House Speaker Greg Stumbo's June 28 commentary makes it clear how little severance tax is actually directed to the areas of the commonwealth where coal, gas and minerals are extracted.
But, with respect to Stumbo, the focus of this debate shouldn't be on educating coalfield residents on how these tax revenues get moved outside the region. We don't need to be taught the difference between the Local Government Economic Assistance Fund and the Local Government Economic Development Fund to know that both are part of tax policy that gives Eastern Kentucky a raw deal by taking 50 percent off the top.
Eastern Kentucky is one of the richest parts of the world: rich in natural resources like coal, gas, timber and — as a temperate rainforest — rich in fresh water, clean air and wildlife. During the last century, the region has made relatively few, mostly out-of-state, people rich by extracting or compromising much of this natural wealth.
The land has been bought up and mined or drilled by absentee corporations and stockholders, while mechanization and strip mining are continually reducing the number of workers required to extract minerals.
Today in Kentucky, severance tax is assessed on extractive activities in order to balance the permanent loss of natural wealth that comes with mining and drilling.
But instead of reaping the benefits of our region's contribution to the economy, the coalfields have become famous for underfunded infrastructure and environmental damage, both the legacies of tax policy that has been unable to keep up with boom and bust cycles in coal and natural gas.
We need a new severance tax law in Kentucky. As a starting point: all severance taxes should be allocated to areas where the resources have been extracted and Kentucky should follow the example of western states like Alaska, Colorado, Montana and Wyoming by setting up permanent endowments for the portion of our severance taxes now being mixed into the General Fund.
In fiscal year 2012, before the latest coal bust cycle, Kentucky collected $298 million in severance taxes. Approximately $140 million — about half— washed into the General Fund before allocations were even made to the economic development programs cited by Stumbo.
Allocating $2.5 million to Rupp Arena is an outrageous use of severance taxes, but small change compared to the amount that disappears into the General Fund every year. If that $140 million had been invested in a permanent endowment, the funds would be earning interest in perpetuity, both for purposes we know about now and for those we can't foresee.
In the western states, endowed severance funds have already yielded billions in interest that have been reinvested in communities affected by extractive industry, past and present.
Severance tax is not a reliable or appropriate way to prop up the General Fund. Over time, severance revenues will continue to decline along with overall declines in coal reserves.
Mountain people, businesses based here and the many Appalachian families spread across the country need to tell our lawmakers to speak up about what is appropriate to do with the tax proceeds when natural wealth is permanently severed from our land and communities by mining and gas extraction.
Allocating severance tax funds to the places they are assessed and creating permanent endowments are the legacy we should be preparing for our grandchildren and great-grandchildren, after our most lucrative resources are exhausted.
Agencies, including the Central Appalachian Regional Network and the Mountain Association for Community Economic Development, have reported on legislation in use by other states to build severance tax endowments for the future.
I hope Kentuckians will insist that Stumbo and his colleagues in Frankfort do the right thing by keeping severance taxes where they belong: much-needed local projects today, and endowed funds that help protect future prosperity across the commonwealth.
Find names and contact information for legislators at www.lrc.ky.gov/legislators.htm.
At issue: June 28 commentary by Greg Stumbo, "Coal counties not deprived of their share of severance taxes"