Leaders exchange ideas for transforming the economy of Eastern Kentucky

PRESTONSBURG — Set up a permanent endowment to fund projects in Eastern Kentucky's coal counties. Improve access to broadband Internet service. Provide clean water to every resident. Use biomass grown on old surface mines to generate power.

Those were a few of the ideas discussed Thursday at the annual East Kentucky Leadership Conference, held this year in Prestonsburg.

It was an exercise in coming up with ideas to transform the economy of Eastern Kentucky, home to the largest cluster of counties in Appalachia classified as economically "distressed" by federal officials.

Dee Davis, president of the Center for Rural Strategies in Whitesburg, noted the need for new ideas in the face of a projected steep decline in Central Appalachian coal production that would cost the area many of the jobs that now underpin its economy.

"We've got to come up with new ways to approach things," said Davis, who led the brainstorming session.

One of those ideas is to use some of the money the state gets from the coal-severance tax to set up an endowment, called a permanent fund, as several other states have done, said Justin Maxson, president of the Mountain Association for Community Economic Development, or MACED.

Most of the fund would stay in place to keep earning interest, but a portion would be used for economic and other programs each year.

The state now spends all the money it gets each year from the tax, collected on the mining and processing of coal.

The idea to set aside coal-severance money in a permanent fund is not new. However, it's important to revisit it because of the projected drop in coal production in Eastern Kentucky, Maxson said.

"We can't ignore the downward trend," he said.

The U.S. Energy Information Administration projects that coal production in Central Appalachia — which includes Eastern Kentucky and parts of West Virginia, Virginia and Tennessee — will drop from the 2010 level of 184 million tons to 132 million tons in 2015 and to 86 million tons by 2035 because of environmental rules, competition from Western U.S. coal, and other factors.

That will mean a drop in state severance-tax receipts from Eastern Kentucky through the mid-2020s, MACED has estimated.

Raising the coal-severance tax from the current level of 4.5 percent to 5.5 percent — the same as West Virginia's — could create a fund of more than $700 million by 2035, assuming a certain investment return, MACED has estimated.

Creating the fund would mean less money now for projects in coal counties. However, in a decade the permanent fund would grow to the point that it could pay out as much for projects each year as it took away from the state's severance receipts, MACED estimated.

It won't be easy to sell the idea politically, but that's why MACED is trying to get the debate going now, when there still is significant coal production, Maxson said.

It also will be important to have a body in place to better plan development in the region, Maxson and others said.

Davis said improved broadband access in Eastern Kentucky would be a critical component in areas such as improving the economy, education and in keeping people abreast of changes in health care.

A study the center commissioned found that communities without good broadband service won't be competitive, Davis said.

Officials boosted broadband in the area of Virginia that borders southeastern Kentucky, and it allowed firms that need that service to come in, Davis said.

"We're still a long way from having the competitive infrastructure in our area," Davis said.