As U.S. coal production decreases, local governments in mining-dependent areas whose public services and debt rely on a robust coal industry are facing what one recent report called a “fiscal tsunami.”
“A sharp decline in coal production jeopardizes the fiscal health of local governments, degrading their abilities to provide adequate public services and issue and serve debt,” found a report by Columbia University’s Center on Global Energy Policy and the Brookings Institution released this month.
The impacts may be especially strong in the coalfields of Central Appalachia, which has seen “the most concentrated job losses” among all of the localities whose economies are closely linked to the coal mining industry. Columbia and Brookings calculate that between 2007 and 2017, coal production east of the Mississippi fell 36 percent, compared to the 30 percent decline to the west.
Over the same period, Virginia Department of Minerals, Mines and Energy data show that the state’s coal production fell by 50 percent, from 24.9 million short tons to 12.8 million short tons, while employment declined 30 percent.
Seven Virginia counties — Buchanan, Dickenson, Lee, Russell, Scott, Tazewell and Wise — and the city of Norton continue to be heavily engaged in coal mining. Dickenson and Buchanan in particular are identified in the Columbia/Brookings report as the fifth and sixth most mining-dependent localities in the nation, with about 17 percent and 16 percent of their labor force engaged in the industry in 2015.
Besides the property and sales taxes and employment that these localities derive from the industry, they are also allowed by the state to levy coal severance taxes, or taxes on the value of the coal that is “severed” from the jurisdiction’s land.
As energy sources have moved away from coal toward natural gas and renewables, these revenue streams have declined, constricting the budgets of localities that continue to rely heavily on coal.
Furthermore, as the Columbia/Brookings study reports, “estimates of the direct linkages between the coal industry and county budgets will almost certainly understate the risks because lost economic activity and jobs will have ripple effects across the economy.”
One potential ripple effect identified is the heightened risk of default on municipal bonds issued by cash-strapped communities during times of greater prosperity.
Case studies of the bonds issued by three of the nation’s most coal-dependent counties found that none of the bonds’ official statements, which are used by investors to assess risk, directly address how climate policy and coal declines impact the issuing county’s fiscal condition. Instead, statements tend to be “vague and generic” and are often not updated to reflect changes in energy markets and regulation.