Officials bracing for declining funding as coal production decreases

May 22 - McClatchy-Tribune Regional News - Bailey Richards The Hazard Herald, Ky.

The recent passage of the 2012-14 state budget included millions of dollars in coal severance funds for the state's coal counties, but some officials fear that these counties may not receive all the coal severance money that was allocated to them, while others say there will be a long-term effect to local funding.

Coal severance has long been the source of funding for many nonprofits and government organizations, and without it officials fear that they may have to cut back on services.

Perry County Judge-Executive Denny Ray Noble said in a recent sanitation district meeting that he was concerned that they may have to abandon a sewer project in Chavies if they do not receive their coal severance.

"Coal companies are down. Now we do have the money in the state law, so we are going to get the money if the coal companies go back to work," said Noble. "If they don't come back then what are we going to do for the money?"

This fear stems from falling levels of coal production and usage in 2012. With so many companies citing lower levels of coal sales than in years past, the amount of coal severance tax collected could be be lower than normal.

While the quarterly coal production numbers for the first quarter of 2012 are not in, according to the Energy Information Administration, the monthly production numbers show a steep decline in the amount of coal mined since January. While the numbers for January and even February remained relatively consistent with the last two years, coal production in March of this year is down by almost 15 percent from the past two years.

Since March, several additional companies in the area have announced layoffs, so it is presumed that April's coal production will also miss the marks set by 2010 and 2011.

State Representative Fitz Steele said the issue of coal severance is a real concern for him and other Eastern Kentucky legislators. In Perry County, hundreds of thousands of dollars were allocated for water projects, law enforcement, non-profits, and government agencies.

Steele said that the low production numbers and layoffs worry him both for the lost jobs and the lost revenue for the counties.

"I worry about it, too," Steele said. "[It could be caused by] the decline of the industry because of the federal government. If it is not mined then you are not going to have it."

Another reason for the possible decline in coal production is an unseasonably warm winter and lower-than-normal energy usage.

"Projections are already down this year because of the mild winter," Steele noted. "That is what makes it hard, and all of the utilities have plenty of coal right now."

The Energy Information Administration recently reported that for the first time in 34 years less than 40 percent of all energy generation was coming from coal. Alternative energies like wind, water, and solar partnered with the recent push towards natural gas caused coal to be used less in 2011 than it had been in decades.

Many coal analysts suggest that this does not spell the end for coal, but it could be some time before the industry sees a significant turnaround. Steele said that the effects on coal severance from this production and usage decline will be felt immediately, and for quite a while.

"It will be this year and a long-term effect," said Steele. "We just have to wait and see and get our numbers in."

Steele said that one thing that he hopes will help with coal production is the warm spring we are having so far. While weather has been a major issue with coal this year, Steele and others believe in the long-term the weather effects will level out, but the effects created by policy and regulation changes could keep coal miners out of work even in the coldest of winters.

Evidence of this can be seen in the new regulation concerning emissions from coal-burning power plants. Many of these plants will now have to install costly filtering systems that are causing many to consider closing or even converting to natural gas.

State Senator Brandon Smith said he isn't as worried about this two-year budget cycle because the money has already been allocated and set aside. He does, however, foresee issues with a decline in coal severance in the next couple of years.

"That money is already in the bank. Where you will see problems is not this budget cycle, but in the next two years," Smith said, adding that this was one reason officials continued to allocate funds for water lines and the University Center of the Mountains in order to continue to build infrastructure in Perry County.

As for this year, Steele said is hopeful and eventually all of the allocated funds from coal severance can be paid out even if they are not at the times they are expected.

"Until we get something done at the federal level our future is so uncertain," said Steele.

In Perry County this is certainly the case with several major projects hanging in the balance. Water projects that have been slated for the next few years are being funded in part by coal severance as well as the proposed Chavies sewer plant. While the water lines can wait until the money comes available, the sewer plant cannot. Noble said that the rest of the funding sources will no longer be available for the plant it the coal severance is not there with in a year.

For the first time in a long time, Noble said that Perry County is having to look at other options for funding such as low interest loans and grants.