Gov. Steve Beshear's administration is taking $2.5 million from shrinking coal severance tax funds and giving it to Lexington to help pay for the planning and design of Rupp Arena's renovation.
The decision to divert coal tax money to downtown Lexington was little noticed as it was written into the state budget toward the end of the 2012 legislative session. Now that the state is preparing to deliver the money, however, it's not sitting well in the financially hurting coal-producing counties, where these funds are meant for economic development.
"Mayor Jim Gray and the Urban County Council's raid on our coal severance funds for their project is only further proof that Eastern Kentucky coal has done and continues to do a lot more for Lexington than Lexington does for Eastern Kentucky," said Pike County Judge-Executive Wayne Rutherford.
The severance tax is a levy Kentucky collects on coal as it's removed from the ground. The state keeps much of it, but coal-producing counties are supposed to get a proportional share of the money to assist their local governments and help diversify their economies beyond mining.
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Statewide, coal tax receipts eroded during the past two years, especially in Eastern Kentucky, where many mines have closed. The state has collected $213 million in coal severance taxes during the past 11 months, down 23 percent for the same period a year ago. The double whammy of rising unemployment and falling severance taxes is forcing coal counties to slash budgets through layoffs, program closures and other means.
"We are having to cut our budget by $1.3 million because of coal severance money going down. We're going from around a $10 million budget to an $8-million-and-something budget, and that's a whole lot for us," said Letcher County Judge-Executive Jim Ward, chairman of the Kentucky Coal County Coalition.
State records show that Letcher County got $1.29 million during the first nine months of fiscal year 2013 from the $30.45 million coal severance account that is now giving nearly twice as much to Lexington, where no coal is mined. Pike County, a mining powerhouse, received $2.42 million from that account, the Local Government Economic Development Fund, during the same period.
"We have filed for water and sewer projects between our counties using the multi-county coal severance money, and there probably won't be enough money for that," Ward said. "That hurts us. It hampers our ability to better the lives of our citizens here."
The Kentucky Department for Local Government, which oversees coal severance spending, said it had no choice in the matter because the General Assembly specified in the state budget that Lexington would get the money.
When he proposed a budget in 2012, Beshear recommended that Lexington get $3.5 million from state bonds for Rupp Arena planning and design. Leading lawmakers later dropped it to $2.5 million and switched out bonds for coal taxes during closed-door meetings.
The project is the last of 30 tucked into the budget, each of which took a chunk of coal severance money off the top before the coal-producing counties were able to collect their shares.
"We're duty-bound to execute the budget. We do not get to comment on policy," said Local Government Commissioner Tony Wilder.
House Speaker Greg Stumbo defended the legislature's move in a prepared statement.
"Because of shortfalls, there was no other pot of money we could find," said Stumbo, D-Prestonsburg. "Though Rupp is not in the coalfields, many believe it plays an important role in the state because of the tradition of the University of Kentucky basketball program, and there is strong alumni support in our region as well."
That's a stretch, leaders in the mountain counties said.
"I love UK basketball as much as anybody, but this wasn't a good use of coal severance money," said Harlan County Judge-Executive Joe Grieshop.
Coal-producing counties are meant to get half of their severance taxes returned to pay for things like roads and bridges, parks, water and sewer lines, and tourism initiatives, Grieshop said. But by the time "all that money comes off the top for other stuff," Harlan County gets only 22 percent of its taxes back, he said.
The Lexington-Fayette Urban County Government plans to match the state's money with $2.5 million, plus $200,000 from the Lexington Convention and Visitors Bureau and $250,000 from the Lexington Center, the complex that includes Rupp Arena.
"We greatly appreciate the funding for Rupp Arena," city spokeswoman Susan Straub said. "Rupp is used now, and will be used in the future, by thousands of people from coal counties. It's a facility that benefits the entire state."