Letcher County officials are struggling to counter a crippling drop in coal severance tax collections, but deadlocked Monday evening on approving a business license fee on extractive operations such as oil and gas wells and coal mines.
The fee would have been the first of its kind in Kentucky, but the 3-3 vote by the fiscal court meant it died.
Letcher County Judge-Executive Jim Ward said after the meeting that he wasn’t sure about the next step in trying to make up for a decline in what the county receives from the tax coal companies pay on coal they mine.
The county received nearly $2 million from that tax in 2011 but only $637,000 last year, Ward said.
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That loss of revenue has been one fallout from a steep decline in Eastern Kentucky coal production in recent years.
Ward, a Democrat, said the county has made painful cuts, including stopping funding for five senior citizens centers, reducing contributions to fire departments, the ambulance service and sheriff’s department and cutting about 90 jobs, but is still struggling.
“We don’t have the money to fund essential services,” Ward said before the vote Monday.
The ordinance would have imposed a tax of $2,500 a year on each operation of businesses that extract non-renewable resources.
That would include coal mines, rock quarries and oil and gas wells. The fee would apply even if a gas well was not producing but the operator had not capped and reclaimed it according to state and federal standards.
Ward estimated the fee would bring in $3.7 million a year.
That would restore the county’s budget to the level it was in 2012, before the bottom dropped out of coal production in Eastern Kentucky, Ward said.
Ward said he thought the fee was a fair proposal because extractive industries have taken billions of dollars worth of resources from the county.
The oil and gas industry recovered $600 million worth of product from the county in the last decade alone, Ward said.
It also would be a better option than raising or imposing other taxes that could burden working people or those on fixed incomes, Ward said.
Some county residents spoke in favor of the license fee Monday night.
Ada Smith said having industries pay more to help the county would be better than raising taxes on county residents.
“I believe these companies can pay more. I believe they deserve to pay more,” Smith said.
However, most of the scores of people who packed a meeting room strongly opposed the license fee and protested when Ward stopped taking comments on the fee. A deputy escorted one woman from the room.
Matt Sawyers, executive director of the Kentucky Oil and Gas Association, said the fee would be discriminatory because it would fall most heavily on that industry.
The 1,500 oil and gas wells in the county would pay about 95 percent of what the county would get with the fee, Sawyers said.
“They’re trying to eliminate their revenue shortfall on the back of one industry,” Sawyers said.
Oil and gas producers and a representative of a coal company pointed out that the industries already pay property and severance taxes.
Sawyers said the industry would be forced to sue the county if it approved the fee.
The industry was concerned that if Letcher County could make the fee stick, other counties would adopt similar charges.
Producers also complained that the fee would wipe out any profit from lower-producing wells. People opposed to the fee said it would drive producers to close wells, which would hurt employment, and reduce taxes to the county and royalties to landowners.
The fee would likely drive some small producers out of business altogether, opponents said.
“It’s going to chill this business in Letcher County,” Sawyers said.
Many Letcher County residents get free natural gas as part of their deals with companies that lease wells on their land. That was a key source of concern over the proposed fee, with several people saying they were afraid they would lose that benefit because would close wells.
“Don’t take my free gas,” Danny Dixon, a minister, pleaded with the court.
The fiscal court had approved the ordinance on first reading last month, but after the protests deadlocked on the second reading required to finalize it.
On Tuesday, Ward said he was gathering information on furloughing county employees.