Posted Apr. 20, 2016 at 10:04 PM
Reposted April 22, 2016
State Journal Register
Now Is the Time for an Illinois Coal Severance Tax
By most measures, coal companies are in poor financial shape.
Last week, the world’s largest privately owned coal producer, Peabody Energy Corporation, filed for bankruptcy protection. Companies responsible for more than 45 percent of U.S. coal output are now in bankruptcy.
The market value of publicly traded U.S. coal companies has fallen almost 50 percent since August 2014, while shares of major companies like Peabody have lost more than 90 percent of their value in the last year, stumbling during a period of otherwise moderate, sustained economic growth.
The causes are numerous: natural gas is cheap and competitive, electricity demand has remained stagnant, and banks are pulling financing. As coal prices dropped through 2014 and 2015, companies were forced to reconcile with tight or negative margins and alter business plans to account for a shrinking coal market.
Old corporate mantras of endless expansion and growth are no longer viable business plans.
It would seem that the coal industry is on the ropes, with nowhere to go but down — but what about Illinois?
In the near term, we seem to face a different story. Nationwide, installation of modern pollution controls at power plants has opened new markets for Illinois’ cheap, previously disfavored high-sulfur coal. Since 2008, Illinois Basin production has increased by 17.2 million tons, while production in Central Appalachia and the Powder River Basin have fallen by 49.4 and 31.7 million tons, respectively.
But these are short-term variations within a predictable, sector-wide structural overall decline.
Today, Illinois communities are facing a critical question: Are we willing to bet our economy and its workers on an industry that is far less competitive to last the long-haul?
Decision-makers looking back to an era when mining provided tens of thousands of jobs for Illinois (most recently in the 1920s) might answer “Yes!”, failing to recognize how much the industry has changed in 100 years. Miners have been replaced by machines. Illinois mines half as much coal as a century ago, and with just 4 percent of the miners. Even a hypothetical “boom” would bring only a marginal increase in jobs.
Decision-makers taking an honest look at present conditions would see an industry in structural decline — with over $129 million worth of unfunded work needed to clean up abandoned mine sites, damaged infrastructure and polluted water resources, and no money in the state budget to address any of this. Responsible decision-makers would choose a different prescription: responding, diversifying and investing in a resilient community with real, competitive jobs.
For guidance, Illinois can look to almost every other coal-mining state — collecting a severance tax on coal that is now extracted and shipped out of communities. The tax is a small fee paid by coal companies, such as 5 percent of the gross value of coal mined.
A recent report by Downstream Strategies found that in 2015, an Illinois severance tax could have generated $141.5 million annually for state and local governments. By 2040, over $4.4 billion could be allocated for job-creation efforts, education, health care and environmental clean-up in communities facing industrial decline and job loss.
Without a plan for job creation, coal’s decline will drag communities through booms and busts, pressuring decision-makers to keep all their eggs in the mining basket along the way. This inevitably leaves small towns and working families behind, without the resources to clean up the mess.
In the meantime, it has been shown that severance taxes do not have a negative impact on industry production — this means that hard-working miners won’t face additional unemployment risk while communities receive essential revenue to start building a self-sufficient economy. Illinois’ workforce and families deserve promising futures — and that starts with local solutions.
— Tyler Rotche is a member of the Community Futures Initiative and a water policy specialist with Prairie Rivers Network.