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Kentucky is giving this coal company tax breaks worth millions to keep 250 jobs

Conveyors to move coal stand idle at a Kentucky Fuel Corporation underground mine in Knott County.
Conveyors to move coal stand idle at a Kentucky Fuel Corporation underground mine in Knott County. bestep@herald-leader.com

A representative from Alliance Coal came to the Pike County Fiscal Court with a difficult proposition last week: provide a tax break worth millions over the next 12 years, or say goodbye to the 250 jobs the company provides in the county.

The company told officials it needs the local tax break to qualify for state incentives through the Kentucky Industrial Revitalization Act, a tax credit program that might be suspended in coming days. KIRA is designed to save businesses that would be forced to shut down without financial assistance.

If Alliance does not receive those tax credits, the company said it would be forced to shut down its Pike County operation — which Alliance subsidiaries have operated since 1996 — because the coal reserves currently being mined will run out in just a few years.

"We’ve known about declining coal reserves for 50 years. For this to happen just when this program is about to go away raises questions," said Jason Bailey, executive director of the Kentucky Center for Economic Policy. "I think the suspension of the program is what’s driving the urgency."

Kentucky lawmakers voted to suspend the program under a tax overhaul bill they passed earlier this month, but in a separate tax "clean up" bill, lawmakers voted to undo that suspension. Gov. Matt Bevin could still veto the second tax bill later this week, so the tax break remains in limbo for now.

On Tuesday, Pike County officials gave approval for the local tax credit, which will cost the county about $159,000 annually over the next 12 years.

The Kentucky Economic Development Finance Authority will meet Thursday to consider the company's application for state-level tax breaks.

In exchange for the tax credit, Alliance Coal offered to pay the county $70,000 a year to help fund its volunteer fire department.

In an interview with EKB News, Pike County Deputy Judge-Executive Herbie Deskins said the company had the county "between a rock and a hard place" because the county desperately needs the high-paying mine jobs the company provides.

Pike and other Eastern Kentucky counties have seen a dramatic decline in the number of coal jobs in recent years.

According to a report from the state Energy and Environment Cabinet, the number of Kentuckians employed in the coal industry dropped from more than 18,000 in 2011 to less than 6,500 in 2017.

"It looks even more bleak in Eastern Kentucky, where you had 15,000 to 16,000 jobs and now you’re down to 3,000 or 4,000," said Tyler White, president of the Kentucky Coal Association, an industry advocacy group. "The benefits that we get off keeping people on a very high wage outweigh the occupational tax."

According to a report from the state Cabinet for Economic Development, an independent contractor — hired at the company's expense — will verify that the closure of the company is imminent without the help of the program.

Through KIRA, the state may provide tax credits up to 100 percent of corporate income or limited liability entity taxes, or wage assessment incentives of up to five percent of the wages of each employee.

Alliance estimated it would pay about $200 million in wages over the next 12 years at the mine.

With the help of the tax credits, the company plans to access new coal reserves that contain about 15 million tons of coal. That's enough to sustain the operation for the next 12 to 15 years, a company representative said.

The expansion to those new reserves will cost the company about $76 million.

Jack Mazurak, communications director for the economic development cabinet, said companies who qualify for KIRA tax credits only receive the credits if they meet goals specified at the time of approval.

In this case, that could include the number of jobs retained and the amount of money invested in the mine.

"If the companies don’t perform, the state is out nothing," Mazurak said.

Rusty Ashcraft, manager of government affairs and environmental policy for Alliance Coal, said the company will pay about $3.5 million in coal severance taxes annually from the mine, some of which will come back to the county.

"We're very excited for this opportunity," Ashcraft said.

County Treasurer Johnda Billiter told the Appalachian News-Express that the county is "doing well at this point" financially, with a surplus in its budget of about $1 million.

White, with the Kentucky Coal Association, said Alliance Coal is one of the few companies even considering investment in Eastern Kentucky mining operations.

Many of the coal reserves left in the region are expensive to access, and other costs, including transportation, often lead companies to invest elsewhere, such as Western Kentucky or other parts of the Midwest, he said.

"We commend their willingness to want to go to Eastern Kentucky," White said. "At the end of the day, you’re talking about an investment made by a company or an investment not being made by a company."

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