that can have very pernicious effects in terms of making sure that any costs that are born on the public, and the people doing the work, are covered by the industry,” he said.
Neither Kentucky nor West Virginia has a permanent fund like that in Wyoming. In an effort to help the industry, West Virginia lawmakers in 2019 instead cut the coal severance tax two percent, punching an additional $60 million hole in the state’s budget.
“They at least had the foresight to think about the future in the 70s,” he said of the governors of many energy-rich states including Wyoming who socked away tax revenue from the industry. “Whereas in West Virginia nobody did that. And you can go to McDowell County to look at some of the results and what happens when all the value of what was produced by the workers in those areas leaves permanently and nothing’s left to help rebuild the economy.”
Quickening Decline
Four years ago, I visited Gillette as a reporter with E&E News’ ClimateWire. At the time, mines in the Powder River Basin had announced layoffs. With the 2016 presidential election underway, the “war on coal” was an oft-cited concern.
Brittany Patterson
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Downtown Gillette, Wyoming as pictured in 2016.
What I found in Gillette was a community shaped by its proximity to some of the most valuable coal reserves in the nation. Newly constructed subdivisions rose out of the hilly landscape. Shiny trucks, boats and campers dotted driveways. There were two frozen yogurt shops and two golf courses. Boutique shops lined the brick-lined downtown including a “cupcakerie” I frequented every day.
In the mid-2000s, the city and county began investing a sizable portion of revenues from the energy sector back into services for the community. Things like a state-of-the-art recreation center featuring a six-lane indoor track and a 42-foot climbing wall designed to resemble aspects of the nearby Devils Tower National Monument. There’s the Cam-Plex, the sports and rodeo complex. New schools, an expanded community college campus and more.
By investing in infrastructure and amenities, the hope is that people will stay in Gillette after coal is gone. Phil Christopherson is CEO of Energy Capital Economic Development, a public and privately funded group tasked with promoting, retaining and expanding business in Gillette. He said the community has successfully evolved from a boom town to a place people want to live.
To remain viable, the community must bring in new businesses and jobs, but the faster-than-expected decline of the coal industry is complicating the effort.
Brittany Patterson
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Wyoming’s Eagle Butte mine in 2016.
This week, Arch Resources, Inc. the second-largest coal company in the country, with mines in the Powder River Basin, announced it would divest from thermal coal and sharply reduce production in the area.
“The urgency is greater, but our resources are actually less,” he said.
There have been some promising developments. A new industrial park is almost full and it hasn’t been built yet. Three projects aiming to extract rare earth elements, a group of metallic elements used in many high-tech devices such as cell phones, from coal and coal by-products are in the works.
“The point is we are working and not saying ‘Well, we’re just waiting for coal to come back,’ because we realize we cannot depend on coal like we have the last 40 years,” said Gillette Mayor Louise Carter-King.
Haggerty, the economist, said research shows investment back into coal communities is key.
“The secret, and it’s not a secret, but the real opportunity of coal is not the coal industry itself. It’s the ability to leverage that wealth and those opportunities into a more diversified economy,” he said. “And there are some examples of communities who’ve been able to make that transition. And, you know, the key lessons are that you need to have that vision from early on right from the start.”
While Wyoming has approached taxing its coal industry differently than Appalachia, Haggerty said over the decades, the strong fiscal and environmental policies established over taxing western coal have been eroded. Instead of thinking of the windfall from coal as additional money, it has replaced the tax base.
Brittany Patterson
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A trainyard in Wyoming’s Powder River Basin.
“We’re dependent on it. So when it goes away, even though we had much, much more of it, and we have these big savings funds, without a general tax base to fall back on that revenue, and those savings will not carry us very far,” he said. “So, we find ourselves looking at a very similar looming fiscal crisis.”
It’s a situation well known in Central Appalachia. According to recent data from the Appalachian Regional Commission, 190 of 420 Appalachian counties are considered distressed or at risk, in no small part due to the downturn in the coal industry. Falling coal tax revenue has caused some communities to cut services, including policing. In places such as Martin County, Kentucky, some residents don’t have access to clean drinking water due to the environmentally destructive legacy of coal mining and a chronic lack of investment in basic infrastructure.
Glimpse of the Future
At the end of the two-hour virtual meeting, we asked the students to share one thing they would take away from this conversation. For Gillette high school senior Turner Eiland, he wondered what’s ahead for his community and those of his counterparts in Appalachia.
“It seems like you guys are a glimpse in the future for what’s to come for our communities,” he said, speaking on the Zoom call. “I guess our communities are really similar in a lot of ways and I wish there was a better … I wish we had better solutions to help out both of our communities.”
The Ohio Valley ReSource gets support from the Corporation for Public Broadcasting and our partner stations.
Brittany Patterson produced this story in collaboration with Sydney Boles of WMMT and Cooper McKim of Wyoming Public Media and as part of America Amplified, a public media initiative funded by the Corporation for Public Broadcasting.
America Amplified uses community engagement to inform and strengthen local, regional and national journalism.
Behind the Story:
Q: What did the people you talked to say about the experience of being interviewed for public media?
Sydney Boles: After the Zoom call, one student in Appalachia emailed to say how interesting it was to learn about the experiences of her peers in Wyoming. Because even though social media can show us worlds we might not otherwise get to see, nothing compares to a genuine conversation.
Q: What surprised you about this type of community engagement?
S. Boles: It was incredible to watch in real time as young people from two very different regions began to recognize the ways in which their experiences were similar. Given the space to express themselves, the students were curious, generous and vulnerable.
Q: What lessons do you have for others who want to do the same?
S. Boles: Make sure each participant feels valued — because they are! It’s worth the extra few minutes it takes to walk through any questions or concerns they might have about the process, so the participants are excited and comfortable from the get-go.
West Virginia lawmakers have gathered in Charleston to discuss some hot-button issues as part of interim committee meetings.
Lawmakers on the Joint Finance Committee asked Acting Lottery Commissioner Doug Buffington whether there’s any interest in adding an integrity or data fee to the state’s sports betting law. Those fees would be paid to professional sports leagues for certified results.
Citing a potential conflict of interest given his ownership of the Greenbrier Casino, Gov. Jim Justice let the legislation become law without his signature. However, he had pushed for an integrity fee to be a part of the law. Lawmakers have expressed no interest in such fees.
The Joint Committee on Energy heard from industry professionals on the future of coal and natural gas. Coal industry leaders asked lawmakers to reduce severance taxes from 5 percent to 2 percent, while natural gas lobbyists asked for their severance taxes to remain unchanged from their current rate of 5 percent.
The Joint Committee on Health heard presentations on potential banking solutions to state’s stalled medical cannabis program. They heard presentations on investing in the industry and from the Treasurer’s office on possible banking solutions.
Members of that committee have requested Attorney General Patrick Morrisey to weigh in on the banking issue. Gov. Justice requested an opinion from Morrisey back in May, but it has not been delivered.
Gov. Earl Ray Tomblin has approved tax breaks for West Virginia’s coal and natural gas industries.
The Democrat signed a bill Monday dropping additional severance taxes of 56 cents per ton of coal and 4.7 cents per thousand cubic feet of natural gas.
The surtaxes have helped pay a workers’ compensation debt for years.
Tomblin proposed dropping the two levies, and the Republican-led Legislature passed Tomblin’s bill.
They would disappear July 1. Tomblin also can eliminate them earlier.
The bill permits using the money until July 1 to help balance this year’s $384 million budget gap.
Tomblin’s administration expects it would cost $51.5 million in lost coal revenue and $58.1 million lost from natural gas in the 2017 budget year.
Standard severance taxes on coal and natural gas aren’t affected.
