War on coal creating state budget issues

Exports are a key component of West Virginia’s economy – but they were down drastically last year. That does not bode well for state budget planners.

During 2012, state businesses exported $11.3 billion in goods. But last year, the total plunged to $8.4 billion, almost entirely because coal exports declined precipitously. Coal exports were down to $4.4 billion in 2012.

As Gov. Earl Ray Tomblin emphasized in discussing a report on exports, the past three years have been record ones. The 2012 amount was the highest ever recorded.

So the drop last year was not unexpected. Even accounting for it, 2013 was the third-best year on record.

Coal severance taxes have been a mainstay of the state budget, ranging between $400 million and $500 million a year. So when coal production drops, so does revenue feeding into the budget.

Other factors have contributed to revenue falling far below projections during the past year, of course. But coal, in part because of direct severance tax payments into the budget and also because it is an indicator of the health of the rest of the economy, bears watching.

In order to balance the budget for the upcoming fiscal year, Tomblin and legislators will have to take between $80 million and $100 million from the emergency “Rainy Day” fund. As we have pointed out, it is likely the fund will have to be tapped during at least the next couple of years, too.

Declining coal production hurts West Virginia municipalities and counties, too. They receive part of severance tax income. According to the state Treasurer’s Office, counties and municipalities received $9.4 million in the April 2013 distribution. But by this January, the amount had dropped to $7 million.

Unfortunately, there is no reason for optimism about the coal industry. Competition from other countries, including coal giant Australia, in the export market has hurt. On the domestic front, President Barack Obama’s war on coal has resulted in declining demand.

Clearly, state budget planners should be thinking of how to cope with ever-declining revenue from coal severance taxes. From a national energy policy standpoint, less coal production makes no sense. Unless the war on coal is reversed, however, it will be a fact of life.