Herald-Leader Editorial

Refocus use of coal fund for E. Ky.; priority should be regional economy, not projects, coal subsidy

priority should be to aid regional economy, not projects, coal subsidy

June 16, 2013 

What do the Bell County Little League, plans for a state veterans cemetery in Leslie County and Rupp Arena have in common?

They're all getting a bite of the coal severance tax pie.

So are University of Kentucky mining engineers, Breathitt County football and dozens of fire departments, senior citizens centers and miscellaneous programs.

Scroll through the coal severance appropriations, and almost nothing resembling a vision of economic rebirth for coal-dependent places emerges.

There's little sign of focus or discipline driving the more than $100 million in spending directed at coal counties — despite the coal industry decline that is making many desperate for economic alternatives.

The news, reported last week by the Herald-Leader's John Cheves, that the state budget approved 16 months ago provided $2.5 million for a Rupp Arena redesign from severance funds intended for the coalfields sparked understandable outrage.

But, really, it's just the latest and highest-profile in a long line of questionable outlays of the 4.5 percent levy on the value of mined and processed coal — a tax meant to compensate for the loss of an irreplaceable resource.

Why is the potential for an economic reboot being squandered? And what would it take to spark reform? Kentucky must ask itself these questions.

Part of the problem is that laws governing severance spending are outdated, poorly conceived and largely ignored.

For example, severance tax dollars returned to the local level are "in no event" supposed to pay for "expenses related to government administration," yet some local governments have become highly dependent on them. Meanwhile, state legislators are not supposed to dictate how the local share is spent, yet make pages and pages of the most parochial appropriations for the most political reasons.

The coal severance tax, which is declining along with the industry, usually provides 3 or 4 percent of state revenue.

When enacted in 1972 it all went into the General Fund. Through the years, almost half was redirected to the regions that generate it — ostensibly to develop industry and improve quality of life. You need only look at Eastern Kentucky's high unemployment and mono-economy to know something isn't working.

What would it take to harness the severance tax for job creation and ground-up economic development?

For starters, politicians would have to trade control for accountability, transparency and decision-making based on sound economics. They'd also have to do a better job collecting local taxes and broadening the state's tax base to provide services and amenities now funded by severance.

Conveniently, Kentucky has a model from tobacco restructuring. The competition for agriculture's share of millions of tobacco settlement dollars required local participation and business plans. Ideas were publicly vetted by state and local boards. Money went out as grants and loans with requirements that recipients have financial skin in the game.

The agricultural development model isn't perfect or entirely replicable, but it's a starting point for a discussion.

The first thing any objective review of coal severance spending will reveal is that too much of it is subsidizing coal.

If the point is to build something new, let the coal industry start paying to repair roads destroyed by coal trucks, for mine safety inspections and training its engineers and to underwrite research that is as likely to benefit coalfield economies as the pro-smoking research Kentucky once funded helped tobacco communities, which is not at all.

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