The Richmond Register

State News

December 11, 2013

Coal severance funds have gone lots of directions

FRANKFORT — It was supposed to be different. When Kentucky started sending half of its coal severance taxes back to coal-mining counties, it was supposed to be used for economic development in anticipation of the days when coal would no longer dominate the coal-field economy.

That day has come, but there’s not much to show for the coal severance money that’s been spent in eastern Kentucky over the decades. Some industrial parks — some of which sit idle — and airports were built, and severance funds boosted efforts to provide water and sanitary services to residents.

But, over time, the money began to be used for a lot of things hard to describe as economic development: fire trucks, flagpoles, youth sports uniforms, athletic complexes and the operational expenses of local governments.

On Monday in Pikeville, people heard how it might have been. Joe and Tony Sertich are on the Iron Range and Resources and Rehabilitation Board of Minnesota. It dispenses grants for start-up businesses, helps pay out-of-work miners to develop public works and encourages tourism.

The grants are funded by severance taxes. But in Minnesota, decades ago, the money was used to establish a fund which has grown to $142 million and the grants come from the interest earned on those funds. They told people from eastern Kentucky they can do the same with their severance taxes, which created considerable excitement at the SOAR Summit convened to discuss ways to combat epidemic job losses in the region.

Unfortunately, Kentucky hasn’t been as farsighted.

“When the severance taxes began, we had a real focused way to spend them on bringing in jobs and creating leisure opportunities,” said Dee Davis, president of the Center for Rural Strategies based in Whitesburg.

“But these rules eroded after a long period, and we end up seeing little political funds that go to buy gym shoes and Little League t-shirts and police cars,” Davis said. “All that stuff is important, but the idea of severance taxes was to take care of our future, not make us more comfortable today.”

Davis, who attended the SOAR Summit, was impressed to learn the Minnesota fund has grown to $142 million “by just not dipping into it for every little, nagging need.”

Now the challenge is how to re-direct those dollars after local governments have come to rely on them to help fund annual operating budgets and politicians to curry favor and votes.

Rep. Leslie Combs, D-Pikeville, and Rep. Fitz Steele, D-Hazard, want all the money to go back to the coal region, but Gov. Steve Beshear says the state’s “strapped” General Fund budget can’t stand to lose its 50 percent share right now.

Rep. Tim Couch, R-Hyden, agrees but he wants the extra money restricted for regional economic development and if local jurisdictions can’t cooperate to produce results over a specific period of time, say five years, they’d lose the money.

Couch concedes it will be both fiscally and politically difficult for the region and the state to change the way it uses severance taxes.

He said Leslie County, where he lives, uses about $2.8 million in severance taxes to fund its annual budget. But that amount is expected to fall to less than $1.5 million in the new year as coal production in the area plunges with the closing of coal-fired generating plants in the southeast.

Couch laments the state didn’t emulate Minnesota’s example years ago. But despite the difficulty of falling coal production and tight state and local government finances, Couch thinks the state must begin now to invest for the future.

Couch said Leslie has an 18 percent unemployment rate and a population of just fewer than 11,000.

“We’ve got to start somewhere, and we’ve got to do something now,” he said.

Ronnie Ellis writes for CNHI News Service and is based in Frankfort. Reach him at rellis@cnhi.com. Follow CNHI News Service stories on Twitter at www.twitter.com/cnhifrankfort.

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