Diversifying the Coalfields Economy
The economy of Southwest Virginia has traditionally been tied to the coal mining industry. Yet these jobs have been in steady decline for more than two decades.
Statement of Issue
The economy of Southwest Virginia has traditionally been tied to the coal mining industry. Yet these jobs have been in steady decline for more than two decades. Between 1990 and 2009, Virginia coal mining employment dropped by 57%--to fewer than 4,600 jobs, tracking a 54% drop in coal production during the same period. The Energy Information Administration (EIA) predicts that this precipitous decline will continue as more of the state’s most productive coal seams are mined out. For the central Appalachian region as a whole, the EIA projects a 43% decline in coal production from 2009 levels by 2020.
Moreover, data show that counties in Southwest Virginia with the most strip-mining activity (which includes mountaintop removal coal mining) have seen declining incomes over the past twenty years, while neighboring counties without significant strip mining have seen stable or increasing incomes.
As these charts show, the increasing reliance of the coal industry on mountaintop removal coal mining is neither adding jobs nor improving incomes in counties where this mining is most common. The obvious conclusion is that Southwest Virginia must diversify its economic base beyond coal.
We support economic development programs in the coalfields area, with the long-term goal of diversifying the employment opportunities available to former coal miners, young people just entering the work force, and workers displaced by the economic downturn. From tourism and forestry products to manufacturing and high-tech jobs, the area has significant potential to create thousands of new jobs in diverse industries.
In spite of the fiscal challenges Virginia faces, the funds to pay for an economic program in the coalfields area could be easily obtained by repealing unnecessary tax subsidies for coal companies and utilities, freeing up approximately $45 million per year.
Background
Coal Subsidies Don’t Create Jobs.
Currently, Virginia’s taxpayers directly subsidize coal mining through approximately $44.5 million in corporate tax breaks provided by two Virginia statutes: code sections 58.1-433.1 (for utilities) and 58.1-439.2 (for coal companies). These sections provide subsidies to coal companies and utilities for the extraction and consumption of Virginia coal. The initial purpose of these provisions was to create employment in the coalfield areas of Virginia, but in fact they are only loosely related to employment levels and have not created new jobs; instead, they serve only to favor coal extraction over all other business activities in the Commonwealth.
For coal companies, the credit is initially based on the amount of coal extracted as well as the method used. That credit is then limited or increased based on the “employment factor.” The employment factor is a percentage equal to current year coal mining jobs, divided by immediately prior year mining jobs.
So, if the coal company kept employment at the same level and increased productivity, the credit would go up. The credit could even go up if employment went down but production went up, because, for example, 80% of a larger number might be greater than 100% of a smaller number.
The credit for utilities does not take employment into account at all. As with the credit for coal companies, the credit merely results in a windfall for corporations. Indeed, current practice is for the utilities sell their tax credits to coal companies, which are permitted to cash them in, sharing a small percentage with the Virginia Coalfield Economic Development Authority (VACEDA).1 Thus the “credits” not only deprive the Commonwealth of income, but actually result in cash payments to coal mining companies, courtesy of the taxpayers.
1. The Virginia Coalfield Economic Development Authority was established to enhance the economic base for the seven counties and one city in the coalfield region of Virginia (Lee, Wise, Scott, Buchanan, Russell, Tazewell, and Dickenson Counties and the City of Norton). These same jurisdictions could be covered by the jobs credit.
Recommendations
A far more effective means of increasing employment in the coalfield areas of Virginia would be to redirect some or all of the coal subsidy monies directly to programs that support economic diversification. A portion of that money could continue to be allocated to Virginia Coalfield Economic Development Authority, or it could go to local job programs.
Alternatively or in addition, job creation could be incentivized through a robust jobs credit for employers in the coalfields area. A jobs credit could be narrowly tailored to specific types of employment, such as new manufacturing jobs or it could apply to any new jobs created in the region (including service sector jobs). Opening it to all jobs would cast the widest net possible to attract new businesses.
For example, the legislature could create a credit based on wages paid to each new employee. Whether new employees had been hired could be determined by looking at a base period, perhaps two years, and comparing employment during the base period to current employment levels at the company. To the extent that current employment was greater than base period employment, the employer would get a non-refundable credit against its income tax liability for some portion of the new employee’s wages.
The dollar amount of the credit would be set at the level the legislature deems appropriate to stimulate employment. The credit could be limited to first year wages or extended beyond that. Qualifying hires could be limited to current residents of the region or include those who relocate to the coalfields area.
Such a tax credit, narrowly focused on increasing employment opportunities in southwest Virginia, would attract new business and incentivize the expansion of existing businesses, without giving a windfall to one industry (electric utilities) that is already financially robust, and rewarding another (coal companies) that has failed to create jobs.
A budget of $44.5 million would be sufficient to fund thousands of new jobs for coalfields residents through such tax credits, even if the credits supported fully one-third of the cost of each new employee in the first year, up to a limit of $15,000 per employee, and phasing out over three years. Since growing companies and new jobs would generate tax revenues for the state, the net cost to taxpayers would be less, even before considering the likelihood of a multiplier effect.
The result would be new jobs in the hard-hit coalfields area, a fairer sharing of the tax burden among the various sectors of Virginia business, and savings for taxpayers--a triple win for Virginia.
Contact
Tom Cormons, Appalachian Voices
434.293.6373
Ivy Main, Sierra Club - Virginia Chapter
703.448.7618