Blog Series: The Impact and Future of the W.Va. Coal Economy

Over the next several weeks, we will be publishing several blog posts examining the facets of the coal economy in West Virginia. We recently published a report looking at the fiscal impact of coal on the state budget. It found that while coal does provide millions in revenue and thousands of jobs, it also costs state residents millions in outlays and subsidies. The Impact and Future of the W.Va. Coal Economy will be our first blog series and we hope to broaden the dialogue by providing an overview of the role and significance of the coal industry and the growing challenges that coal faces in the Mountain State.

Over the last few years there’s been a growing, and often heated, debate about the future of coal in West Virginia. The coal industry (and its cohorts ) have been making the case that further EPA regulation of mountaintop removal permits and the federally proposed cap-and-trade legislation are a threat to the coal industry and the livelihood of the state.  This point of view has been aided with reports such as this one and this one. On the other end of the spectrum, environmental groups and others have been pushing for the abolition of mountaintop removal – which will cost coal jobs – and alternative economic strategies like wind power.

As Rick Wilson points out in this essay, the story has all the characteristics of a Greek Tragedy, of workers forced to choose between their jobs and culture on the one hand and the degradation of the environment on the other – either way, it’s not going to be good.

To start things off, pasted below is a chart showing historical mining production (per short ton) and employment in the mining industry. It doesn’t take a rocket scientist to see that employment in the coal mining industry has been on a steady decline over the last 60 years. Today it accounts for less than 3 percent of total employment, while in 1950 it made up 23 percent. This is largely due to the mechanization of coal production and the increase in large scale MTR mines. Over the same period, production has been relatively steady fluctuating between 100-165 million tons.

 The coal industry is also contributing less to the state’s economy, as shown below. In 1975, the coal industry was almost 20 percent of our state’s GSP (Gross State Product aka State GDP). Today, that number has dropped to about 6 percent. This chart can make you wonder how studies like this one from WVU and Marshall claim that in 2008 the coal industry generated (directly, indirectly and induced) over $25.5 billion or 42% of West Virginia’s GSP. If that’s true, what did the coal industry generate in 1975 when it was three times bigger?

While employment in coal mining has increased slightly over the last couple of years, the overall trend is a continued decrease in coal employment in West Virginia. (Paul will have more to say on future projections in the next post)

These graphs should convince lawmakers and others that coal mining jobs – with or without cap-and-trade and MTR regulation – are declining and that the state should be putting its best foot forward toward building alternative growth strategies.

Daily Mail says that the Earth is Flat

While the Daily Mail didn’t really say the earth is flat, their editorial this morning on Bush’s tax cuts reflects the same logic. They argue that Bush’s tax cuts fueled the economic recovery after the 2000/2001 recession, that the cuts haven’t added to the deficit, and that the tax cuts really helped the non-rich. As most people already know, the economic recovery – which was the weakest post-war recovery on record – was fueled by the housing bubble, not tax cuts.

As for the deficit, let’s bring out this little chart once again.

The real stunner in this editorial is that that Bush tax cuts have significantly helped most West Virginians. They even argue that the Estate Tax reductions helped non-rich West Virginians. This is pure poppycock, as the British are fond of saying.

Under the Republican proposal to extend Bush’s tax cuts, over 84 percent of the cuts would go to those with annual income over $60,000.

As CTJ, shows in this report :

  • Under the Republican approach, the bottom 60 percent of West Virginia taxpayers would pay $117 more in 2011, on average, than they would under President Obama’s approach.
  •  Under the Republican approach, the richest one percent of West Virginia taxpayers would pay $18,069 less in 2011, on average, than they would under President Obama’s approach.
  • Under the Republican approach, the richest one percent of West Virginia taxpayers would receive 23.9 percent of the total tax cuts going to the state in 2011.

Nearly 2,200 West Virginian Working Families Could See Federal Child Tax Credit Eliminated In 2011

The 2009 Recovery Act enhanced the federal Child Tax Credit (CTC) to allow low-income working parents to count more of their wages toward the credit. According to CBP analysis of Census data, this resulted in approximately an additional 2,200 West Virginian households (those earning between $9,950 and $12,500 annually) receiving the refundable credit in 2009 (and again for tax year 2010) to better support their children.

While President Obama has suggested that these parameters be extended beyond 2010, Congress has yet to act. Come January, not only will 2,200 households around the state suddenly not qualify for the federal Child Tax Credit (different from the federal Child Care Tax Credit), many of the ones who still do will receive smaller benefits. 
For example, if the improved credit now in effect is allowed to expire, a family with two children in which one parent is full-time at minimum wage will see its CTC fall drastically from $1,725 to $248. And a family with two children will not qualify for a full credit until its annual earnings reach $26,183.
According to a June report by the Center on Budget and Policy Priorities, these changes will disproportionately harm children living in rural areas. Obviously, this is bad news for West Virginia’s youth, who will be hit harder by this policy change than their counterparts in surrounding states:
Cutting tax credits to working families, just like cutting unemployment benefits, is not going to help the economy. While tightening the purse strings during a recession may seem like the right thing to do, what’s prudent in personal finance and what’s prudent in public finance are not always the same.  
Provisions like the CTC that provide money for working families who will spend it right away – because they have bills that need to be paid for now – stimulates the economy, exhibiting an enormous multiplier effect when compared to tax cuts for the wealthy, the persistent conservative rallying cry (in addition to the gutting of essential social programs) in bleak economic times. 

Behind The Curve On Incentives For Renewable Energy & Energy Efficiency

According to the Database of State Incentives for Renewable & Efficiency (DSIRE), West Virginia is way behind the curve when it comes to providing financial incentives for renewable energy and energy efficiency, compared to surrounding states. 
Let’s start with renewable energy. Kentucky, Maryland, North Carolina, Ohio, Pennsylvania, and Virginia each offer an average of approximately 21 financial incentives for varying forms of renewable energy. 
West Virginia has three.
West Virginia could go a long way in improving this situation by simply expanding some of its existing tax provisions to include solar power, instead of just wind. The state’s property tax incentive lowers the tax base on utility-owned wind turbines to as little as 25 percent of fair market value. The corporate exemption reduces business and occupations (B&O) tax from 40 to 12 percent of generating capacity for wind turbines. Both of these should include solar farms, as well. 
The situation does not get any better when it comes to promoting energy efficiency. Kentucky, Maryland, North Carolina, Ohio, Pennsylvania, and Virginia each offer an average of approximately 29 financial incentives for varying forms of energy efficiency. 
West Virginia has two.
West Virginia’s two incentives for energy efficiency – a “tax holiday” on Energy Star products during September and November and an appliance replacement rebate funded through the American Recovery and Reinvestment Act (ARRA)  – are both merely temporary measures. The state has no long-term programs in place to promote energy efficiency.
The state would be wise to model a program after Maryland’s ambitious Project Sunburst, which seeks to equip numerous public buildings throughout the state with renewable energy systems, creating numerous jobs and saving immense taxpayer money in the long run by trimming the operating budgets of various schools, offices, and libraries for years, perhaps decades to come. This is exactly the kind of creative, Keynesian economic policy the state needs to stop the bleeding in the labor market and get West Virginians back to work.    
Granted, when it comes to the private sector, tax credits alone won’t change the business climate. (And some of the discrepancy above is due to other state’s private utility companies offering rebate programs, while West Virginia’s offer none.) But when it comes to renewable energy and energy efficiency – components of a burgeoning economic sector that can create new jobs, safe public and private money, and protect West Virginia’s environment – state policymakers should take any and all measures to play catch-up. 

What Does it Mean to Have a Good Business Climate? It’s More Than Taxes

Every year, the Tax Foundation releases its State Business Tax Climate Index. Every year, West Virginia fares poorly in this ranking, this year we come in at 37. The argument is that taxes matter to businesses, they affect business decisions, job creation and the long-term health of a state’s economy. Therefore, a state with low tax costs will be more likely to attract business development and have a healthy economy. A particular state’s tax climate is important, as state’s will compete with their neighbors and business will choose to locate in the those states with the most favorable tax climates.

But taxes only tell part of the story, and the example of Minnesota and South Dakota demonstrate this. South Dakota is consistently ranked as among the best tax climate states, this year they are number 1. South Dakota’s neighbor Minnesota on the other hand, usually ranks near the bottom, 43 this year. So it makes sense then that South Dakota’s much more favorable tax climate would lead to a much stronger and vibrant economy than in Minnesota, seeing that the states are in close proximity to each other and the disparity in their tax climates is so great. Well, let’s take a look.
Source: Tax Foundation, US Census Bureau, and Bureau of Economic Analysis

Minnesota, despite a substantially worse business tax climate than its next door neighbor, has a higher per capita income, higher job earnings, higher hourly wages, higher household income, a more educated population and a lower level of poverty than South Dakota.
So what does this suggest? While taxes are important for a state’s business climate, they are not the main driving factor. Businesses also need high-quality, well-administered public services. Studies have shown  that states with high-quality public services, including good infrastructure and quality schools and colleges that produce a skilled and well-trained workforce, have excellent business climates. On the other hand, states that sacrifice quality public services in order to cut taxes, in the hopes that low taxes will improve their business climate, may end up disappointed.

Working Parents Will Suffer If Federal Child Care Credit Sunsets

Working families in West Virginia could see less child care support next year. If Congress doesn’t take action before January, the federal Child Care & Dependent Tax Credit (CCDC) will revert to its 1990s form, reducing the amount of child care assistance parents receive across the board. 
Currently, the CCDC reduces the total tax bill of working parents, depending on income, family size, and child care costs. In very few cases, this can amount to as much as $1,050 for one child and $2,100 for two or more children. The maximum credit for families with yearly earnings of $43,000, however, is $600 for one child and $1,200 for two or more children.
These amounts are already meager when compared to average child care costs around the state, but the situation could become even worse if Congress allows the good provisions of the Economic Growth Tax Relief Reconciliation Act (EGTRRA) to sunset.   
This would result in an inferior CCDC that reduces the lowest income bracket from $15,000 and less to $10,000 and less and the upper bracket from $43,001 and up to $28,001 and up. The maximum possible credit would also regress to $720 for one child and $1,440 for two or more children. All families who use child care would experience these reductions in child care assistance, which could amount to over $800 in some instances.
The following table shows the cutback in child care assistance working families could endure in the very near future.
Child care is a necessary cost of employment. Affordable child care not only helps parents gain and maintain employment, it creates jobs in the child care sector, stimulates other sectors of the economy, and provides crucial developmental benefits and safe environments for West Virginia’s children. According to the U.S. Census Bureau’s American Community Survey (2006-2008), there are nearly 170,000 households in West Virginia with children under the age of 13. Over 76,000 of these families are living at 200 percent of the federal poverty level or below, likely struggling to meet basic needs like child care, often despite full-time employment. 
State policymakers should monitor this situation closely and consider keeping pace with the 27 other states (including most of West Virginia’s neighbors) that have state child care tax provisions by creating a state child care tax credit. A state credit should complement the federal CCDC and effectively target working families who need child care so they can work – and work so they can afford child care.
For more reading on the federal CCDC, various state credits across the country, and ideas to keep in mind when constructing a state credit for West Virginia, try this excellent report by the National Women’s Law Center.

Cap-and-Trade Doesn’t Have to Cost WV Jobs

As many know, the fears of job loss from federal cap-and-trade legislation runs high in West Virginia. WVU predicts that it could cost West Virginia 25,00 jobs unless significant worker protections and new capital toward sustainable energy development are included in the legislation. 

This doesn’t have to be our fate. We CAN have a cap on carbon emissions and protect West Virginia workers. In fact, there is already legislation in the hopper that represents a valuable step forward in protecting worker and communities affected by climate legislation. It’s called the American Worker and Community Assistance Act and it was introduced by Senator Bob Casey and cosponsored by Senator Sherrod Brown. This bill, among other things, would provide those that have lost their jobs do to climate change legislation with 70% of their wages for three years. It also provides a health care and relocation allowance, job training and employment guidance, and grants to communities for economic development. The legislation could be strengthened with more funds for economic diversification projects such as green jobs, more money for education, and it could guarantee that no worker would lose their pension or health coverage. We could also incorporate ideas such as these so that we are building a more sustainable bridge toward the future.The costs of implementing such a strategy would be far less than many of the other solutions to addressing carbon emissions. (side note: The CBO has issued a fiscal note on the bill).

Hypothetically, if we provided a ten-year $50,000 subsidy to each of the 25,000 workers who *could* lose their job due to climate legisation it would cost $12.5 billion over 30 years. This is only a fraction of the $200 billion subsidy that lawmakers are considering for CCS (which should also be considered).

Approaching the cap-and-trade bill from the lens of working families would also give advocates a big leg up over the industry folks who are often exploiting the inadequacy of worker protection provisions to gut or defeat climate legislation.

WV CBP and Downstream testifing Monday on Coal’s Costs to the Budget

Rory Mcllmoil  (Downstream Strategies ) and I will be testifying Monday, July 19 at 11am to the Subcommittee B of the Joint Standing Committee on Finance on our report, “The Impact of Coal on the West Virginia State Budget.”

We will be joined in adiscussion of coal’s impact on the West Virginia state budget and the stateeconomy by Dr. Tom Witt of West Virginia University and Dr. Cal Kent of Marshall University, authors of “The West Virginia Coal Economy, 2008,”released in February 2010.

This should be a lively discussion. Hope you can make it.

A final word on unemployment benefits (maybe)

Jumping off from from my previous entry about unemployment benefits, I wanted to share this chart, which was presented to the House Budget Committee earlier this month by Mark Zandi, the chief economist of Moody’s Economics and former economic adviser to Senator John McCain during his presidential run. Mr. Zandi’s full testimony is available here, and is worth a look. It provides a great overview of the government’s efforts to combat the Great Recession, what the effects have been, and what we should look at going forward.

This chart is what caught my interest in Mr. Zandi’s testimony, particularly as the Senate is set to try and extend unemployment benefits again next week.
According to Moody’s Analytics, extending unemployment benefits is one of the most effective stimulus measures, 5 times as effective at stimulating the economy than making the Bush tax cuts permanent. Also very effective is financing work-sharing programs. Sounds familiar. 
And to add even more interest to the story, the Senate’s ability to pass an extension on unemployment may come down to the vote of Governor Manchin’s pick to temporarily replace Senator Byrd.  

Tax cuts and unemployment extensions: both will add to the deficit, only one will help unemployed West Virginians.

There is a lot of buzz lately at the national level regarding tax cuts, unemployment extensions, and the federal deficit. Last month, Congress failed to pass an extension of unemployment subsidies, which means by the end of this month 13,300 unemployed West Virginians will have exhausted their benefits, putting them at risk of succumbing to the dangers of long-term unemployment.

Senator Mitch McConnell of Kentucky, who led to filibuster that defeated the bill, argued that the extension would add to the federal deficit. And, as it stood, the total bill would have added about $35.5 billion to the deficit. So in the end, the filibuster was successful, and unemployment benefits were not extended.
Earlier this week, Sen Jon Kyl of Arizona said that the Bush tax cuts for those making $200,000 and over should be extended, arguing that the cost of doing so,$678 billion over the next 10 years, does not need to be offset while the extension of unemployment benefits did. Later, in another interview,  Senator Mitch McConnell justified Senator Kyl’s remarks, asserting that the tax cuts did not cost revenue, instead they increased revenue.
This, quite frankly, is nonsense. The CBO, the Joint Tax Committeethe Brookings InstitutionPresident Bush’s Chief Economist on the Council of Economic Advisors, and his chair of the CEA all agree the Bush tax cuts added to the deficit, and extending them will continue to add to the deficit.
new report from the California Budget Project addresses the idea that cutting taxes will spur economic growth enough to cause a net increase in tax revenue. Their conclusion, and the conclusion of the economists they reviewed spanning the ideological spectrum: Tax cuts simply do not pay for themselves. For a variety of reasons shown in this report and others, even large tax cuts at the state and national level fail to generate enough economic growth to produce enough revenue to offset their costs. The California study showed a $1 billion cut in personal income taxes would result in  revenue loss of $990 million.
The bottom line is that it is time to put to bed the idea that tax cuts are deficit neutral. If $35.5 billion for the unemployed is asking too much, then $678 billion for those making over $200,000 should be out of the question.