A bill that would reduce the severance tax on coal used by power plants is one step closer to passing.
After much debate Wednesday afternoon, the Senate Finance Committee passed an amended version of House Bill 3142. The measure, which has already passed the House, now heads to the full Senate for consideration.
Under the Senate’s amended version of the bill, the severance tax on thermal or steam coal would drop from 5 percent to 3 percent. Instead of the severance tax dropping 2 percent over the course of two years, the new language reduces the severance tax over a three year period.
The two percent tax reduction would phase in gradually -- 35 percent of the two percent cut in the first year, 65 percent the second and 100 percent in the third year.
The bill is expected to cost the state about $64 million once the full reduction is in place and then $35 million each year thereafter. The portion of severance tax currently earmarked to county and local governments is unaffected.
A second amendment by Sen. Ron Stollings, a Democrat from Boone County, restored language in the bill that was taken out that requires counties to use a small percentage of severance tax specifically on economic development and infrastructure investments.
In the more than hour-long debate over the bill, committee members grappled with the true extent to which cutting the severance tax on thermal coal would bring jobs and increased coal production to West Virginia.
West Virginia Coal Association spokesperson Chris Hamilton said the current 5 percent tax amounts to a $2.50 extra charge on West Virginia coal that puts it at a disadvantage. Cutting the tax to 2 percent, he said, will save coal companies about $1 per ton of coal mined.
“We think this a responsible and appropriate approach to try and keep these miners working and try to keep these mines in the future,” he told the committee. “These contracts are won on nickels and dimes frankly.”
Hamilton cited a report by PricewaterhouseCoopers that estimates the reduction in severance tax will create 1,800 jobs. A request to Hamilton by West Virginia Public Broadcasting to see that report was not immediately answered.
Others who testified in front of the committee offered a different perspective.
Mark Muchow, deputy secretary for the West Virginia Department of Revenue, said the agency had not conducted an analysis of the bill’s impacts, but said any job or production growth is tied to what the international coal markets do. In general, he said, the market for steam coal is expected to continue to decline.
Asked directly about the impacts of the tax reduction, Muchow said the cuts might slow down declines of coal job numbers.
Sean O’Leary, a senior policy analyst with the West Virginia Center on Budget and Policy, told the committee he expected few new jobs to result from a severance tax cut.
He said studies conducted in Wyoming and Pennsylvania on the impacts of adjusting severance tax -- in Wyoming’s case dropping it and in Pennsylvania adding a $2 per ton charge -- showed little impacts to mining jobs.
According to O’Leary, factors that contribute to coal’s higher cost include the logistics of mining, labor costs and transportation. He pointed out that the coal industry’s biggest challenge is
the significantly cheaper cost of natural gas.
“This bill isn't going to make the natural gas industry any less competitive,” he said. “ We know if the severance tax plays a role, it’s maximum impact is about $2. All of those other factors are of much higher impact.”
Hamilton, with the West Virginia Coal Association, argued that the bill would also allow utility companies to pass on any savings to ratepayers.
Sen. Douglas Facemire, a Democrat from Braxton County, noted there is no language in the bill that specifies where the savings go. He further noted a 2 percent severance tax cut still leaves West Virginia coal producers at a disadvantage from neighboring states like Ohio and Pennsylvania, which don’t have a severance tax.
“You said contracts are won on nickels and dimes,” Facemire said to Hamilton. “If we do this, we’re still going to be uncompetitive. Are we helping the miners and the counties or are we just going to put this in the pockets of the coal companies?”