Building a Case for a Coal Severance Tax

Building a Case for a Common Sense Coal Severance Tax

Out of 25 coal producing states, Illinois is one of just three that does not have a coal severance tax, a simple excise fee placed on the value of coal that could bring substantial revenues back to communities and to the state coffers.  A small tax on the value of coal produced in the state could fund job-creating projects in coal-producing communities,strengthening local economies; paying for environmental clean-up once coal companies leave; and helping Illinois’ hard-working families get ahead.

Bucking the National Trend

With its increased production, Illinois now ranks 4th among all coal-producing states in the country. Coal lies beneath more than 37,000 square miles of the state’s surface – or about 2/3 of Illinois. Recoverable reserves at producing mines have been estimated to be 2.5 billion short tons, greater than those of any other state east of the Mississippi River.

Despite stiff competition from natural gas and renewables like wind and solar, market demand for Illinois coal is expected to remain stable. This is due to its relatively low production cost; high energy value and the improved ability of coal-fired power plants to burn Illinois’ high sulfur coal. In fact, Illinois coal mines produced 57.9 million tons of coal in 2014, representing a 58% increase in production over the prior 5 years. In 2015, it increased 3%, while coal in other basins decreased.

 

Having played out recoverable reserves in Appalachia, big coal companies, like Murray Energy, Foresight Energy, Alliance Resource Partners, Peabody Energy, and Arch Coal have been focusing their efforts on mining Illinois’ high-energy coal, where increases in production represent one of the few growth stories for the coal mining business.

Will a Coal Tax Reduce Jobs and Production?

Economic studies and the experience of 22 other states show that a severance tax does not impact production or result in job loss. This means hard-working miners keep their jobs, and communities receive funds to invest in environmental clean-up, education, job training, and infrastructure for a self-sufficient economy.

Wages and transportation have more of an impact on production than a change in tax rates.  In the case of coal, demand and production are predominantly determined by domestic and foreign markets, not taxes.

 – Evan Hansen, President, Downstream Strategies

Why Should Illinois Communities Benefit from a Coal Tax?

Communities across the the state have, for years, experienced the cycle of “boom and bust” associated with coal mining. Expecting the “boom” to last, the economies of these small towns have had little diversification. When companies pull out, or changes in production cause substantial job loss, communities experience spikes in unemployment, and loss of business and trade. The most recent example of this “bust” economy in downstate Illinois comes with the scheduled 2016 closing of the New Era Mine in Galatia, a town of 933 people.  Originally a tobacco-farming hub, Galatia’s economy has ebbed and flowed with the “boom and bust” cycles of coal mining for over a century.

These same communities also are left with legacy costs after coal companies leave, such as: abandoned mined lands; leaking coal slurry; damaged roads and farmland; and depopulated communities as quality of life in rural areas is impacted from blasting associated with strip mines; light pollution from 24-7 operations; increased truck traffic on roads not intended to carry such heavy loads; fugitive dust from mining; and more.

Reinvesting in the Heartland

The Community Futures Initiative (CFI), a statewide effort supporting a coal tax, proposes the state of Illinois collect a coal severance tax primarily for the benefit of communities in active coal-mining areas. They agree with the recommendations of a recent report by the Center for Tax and Budget Accountability and Downstream Strategies that Illinois should implement a coal severance tax set at 5% of the gross value of coal produced, distributing the revenues equally between:

  1.  Illinois’ General Revenue Fund;
  2. Local communities where coal is mined; and
  3. A Permanent Mineral Trust Fund, where a portion of the revenues collected from a coal severance tax would be set aside to grow exponentially.

Interest from the mineral trust fund would be distributed at such time as coal production decreases and revenues from the coal severance tax are lower.  As long as the principal is not used, the fund would remain intact or grow exponentially being available to fund the costs of economic development or other programs put in place and paid for by the tax.

A 5% severance tax on the value of coal produced in Illinois could have generated $141.5 million in annual revenue in 2015 for state and local governments. By 2040, over $4.4 billion could be collected for job-creating efforts, potentially alleviating pressure on property taxes from residents and small businesses.  This is real money that other states are collecting today, and have been collecting for decades.  This is money that Illinois could use to move local economies forward – or pay for the legacy costs of coal mining

Now is the time for an Illinois coal severance tax, while coal production in the state is expected to increase once again. With local communities struggling to diversify their coal-dependent economies, Illinois lawmakers should take advantage of projected revenues that could be generated by a coal severance tax.   A modest 5% tax on the gross value of coal would allow state representatives and senators of coal-producing communities to bring funds back to their constituents to support economic development and job-creating opportunities, not only for today, but also for the future.

To learn more and to take action, visit reinvestil.org

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