The coal industry finds itself trying to survive a national, forced conversion of base fuels and a shrinking market for energy consumption. West Virginia coal simply cannot compete as it once did. It costs more to mine it here, it costs more to transport it from here, and it has unparalleled geological challenges that makes our coal marginally competitive. When you add in a tax liability that is substantially higher than our surrounding states that are also competing for limited market opportunities, it simply serves to aid our demise.
Here’s the math: The states of Pennsylvania, Illinois and Indiana have no severance tax on coal production, and incidentally, all show recent gains in productivity. Maryland has $.17 severance rate and Ohio has $.10 severance. West Virginia’s current 5 percent severance tax rate level equates to $2.50 on every ton mined.
Engrossed Senate Bill (SB) 705 currently before the West Virginia Legislature will lower the rate of coal severance from 5 percent to 4 percent beginning in July 2017, and from 4 percent to 3 percent in July of 2018.
Today, coal contracts are won on nickels and dimes. Even at the 4 percent or 3 percent levels that SB 705 would phase in over the next three years, the tax rate in West Virginia would remain substantially higher.
County governments have already lost coal severance dollars based on lower coal production and pricing levels. Also gone from a number of towns across our state are workers, payroll dollars, income, families and property taxes.
A critical component of this bill is that the percentage share of tax collections currently designated for counties remains unchanged by SB 705, thereby guaranteeing the same dollar return to coal and non-coal producing counties. The current 5 percent severance tax is an adjusted rate of 4.65 percent with .35 percent assigned to counties. In SB 705 the 4.65 will become 3.65 percent beginning July 2017, and then 2.65 percent in July 2018. However, the .35 percent of the sale price of coal remains constant. With all the layoffs, bankruptcies, and overall pain the industry has endured, county governments should support SB 705 as it clearly preserves the precious dollars that go to them.
There are other beneficial reasons to support SB705. Price Waterhouse Coopers, one of the nation’s leading economists, has analyzed coal taxes in West Virginia and concluded the lowering of coal severance liabilities on coal producers would not materially affect the state’s overall fiscal status because of the offset in the number of jobs saved and attendant income, taxes and economic benefits derived from those jobs.
Additionally, the savings from lowering severance taxes would directly benefit electric rate payers and West Virginians generally. With lower costs, West Virginia coal and coal-fired electricity would be more economical and be elevated on the “economic dispatch” from the grid. The dollars saved from a lower tax rate would not be returned to producers but rather would work to the advantage of state residents.
Our industry is weathering one of most rapid declines ever experienced. Our 2016 production is projected to be half of 2008 levels. We have the fewest number of mines ever recorded, and more than 12,000 miners are laid off. Making matters worse, there are more than 400 coal-fired plants in the US that have either closed or have announced their intentions to close.
Coal’s decline likely will continue for the foreseeable future, but the actions of our Legislature today certainly will influence whether more losses occur or the downward trend slows and stabilizes.
We have a limited opportunity to effect change. Passage of SB 705 clearly will assist in combating further erosion of coal markets, employment and coal severance dollars. I urge the Legislature to pass this bill.
Chris Hamilton is Senior Vice President of the West Virginia Coal Association; chairman of the WV Business & Industry Council.