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“It was a tremendous thing to get the coal severance tax,” said the chairman of the Wise County, Virginia Board of Supervisors. “That's all but gone now.”
Taxes levied on the coal mining industry do not produce the same warm glow they once did for the local government coffers in Wise County, Virginia.
Back in the 2008-2009 fiscal year, so-called severance tax collections, derived from coal production in the central Appalachian jurisdiction, were around $12.8 million, according to figures provided by County Finance Administrator David Cox.
During this fiscal year, Cox said, the revenues are expected to check in around $2.4 million.
That roughly $10.4 million slide has coincided with a collapse in the local coal industry.
And it’s not an insignificant amount of tax income to lose, given that the county’s general fund budget in the current fiscal year totals about $48.8 million, down from around $50.1 million in the previous budget cycle.
“We're probably in better shape than a lot of surrounding counties," Cox said in a recent phone interview. But the coal downturn, he added, “has had a very detrimental effect."
Route Fifty recently covered efforts underway in Wise to boost the local economy by attracting aerial drone-related businesses. But these firms, should they choose to locate in the rural, southwest Virginia county of about 40,000 residents, are not expected to flock there overnight.
In the meantime, budget-making in Wise County has entered a new era, one where revenues from taxes on coal production have been substantially diminished.
"I don't know how we'll do budget next year,” said Robert Adkins, chairman of the Wise County Board of Supervisors.
He explained the county is fortunate in that it had built a small cushion of reserve funds to get through lean times, but cautioned: “That can be gone quickly."
“It was a tremendous thing to get the coal severance tax,” Adkins said. “That's all but gone now.”
Troubles in the coal industry are not unique to southwest Virginia.
Coal jobs and production have been declining in other states as well, including Kentucky, Wyoming and West Virginia. A Moody’s Investors Service report issued in May characterized the outlook for the North American coal sector as negative.
Some of the factors pressuring the industry that the Moody’s report highlighted are low-cost natural gas, which provides an alternative to coal; tightened regulations stemming from concerns over climate and the environment; and slowing demand in China for coal that is used as an ingredient for making steel.
A strong U.S. dollar and high costs compared to Australian and Canadian producers mean further disadvantages for American coal, the report also noted.
As of early June, over three dozen coal operators had filed for bankruptcy in the U.S. since 2012, most of them in Central Appalachia, according to a review of filings by SNL Energy.
Peabody Energy Corp., the largest U.S. coal miner, declared bankruptcy in April. Prior to that time, other heavy hitters in the sector had filed for bankruptcy protection as well, including Arch Coal Inc., Alpha Natural Resources Inc. and Patriot Coal Corp.
Coal production in Wise County was down to 2.7 million short tons in 2014, from 12.3 million short tons in 2007, according to figures from the U.S. Energy Information Administration. The number of mines went to 17 from 45 between those two years, the figures also show.
The effects of the shrinking coal mining industry have rippled beyond the mines themselves and throughout other parts of the local economy in the county, Cox noted.
Companies that provided products like machine parts and welding gas have been hurt. People have lost jobs, reducing the amount they’re spending. “It's had a lot of different effects,” he said.
On the upside, Cox pointed out that a new call center and a new data center would be located in the county. The data center, he said, involves a build-out in the ballpark of $75 million and should help beef up the local tax base. It's also poised to create approximately 30 jobs.
The county’s current budget includes about $8.7 million in general fund revenues from a public service corporations tax, which comes from a local coal and biomass power plant. Cox said revenue from this facility has helped to offset the decline in severance tax collections.
Moody’s affirmed Wise County’s Aa3 rating in April, indicating a healthy level of creditworthiness. The rating notice mentioned Wise’s large tax base, strong budget reserves and above average, but manageable, debt and pension burdens as contributors to the rating.
“I’m very proud,” Cox said, “we've kept Wise County actually in decent financial shape.”
Bill Lucia is a Reporter for Government Executive’s Route Fifty and is based in Washington, D.C.