By - Jim Vess

Coal-dependent counties face financial risks if climate change policies are implemented

Energize Weekly, July 31, 2019

A handful of coal-dependent communities and counties could suffer severe financial burdens as policies to curb the emissions of greenhouse gases and deal with climate change are implemented, according to a study by the Brookings Institution and Columbia University.

Twenty-six counties in 10 states rely on coal mining for a significant portion of their employment, classifying them as “coal-mining dependent.”

There are about 53,000 coal-mining jobs in the country with 10 counties home to nearly a third of all the jobs.

The result could be that local government finances and debt obligations – primarily municipal bond payments – could be at risk.

“The rapid decline of a dominant industry has led to downward spirals and eventual collapses of local governments’ fiscal conditions, including the inability to raise revenue, repay debt, and/or provide basic public services,” the study said.

Between 2007 and 2017, U.S. coal production dropped by a third, a trend that is continuing as utilities retire coal-fired plants and switch to natural gas and renewables. Absent new initiatives, coal consumption and supply are projected to decline 15 percent to 25 percent over the next decade.

If even a “moderately stringent climate policy” was to be implemented, however, it could create an existential risk for the coal industry and lead to a 75 percent decline in production in the 2020s, the study said.

The sharpest cuts would come in Wyoming’s Powder River Basin, which provides nearly 40 percent of U.S. coal, according to projections by the federal Energy Information Administration (EIA). Production in the basin could decline by as much as 95 percent.

Coal production from northern Appalachia – Pennsylvania, Ohio, Maryland and northern West Virginia – which provides 16 percent of U.S. supplies, would drop by almost 80 percent between 2016 and 2030.

Southern Appalachia – southern West Virginia, Kentucky, Illinois, Indiana, Mississippi, Alabama, Virginia, and Tennessee – falls by roughly half over that period, according to the EIA. The region currently provides about a quarter of U.S. coal supplies.

The loss of coal jobs has tracked with production declines, but it has also been exacerbated by mining productivity gains as new technologies, such as long-wall mining, took hold. At its peak in the 1920s, about 860,000 people worked in the industry. In 2003, there were 70,000 jobs in the industry.

Appalachia has accounted for the most concentrated job losses, with employment declining more than 50 percent in West Virginia, Ohio and Kentucky between 2011 and 2016.

The numbers for some of the mining counties were even worse. In West Virginia’s Mingo County, coal-mining jobs dropped from 1,400 in 2011 to less than 500 by the end of 2016.

The study said that the loss of mining jobs could have a “spillover” effect, noting that during the same period, Mingo County’s overall employment declined from 8,513 to 4,878.

The loss of mining jobs and mines also erodes municipal and county finances and services as the mines are major taxpayers and fuel other local taxes.

“In these areas, the industry is also an important contributor to local government finances through a complex system of property, severance, sales, and income taxes; royalties and lease bonuses for production on state and federal lands; and intergovernmental transfers,” the study said.

The two counties with the highest share of coal-mining jobs are Boone County, W.Va., and Campbell County, Wyo.

In 2015, 21 percent of jobs and 17 percent of personal income were tied to coal in Boone County. About a third of the county’s revenues came from property and severance taxes generated by the mining industry. Mining properties, including mineral deposits, accounted for 57 percent of the county’s total property valuation, the study said.

Coal property also funded about $14.2 million of the $60.3 million school budget.

In Campbell County, 59 percent of the county’s overall property and production value is tied to coal mining. In 2018, coal property and production taxes raised $266 million for the county government, school system and special districts in the county – that was a 16 percent drop from 2016.

These revenue declines could spread from the counties and municipalities as falling revenues make it harder to service municipal bonds.

“The risks from the financial decline of coal-reliant counties extend beyond their borders, as these counties also have significant outstanding debts to the U.S. municipal bond market that they may struggle to repay,” the study said.

Bonds from coal-reliant jurisdictions make up a small share of overall state and local bond debt. In 2018, coal-producing states accounted for 10 percent of the $388 billion issued.

Campbell County has about $655 million in industrial development, hospital bonds, pollution-control bonds outstanding, according to the study. Boone County has no outstanding bond issues.

“Municipal bond market participants have paid scant attention to the unique risks facing jurisdictions that rely on coal production,” the study said. “In part this may be because municipal bonds are generally considered safe assets.”

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