Despite a surfeit of testimony indicating that a cut in the severance tax on steam coal will not have significant impact in making West Virginia coal price competitive with other states or with natural gas, the Senate Finance Committee advanced legislation to phase down the tax from 5 percent to 3 percent over three years (House Bill 3142).
While senators heard from economists saying the tax cut, which ultimately will reach $60 million a year, will have nominal effect in slowing the ongoing decline in demand for steam coal, they heeded the advice of Sen. Eric Tarr, R-Putnam, who said, “The more easy we make it to do business in West Virginia, the more revenue we generate.”
When a voice vote on the bill appeared in favor of the “nays,” Finance Chairman Craig Blair, R-Berkeley, immediately declared the motion adopted, and there was no request for division on the vote.
Earlier, West Virginia Coal Association Vice President Chris Hamilton cited a PricewaterhouseCoopers study that he said indicates the tax cut would create more than 400 mining jobs and generate $435 million in new economic activity.
“They indicated this is going to pay for itself six times over,” he said.
However, Deputy Revenue Secretary Mark Muchow set lower expectations for the cut, saying it might slow the ongoing decline in steam coal production a bit.
“You may see mining employment decline at a slightly slower pace than it’s currently declining,” he said.
Likewise, Sean O’Leary, policy analyst for the West Virginia Center for Budget & Policy, noted that when the state repealed a 56-cents-per-ton Workers Compensation surcharge on coal in 2017, it had no measurable impact on coal employment or production. Like the proposed severance tax cut, he said, that reduction amounted to about $64 million a year in savings for the coal industry.
“Coal’s main competition is natural gas,” O’Leary said. “This bill is not going to make natural gas less attractive.”
Hamilton, however, told senators he foresees a much more significant impact.
“We’re wanting to get back to where we were in 2008. We want to get back to 150 to 160 [million] tons,” he said. In 2018, West Virginia steam coal production was about 60 million tons.
Several senators raised concerns that the state might see little benefit from a significant tax cut.
“I don’t think that, when you do a cost-benefit analysis, that the numbers work here,” said Sen. William Ihlenfeld, D-Ohio. “I don’t think this bill is fiscally responsible.”
Sen. Doug Facemire, D-Braxton, who grilled Hamilton over how the roughly $2-a-ton cost savings could possibly make West Virginia coal more competitive with other states or with natural gas, was more blunt: “Do we really think the best thing we can do with $120 million is cut the severance tax on coal? Do we really think that’s the best thing we can do with our money?” he said, referring to the cost of the three-year phase-in.
Unlike the House version of the bill, which would cut the tax by 1 percent a year over two years, the Finance Committee adopted a three-year phase-in, with tax cuts of $20 million, then $40 million before the full 2 percent cut is implemented in the third year.
Blair assured senators that they would be able to balance the 2019-20 state budget with the loss of that $20 million in revenue, particularly since the House of Delegates on Tuesday removed a $110 million appropriation from a Senate bill setting up a state fund for secondary road maintenance (Senate Bill 522).
“I’m confident, if we do this piece of legislation, it would not be putting into any budgetary issues,” he said.
The bill now goes to the Senate floor.