The West Virginia House passed a bill Wednesday that would reduce the severance tax paid on coal burned for electricity
House Bill 3142 passed on an 88-11 vote after contentious debate on the floor.
Long sought by industry, the legislation would reduce the severance tax paid by coal companies on steam or thermal coal from 5 percent to 4 percent effective July 1 and to 3 percent effective July 1, 2020.
The bill originated in the House Finance Committee Friday. Officials from the West Virginia Department of Revenue told lawmakers the state general fund is likely to lose about $60 million in revenue over the next two years if the measures passes.
Supporters say the bill would make West Virginia coal more competitive and potentially boost employment at mines.
“Right now I believe our coal industry is struggling,” said House Finance Committee Chair Del. Eric Householder, a Republican from Berkeley County. “And I think this is the best thing we can do for them right now.”
A 2015 report from the West Virginia University Bureau of Business and Economic Research that examined the impacts of a tax reduction found reducing severance taxes on West Virginia’s coal industry would create limited economic benefits -- between 150 and 196 jobs.
“There’s little evidence to support a severance tax cut for coal as a tool to increase production and employment,” stated a 2016 blog post by the West Virginia Center on Budget & Policy that addressed a report issued by the West Virginia Coal Association on the benefits of cutting the state’s coal severance tax. “Overall, the state has little ability to influence the forces affecting the coal industry, be they competition from natural gas, environmental regulations, productivity, or transportation issues.”
Those concerns were echoed during floor debate Wednesday by Del. Evan Hansen, (D) from Monongalia County.
“The question was raised is how many jobs is that going to create and the chairman of Finance said maybe 100. That’s $600,000 per job, this one piece of legislation. Maybe it will create 500 jobs, that’s $120,000 per job. That’s still quite a lot,” Hansen said, adding that dropping the price of steam coal by a few percentage points by slashing the severance tax doesn’t change the overall economic picture for coal.
“We've got coal-fired power plants shutting down across the country. We have coal-fired power plants shutting down in West Virginia and the reason is they cant compete,” he said. “They can't compete because we have vast amts of cheap natural gas that's cheaper than the coal we mine in West Virginia and it’s not just one percent cheaper or two percent cheaper.”
Del. Larry Rowe, a Democrat from Kanawha County noted during floor debate that the bill lists no requirements for how the money saved must be spent, and because it only reduces the severance tax on thermal coal used to create electricity, not metallurgical coal used to create steel, the benefits will largely be felt in the northern part of the state where steam coal is mined.
“I think this is something that we should study and be aware of,” Rowe said. “My difficulty is in the fact that I represent the coal-producing portion of Kanawha County -- I think we’re fourth in the state in coal production -- and it looks like that we may not get the full benefit of this tax reduction.”
The bill stipulates that the portion of the severance tax paid directly to counties and local governments, .35 percent, would not be impacted.
The state also shares 5 percent of the remaining tax collected with counties -- 75 percent to coal-producing counties and 25 percent to non-producing regions. Under House Bill 3142, the amount of coal severance tax to be distributed to coal-producing counties cannot dip lower than the amount distributed in fiscal year 2018.
The bill also strikes the provision that counties must use some of their severance taxes for economic development and infrastructure projects.
The measure now goes to the Senate for consideration.