Op-Ed #3
“Ky. Voices: Return 75 percent of coal tax to struggling coalfield counties.” Lexington Herald-Leader, 7/1/13.
By T. J. Litafik
As the closest major Kentucky newspaper to our mountain coal counties, the Herald-Leader has historically done a thorough and conscientious job in trying to bring to light our region’s problems. Its editorial board has tried to help offer solutions — right or wrong.
Very recently, the newspaper revealed the stunning use of multicounty coal severance funds to the tune of $2.5 million for design and planning of Rupp Arena’s renovation. The home of Kentucky Wildcat basketball is some 150 miles from the Pike County seat, yet coal severance funds were allocated to this project in the heart of downtown Lexington.
Understandably, this caused a great deal of unhappiness among Eastern Kentucky county officials who have had to slash their budgets due to sharp declines in the amount of coal severance tax revenue returned to them. This outcry led to the idea that the Lexington-Fayette Urban County Government should consider the money as a loan to be paid back instead of a grant with no strings.
As University of Kentucky professor Penny Miller wrote in her book Kentucky Politics: Do We Stand United?, “In 1972, [the coal severance tax] issue was brought to Frankfort, when Pike County Judge-Executive Wayne T. Rutherford proposed to the legislature that Kentucky’s counties be allowed to tax coal severed from their land.”
The legislature did not pass laws allowing for a local coal severance tax, opting instead to implement a state coal severance tax in 1974 as proposed by Gov. Wendell Ford.
In addition to the coal tax, Kentucky has severance taxes on natural gas and minerals. The coal severance tax is placed on the gross value of coal severed or processed in Kentucky. Gross value is a function both of how much coal is mined and the price at which it is sold. Its rate is set at 4.5 percent of the gross value.
Most recently, the tax generated $298 million, roughly 3 percent of the state’s General Fund.
In the nearly 40 years since its passage, the coal severance tax has in many ways been a blessing to the coal counties. It has allowed for money to develop that would have been otherwise unavailable. But the issue has become the biggest political football in Kentucky politics, but it is the people of the coal counties who have been kicked around. During the first 20 years of its existence, the coal counties received only a paltry 7.6 percent of the $2.7 billion collected during those two decades.
So, long ago, Wayne T. Rutherford, then a first-term county judge, did not go to Frankfort and plead for help only to see a severance tax passed that has in many ways failed to live up to its potential. The purpose of the severance tax was so that the long-neglected and underdeveloped coal counties might finally benefit from the vast mineral wealth taken from them.
Due to greedy governors, legislators and some short-sighted local officials, Rutherford’s dream has not been fully achieved. As long as the coal severance tax is continually raided to be used as a political slush fund, its potential will not be realized.
Nor will the severance tax legitimately benefit the people as it should if used for empty industrial parks, petty, self-serving projects and short-term needs.
The Eastern Kentucky coalfields are hurting and struggling with a new reality of diminishing coal production and a loss of the good mining jobs its people once knew.
The General Assembly should act to take steps to return at least 75 percent of state coal severance tax revenue to the coal-producing counties exclusively for legitimate infrastructure and economic development uses.
A permanent fund should also be established that earns interest and can pay an annual dividend indefinitely to each coal county. The era of using the coal severance tax for anything but legitimate development and investment in the coal counties must come to an end.
The people of the coalfields deserve no less.