Chapter 10: Eastern Kentucky’s future chained to coal despite millions spent on diversification

jcheves@herald-leader.comJuly 13, 2013 

HINDMAN — This depressed coal town of 777 people was supposed to bustle like Berea by now, with crowds flocking to art studios, galleries and cafés.

In October 1997, Gov. Paul Patton declared that the Knott County seat would get $11.8 million in state and federal money from his new Community Development Initiative to implement an "arts and smarts" plan. By the time Patton left office in 2003, that investment had more than doubled to $25.2 million.

The CDI built two institutions in Hindman: a Kentucky School of Craft, to train folk artists, and an Appalachian Artisan Center, to exhibit and sell their wares. Patton said he wanted to expand the local economy beyond coal mining's boom-and-bust cycle.

"We hoped to establish a little artistic community much like Berea has. As an economic development tool, we anticipated people coming in for art shows, to attend classes, to shop," Patton said in a recent interview.

Patton's arts-and-smarts plan was unique, although his underlying concern wasn't. Experts long have warned that Appalachia needs industries other than coal. Harry Caudill wrote in his 1963 book "Night Comes to the Cumberlands: A Biography of a Depressed Area that Eastern Kentucky so utterly relies on mining that its economy collapses whenever coal prices drop.

"Since coal is, for all practical purposes, the plateau's only industry, the region and its people are tied to an industrial albatross," Caudill wrote.

Caudill recommended radical measures. He urged relocating much of Eastern Kentucky's isolated rural population to cities, where steady work exists, and letting the federal government claim the wilderness left behind, nurturing forests for sustainable logging and damming rivers for hydroelectric power. Anything less bold would doom future generations to sad lives of "welfarism," he warned.

"It is impossible for a half-million mountaineers to live by decent standards on the tiny ribbons of tillable land. The terrain was not designed for the plow, and it is time for an enlightened society to devote it to a valuable use in keeping with its capacities," he wrote.

Caudill's advice was ignored. Instead, hundreds of millions of dollars have been poured into Eastern Kentucky over the past 50 years in an attempt to diversify the economy — paving broad highways through remote areas, building industrial parks and experimenting with tourism.

Yet the region remains so coal-reliant that mine closings in the past two years have devastated many counties. In Knott County, coal production dropped 45 percent in 2012, and its mining jobs dropped 63 percent. The county entered 2013 with an official unemployment rate of 15 percent, twice what it was the day Patton came here to announce his arts-and-smarts plan.

Many people get by on public aid, as Caudill predicted. Forty-two percent of households get Social Security, and 24 percent get food stamps. Both numbers are 10 percentage points higher than the statewide average. It's not clear when, or whether, Eastern Kentucky's coal industry will revive. But there is nothing waiting to replace coal.

"Without coal, this part of the country, we just can't make it," said Jamie Mosley, a magistrate on the Knott County Fiscal Court.

'A huge help'

In Hindman, the School of Craft nearly died before it opened, and it essentially shut last winter because of several problems, including the abrupt resignations of its two instructors, neither of whom wanted to live in Hindman anymore. The handsome stone high school that cost $5 million to refurbish and equip sits unused other than occasional evening pottery classes.

"We have no intention of closing it down, but it's all a matter of where we can go from here," said Stephen Greiner, president of Hazard Community and Technical College, which assumed responsibility for the School of Craft. (Greiner said last week that the college has hired a sculptor, Michael Flynn, to reopen the School of Craft this fall.)

Around the corner on Main Street, the nonprofit Artisan Center holds studios, a gallery and a lunch café. Across the road, master luthier Douglas Naselroad makes, repairs and occasionally sells stringed instruments in a cheerily cluttered shop overseen by the Artisan Center. A hand-crafted dulcimer can start at $375; a mandolin, $600. Conversation in the shop is free and plentiful.

The Artisan Center has "been a huge help for downtown. Otherwise, the town would be entirely dead," said Bill Weinberg, a Hindman lawyer who sits on the center's board of directors.

But outside taxpayers keep the Artisan Center alive. It reported income of $975,226 in 2011. Only 3 percent was generated by its own business operations, all of which reported losing money. Most of its revenue came from the state's coal severance taxes, and grants from the U.S. Department of Agriculture and the Appalachian Regional Commission.

The center's backers say it's gradually building an endowment fund — about $840,000 thus far — but it needs at least another decade of public subsidy before it can support itself. At the moment, the center is applying for $500,000 more in federal grants to continue renovating a shuttered hardware store to provide additional studio space.

"Not a lot of folks even know we're here," said Corbett Mullins, a former Hindman mayor who was hired in April as the Artisan Center's newest executive director. His predecessor lasted only months in the job. Like the school, the center has struggled with staff turnover.

"I got a call last week from a woman who asked me, 'How do I get to you from Interstate 75?'" Mullins said, sitting at a café table during a quiet lunch hour.

"I paused and I said, 'Are you sure you want to come here? To the Appalachian Artisan Center? In Hindman? Because we're a couple of hours away from the interstate.' And she said, 'Oh, no, I'm sorry, I meant the Kentucky Artisan Center in Berea.' 'That's what I thought,' I told her. 'It's exit 77.'"

Wooden toys

Patton's CDI wasn't a total washout for Hindman. Millions of dollars went to public projects, including a new city hall; water and sewer lines; bridges; a pedestrian walkway along Troublesome Creek; and an "Opportunity Center" that consolidated the public library, a Head Start day care and a community college branch campus into a single building.

Former state Sen. Benny Ray Bailey, D-Hindman, who helped his town secure the CDI money, said he was solely interested in infrastructure improvements.

"Nobody thinks the arts and crafts program is having an impact on the economy," Bailey said. "The idea that we would spend $250,000 a year to run an art gallery and café in downtown Hindman where you can buy your son a hand-carved wooden toy truck for $85, I just don't know how many people are excited about that."

At some point, the program must support itself or close, he said. "You can't expect the government to pay for them forever."

Patton said he has "vaguely" kept track of the CDI's progress in Hindman since he left office, and "it's been disappointing to see it stall."

Hindman is only one example of Eastern Kentucky's missed opportunities, said Justin Maxson, president of the Berea-based Mountain Association for Community Economic Development.

Kentucky has collected and spent more than $7 billion in coal severance taxes since enacting that levy in 1972, according to a MACED study. The money is partly intended to prepare Eastern Kentucky for a post-coal economy.

But there is no regional strategy to invest it wisely, Maxson said. And unlike a half-dozen other states with severance taxes, Kentucky does not save anything in an endowment fund that can be counted on after mining stops, he said.

"The question is, how do we come up with a better system that makes smarter use of this money so that it has a more lasting impact?" Maxson said. "The recent model has been to treat it like a budget earmark, to use it to buy things like cars and sports equipment, where it's all spent right away. Some of it has made a difference for Eastern Kentucky and some of it hasn't. But one thing we do know is that we're not going to have it forever."

No guarantees

Starting in the early 1990s, Kentucky plowed $48 million in coal severance taxes into building a dozen industrial parks around the state's western and eastern coalfields. State officials hoped that if taxpayers provided land, roads, access to utilities, tax breaks and sometimes even vacant buildings, companies would take the bait and open factories.

Their timing was bad. Since 1990, the United States has lost a cumulative six million factory jobs, or 33 percent of its total, many of them being sent to developing countries where labor is cheaper. Over that same period, Kentucky has lost a cumulative 43,300 factory jobs, or 16 percent of its total.

Knott County has seen weak results from manufacturer recruiting. It belongs to the multi-county authority that runs the Gateway Regional Business Park at Jenkins, which is in Letcher County near the Virginia state line. To build that industrial park on an old surface mine, Patton awarded $6.4 million in CDI funds to Jenkins on the same day in 1997 that Hindman won its CDI money. While Hindman tried an arts-and-smarts strategy, Jenkins would aim for blue-collar factory work, Patton said.

"Having a place for businesses will not guarantee success," Patton said in 2003, after the industrial park opened. "But not having a place for businesses will guarantee failure."

Today, the 261-acre industrial park is mostly vacant. Fewer than 100 people work there. Among the four employers is the Letcher County branch of Kentucky River Community Care, a state-funded mental health agency that existed in the area before the Gateway park was built.

In the mid-2000s, the industrial park had several more employers and between 200 and 300 workers, said Joe Depriest, Letcher County's economic development director. But some companies closed during the recession, and others in the energy sector chased the natural gas boom to Pennsylvania's Marcellus shale field.

"We definitely took a hit over the last few years," Depriest said. "I still believe in the industrial park theory. You have to have a place for companies to come if you want them. It's just that they're obviously subject to the same limitations on the economy as everyone else."

An isolated town

Patton's arts-and-smarts plan for Hindman languished for two reasons: geography and politics.

Berea sits on Interstate 75, making it an easy tourist draw. Hindman is a 90-minute trek east of the interstate, tucked deep into some of southeastern Kentucky's most rugged mountains.

"As far as people just driving by and stopping here, that doesn't happen," said Naselroad, the instrument maker at the Artisan Center shop. "We are way out of the way."

Also, amenities for visitors are scarce around Hindman. There are neither dormitories for art students nor hotels for tourists.

Jan Stanfill, a local woman who studied jewelry making at the School of Craft from 2004 to 2006, said some of her dozen or so classmates tried commuting 2½ hours from Lexington.

Artist Tim Glotzbach, the founding dean of the School of Craft, said student housing was a chronic problem.

"I was always trying to find places for students to live if I knew of someone who had a house or who would accept a tenant," Glotzbach said. "It was a problem with our recruiting. One of the first questions people would ask me is, 'What about your residence halls?' And of course, we didn't have any."

Glotzbach quit in 2007 for a position at Berea College.

Finding art teachers willing to move to Hindman also is a challenge. One of the two instructors who quit over winter break was a Hawaiian sculptor who decided for personal reasons to return to Hawaii, community college officials said. The other had a family living in another state because his wife couldn't find a job in Knott County. After a year of long-distance marriage, he resigned.

"There have been some attempts to bring in, quote, 'upper echelon,' unquote, artists as faculty or as artists-in-residence to sort of bring everything up a notch," said Naselroad, who has family roots in Eastern Kentucky.

"You know, 'Let's go get a New York artist to come down here and teach us about art,'" he said. "But that's not always a good fit. We've had people who pretty much freaked out on finding themselves in the Appalachian Mountains. They'll say, 'You can't buy alcohol in this county; it's dry! And at five o'clock, the downtown shuts down!' Some of them were gone in just a few months."

'We were ready'

Frankfort's fickle politics also hurt Hindman.

Paul Patton, a proud son of Eastern Kentucky, had friends and Democratic Party allies throughout Knott County, some of whom had worked on his campaigns. He championed the CDI projects as a top priority.

But Patton was succeeded in 2003 by Republican Gov. Ernie Fletcher of Lexington, who arrived with his own friends and priorities. Fletcher immediately killed the Kentucky Appalachian Commission, which oversaw the CDI, and eliminated state General Fund spending on its various projects.

"This left the Hindman initiative completely on its own," said Ron Eller, a noted Appalachian historian and a former chairman of the Kentucky Appalachian Commission.

The School of Craft was caught flat-footed while trying to enroll its first students and hire master artisans in jewelry, metals, furniture and wood. It scrambled to find about $750,000 necessary for annual payroll and other costs.

"We were ready to go," Glotzbach said in early 2004, as Fletcher unveiled his first state budget. "I consider it a terrible shame to have invested as much as we did in the school, to have an opportunity this unique and valuable, and then just let the place sit idle."

Hazard Community and Technical College in neighboring Perry County agreed to provide operational funding and leadership for the school. But the community college, in turn, has suffered from higher education cuts under Fletcher and Democratic Gov. Steve Beshear, also of Lexington, who defeated Fletcher in 2007.

Kentucky dropped the ball in Hindman, said Vaughn Grisham, a University of Mississippi sociologist who studies community development.

Grisham visited here after Patton announced the CDI funding in 1997. Back then, he praised the School of Craft as the "jewel in the crown" of Knott County's ambitions. Today, he uses Hindman as a cautionary lesson in "disappointment and disillusionment" when he speaks to rural communities planning their own economic renewals.

"It looked like an excellent idea on paper. They brought in first-rate people to run it. They built and equipped great facilities. But as with most of these things, it needed money and it needed long-term commitment if it was going to have a real shot at succeeding," Grisham said recently.

Eastern Kentucky leaders complain that Frankfort's attention span reboots with each new governor. "We must find a way to build continuity into Kentucky governors' Appalachian plans," said Weinberg, the Artisan Center board member, while speaking in April at the East Kentucky Leadership Conference in Middlesboro.

Courthouse corruption

Leadership has been just as unsteady at the Knott County courthouse.

Judge-Executive Donnie Newsome, a Democrat who ran the county while the School of Craft and Artisan Center were built, was forced to resign in 2005 after he was convicted of vote-buying and was sent to prison. Fletcher named Republican Randy Thompson to replace Newsome.

Thompson, like Fletcher, arrived in office with his own agenda. Rather than finance the arts-and-smarts plan, Thompson directed several million dollars from Knott County's coal severance taxes to erect a Sportsplex athletics center and run a tourism office to promote elk viewing and trail rides on coal company land. Under Thompson, the county advertised itself as "Elk Capital of the East," not as the artsy new Berea.

The Sportsplex employed some of Thompson's relatives, and contracts to make signs for the Sportsplex and trail rides went to a company owned by his sister, state auditors reported in April.

Last winter, the Kentucky Department for Local Government warned Knott County that the Sportsplex ran a $169,940 deficit. The county had been overspending generally and relied too much on coal severance taxes to pay for basic services, leaving it nearly insolvent once mining slowed. At the state's urging, the Knott County Fiscal Court reluctantly laid off public workers and made cuts at its tourism office and other agencies.

By then, Thompson also had gone to prison. He was convicted in 2008, along with two of his deputy judges and a former county magistrate, for being part of a vote-fraud scheme. Thompson finally was removed from office earlier this year after exhausting his appeals. Beshear named Democrat Zachary Weinberg, Bill Weinberg's son, to finish Thompson's term as judge-executive.

State auditors long have criticized Knott County for fraud, waste and nepotism. In 2005, a report chided the county for sinking $1.2 million in coal severance taxes into a small swimming pool only 4 feet deep. Auditors found that 21 percent of the county's 2004 budget was awarded to relatives of local officials or to a contractor who accompanied Newsome, then the judge-executive, on gambling trips to Indiana using county credit cards.

Knott County squandered money that could have improved the lives of its residents, former state auditor Crit Luallen said recently.

"It was certainly one of the most difficult counties that we handled," Luallen said. "A county that is poor to begin with, that desperately needs to have its limited resources invested properly to move the community forward, ends up being cheated of that opportunity."

'Everyone is waiting'

Thompson's push to establish an outdoors tourism industry in Knott County has shown mixed results.

As judge-executive, Thompson established elk viewing and trail riding on reclaimed surface mines. He built an ATV and motorcycle training center, a new campground, and trails of about 100 miles each for horses and motorized vehicles.

Writing to the Lexington Herald-Leader from the federal prison in Lewisburg, Pa., where he's serving 40 months, Thompson said his tourism projects bring more visitors to Knott County in a month than the state's arts-and-smarts plan has since it started. Also, he said, his projects created local jobs, as opposed to the arts programs "hiring a so-called expert from out of the county or state … all of whom have moved on."

Surveys show that people attending Knott County's spring and fall horse trail rides spend a total of $2.5 million in the region annually, said Debby Spencer, a Bowling Green consultant who helps the county with tourism marketing. This spring, Spencer said, 4,631 people paid $20 each to ride, and 500 children attended for free. On their way to and from the ride, some shopped at the Wal-Mart in Hazard, ate in Prestonsburg restaurants and otherwise left behind cash, she said.

"Unfortunately, it was in other counties because we don't have the lodging and restaurants that we would like in Knott County," Spencer said. "All we need is one person to move, to open something. We've talked to people about it, but everyone is waiting for someone else to move first."

There's no question that tourism brings in money, said Fairley Mullins, a disabled postal worker who owns two rental cabins in Knott County. But there aren't enough visitors year-round for his cabins to pay for themselves, Mullins said. And seasonal service-sector jobs in tourism are no match for mining jobs that pay $60,000 or more a year.

"No way it could replace the coal," Mullins said.

Eller, the Appalachian historian, has argued for years that Eastern Kentucky can succeed at tourism — but only if it stops surface mining, especially mountaintop removal.

"Central Appalachia will never develop a viable tourism economy until the destruction of the mountains and mountain streams ceases and the quality of one of the richest natural environments in the world is restored," Eller told the 2009 East Kentucky Leadership Conference in Hazard. He received a cool reception from the audience.

'Any great ideas?'

Despite setbacks and diversions, Hindman isn't prepared to throw in the macramé towel on art.

Knott County has been home to the Hindman Settlement School and its Appalachian Writers Workshop; Alice Lloyd College, a liberal arts school in Pippa Passes; Kentucky poet laureate James Still; and celebrated dulcimer makers James Edward "Uncle Ed" Thomas and Jethro Amburgey. This "rich culture" was cited in Hindman's application for the CDI money in 1997. Some people continue to stand behind it.

"It was very much a success for me," said Stanfill, the jewelry maker who was the first to graduate from the School of Craft in 2006 and the first to open a studio at the Artisan Center. Today she works out of her home in Perry County.

"I just wish other people could get a chance to use it," Stanfill said. "To me, it was never promoted like it should have been. We were like a secret over there that almost nobody ever heard of."

On a rainy night in March, about 30 people met at the School of Craft to discuss its future. Neil Brashear, who then ran the Knott County branch of Hazard Community and Technical College, said the CDI was intended to create a "sustainable local economy" based on Knott's cultural heritage. The school can "stay the course," Brashear said, or it can try another approach, such as vocational education for plumbing and carpentry.

"Does anybody have any great ideas?" Brashear asked the audience.

A long silence followed.

Finally, Naselroad suggested bringing in small groups of tourists for weeklong workshops on luthiery, his specialty, at the end of which they could go home with a dulcimer, a ukulele or some other instrument built with their own hands. Other places offer similar "cultural tourism" packages, he said, citing Bend, Ore., home of the Breedlove Guitars factory. Visitors will spend a modest sum on food and lodging, not to mention workshop fees that go to instructors, and they might return for future trips if they enjoy themselves, Naselroad said.

Ron Daley, an educator who was on the CDI application team in 1997, said that might be worth further consideration. The meeting adjourned.

A month later, laboriously assembling a guitar at his shop, Naselroad said he doesn't know whether anyone will adopt his suggestion. The School of Craft is run by a community college in another county, and the Artisan Center has its own large board of directors that meets a few times a year. So their shared future will not quickly be decided, he said. But he hasn't heard any better ideas floating around town.

Connect the dots, he said: The hollows of Knott County hold old-time bluegrass musicians looking to hand down their knowledge, and a block away from him stands an empty school stocked with — among other valuable items — woodworking equipment.

"We always talk about attracting factories to the mountains for all the good jobs. Well, for a variety of reasons, it's proven difficult to bring a factory anyplace east of I-75 in Kentucky and keep it there for any length of time," he said.

"But people will come from a long way away to learn how to make musical instruments. We've already had a man come in from Colorado and spend a week and a half here, just thrilled to make himself a mountain dulcimer," he said. "If we could get any part of the income from people coming from out in the United States, plus immerse them in the Appalachian experience — you know, get them to know Hindman and Knott County — we feel like that would really improve the state of things around here overall."

John Cheves: (859) 231-3266. Twitter: @BGPolitics. Blog: ­Bluegrasspolitics.bloginky.com.Bill Estep: (606) 678-4655.Twitter: @billestep1

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