Reckoning in coal country: How lax fiscal policy has left states flat-footed as mining declines

What happens when a $28.6 billion industry spirals into permanent decline? 

Rose Evenson’s mining roots run deep.

Her grandfather and uncles worked at the Homestake gold mine in Lead, South Dakota. As Homestake wound down, a lot of its miners went to work at Powder River Basin coal mines just across the border in Wyoming.

In the 2000s, Evenson and her brother followed and took jobs at Black Thunder mine — about a 1.5-hour commute from her South Dakota home in the Black Hills. 

“I thought I’d be a coal miner until I retired, but things changed,” said Evenson, 55. “It got stressful because you were always wondering, ‘Is this the month? How long do I have here?’ Every year it kept getting slower and slower, and I kept thinking, ‘God, I got to do something else.’”

This spring, after 13 years at Black Thunder, Evenson took a buyout package. Many of her colleagues did the same and moved to places like Utah, Indiana and Missouri. Evenson worked part time this summer for the local parks department in South Dakota while training for her commercial driver’s license.

“[Black Thunder] was a great place to work,” Evenson said. But job prospects elsewhere in the region are bleak. “There ain’t nowhere in this whole area — South Dakota, Montana or Colorado — [where] if you ain’t working for a coal mine you ain’t making much money. But I don’t see coal mines booming anytime soon.”

“Transition in Coal Country” is a collaboration of the Energy News Network and WyoFile, made possible by a grant from the Just Transition Fund. The series, reported by Mason Adams and Dustin Bleizeffer, examines how the declining coal industry presents immediate and long-term changes for coal communities in Wyoming and Appalachia, how those communities are coping with change, and what they might learn from each other in charting a path to a sustainable future beyond coal.

Read the rest of the series:
Part one: What’s next for coal country?
Part two: Coal country faces a healthcare crisis
Part three: Coal communities increasingly rely on federal health programs

Evenson’s assessment of the industry’s future stands in contrast to legislative action in coal states, where for decades a dogmatic belief in coal’s longevity has guided fiscal policy that has in some cases actually made it harder for coal-region economies to diversify.

And while thousands of mining jobs are being lost around the country, coal’s collapse carries ramifications that reach far beyond coal towns themselves, affecting downstream industries with larger geographic footprints. Railroads, for example, are slashing jobs along coal routes in response to declining shipments between coal mines and the power plants they serve. Manufacturers of equipment used in the coal industry have taken a hit as well.

So what happens to communities in coal-producing regions when a $28.6 billion industry spirals into permanent decline? 

High-salary workers like Evenson either retire earlier than planned or search for another, most likely lower-wage, job. Some move away and many become more reliant on social health services.

Businesses lose customers and healthcare providers see fewer patients with adequate insurance. Charitable giving among businesses to support local nonprofit social services dries up just as the need for such services skyrockets. Locally and regionally, revenues to support government services plummet, triggering budget cuts — often to the very programs most needed to maintain a quality of life and transition to more sustainable economies.

Wyoming also disproportionately relies on tax revenue from mineral extractive industries to fund education. Since 2016, the state has made cuts and dipped into savings to help staunch a growing K-12 education budget shortfall, now about $515 million over the next two years. The situation only looks to intensify.

Part of Wyoming’s emergency budget-cutting in the energy downturn and COVID-19 pandemic — so far $250 million with more cuts to come — includes an undetermined number of layoffs among teachers and state workers, according to Gov. Mark Gordon. Those job losses will hit local economies everywhere. The revenue picture in Wyoming is so bad right now that if all of the state’s roughly 7,500 state employees were laid off today, the savings still would not cover the estimated $1.5 billion biennium budget deficit.

“We spend every capital gain we get. We are living from hand to mouth as a state,” Gordon said in his opening remarks during a recent public forum on the state’s tax and revenue picture.

In many ways, 2020 is the reckoning that Wyoming and other coal communities never thought possible. Analysts predict closures among coal mines once considered “crown jewels,” and the state’s revenue is in freefall.

“When I started, we honestly believed coal was a 200-year asset,” said Sen. Cale Case, a Republican from Lander and an economist and 25-year veteran of the Wyoming Legislature. “Nobody has planned very well for what happens post-coal.” 

Haul trucks at the Black Thunder mine in Wyoming prepare to dump a payload of coal into a “hopper,” which will crush the large chunks and deliver the raw fuel to a train silo via conveyor. (photo by Dustin Bleizeffer / WyoFile)

A tax structure becomes a liability  

Over the past 50 years, Wyoming has built a tax-and-revenue structure that not only narrowly relies on extractive industries to fund basic government services, but actually works against any economic diversification beyond extractive industries. 

Wyoming’s structural tax-and-revenue conundrum can be summed up in this dataset: The average household of three with an income of $60,000 and a home valued at $200,000 in Casper paid $3,070 in state taxes in 2017 but received $27,500 in public services, according to state data compiled by the Wyoming Taxpayers Association. That is the result of the state’s reliance on mineral extraction to pay the bulk of government services — about 70% of the state budget in 2000 and 52.2% of the state budget in 2017.

So even if Wyoming is successful in growing its non-mining industries, those new businesses and employees will be more of a drain on the budget than a contributor to it without reforms to the state’s tax and revenue structure. 

“This is just a difficult question because they’re not going to replace coal [revenue],” Wyoming Taxpayers Association Executive Director Ashley Harpstreith said. “Until we change our tax structure, there’s no way to replace that revenue.”

This isn’t the first time a commodity downturn has forced Wyoming leaders to consider reforming the state’s tax-and-revenue model. For example, the Tax Reform 2000 report was spawned by a prolonged downturn in energy in the 1990s. But the report’s key recommendations, which included imposing corporate and income taxes and closing a series of exemptions, were quickly shelved when the next boom came along: coal-bed methane gas in the early 2000s. 

For decades, lawmakers have sidelined discussions about recalibrating lodging and gasoline taxes, as well as considering a corporate or personal income tax. Today, however, there’s renewed interest in reexamining Wyoming’s Tax Reform 2000 report as a starting point for potential reform. The Wyoming Taxpayers’ Association hosted an online forum, “A Twenty Year Review of Wyoming Tax Reform 2000,” in July that featured several experts and elected officials. 

But whether Wyoming officials — and the voters who elect them — have the appetite to impose new taxes on themselves remains a big question.

Sen. Eli Bebout, a Republican from Riverton, said he believes, even in light of the COVID-19 economic crisis, Wyoming has more of a spending problem than a revenue problem, alluding to a longstanding strategy among lawmakers to “cut-and-cope” during energy downturns. 

Former Sen. John Hines, a Republican from Gillette who led the Tax Reform 2000 effort, said he sees little evidence that Wyoming is prepared to take on tax reform. “I’ve been asked a lot in the last 20 years, ‘When is Wyoming going to do something different?’ I say, ‘When all of our savings is gone.’”

Coal losses hit basic services

The ways in which communities receive revenue from the coal industry vary by state. Kentucky, Virginia, West Virginia and Wyoming have different approaches for collecting, sharing and distributing coal-related taxes to localities. However, all four use a state severance tax. Local governments in all four rely on property taxes as a primary revenue source. All of these revenues are declining.

Take Kentucky: The state coal severance tax historically has gone to local government through two funds, focused respectively on economic development and economic assistance.

“The theory was those resources were supposed to be used to create infrastructure so that when coal’s depleted, those areas can continue to thrive,” said Pam Thomas, senior fellow at the Kentucky Center for Economic Policy. “The reality is, those were used for everyday expenses, and things like sports stadiums, senior citizen centers and planting flowers in medians. They did do some industrial parks, but didn’t have the roads and broadband and other infrastructure needed to support those parks. A lot of the time, those parks were created and sat empty.”

Revenue sources including personal property and gas taxes have declined, too.

“We had a big structural deficit at the state level in Kentucky before COVID happened,” Thomas said. “The rainy day fund at the state level is almost zero. The capacity of the state in general to weather the storm we’re in now is diminished. The state doesn’t have many resources to help local governments. Absent federal aid, there really isn’t a lot of help.”

Coal severance collections have plummeted. In Letcher County, Kentucky, for example, tax receipts fell 89% from 2009 to 2019, and the county’s workforce fell by 25%. That decline squeezed the county’s budget, which shrunk by 40% between 2012 and 2018. The county tried to increase revenue by taking more state prisoners into its local jail, with the result that the jail has become one of the most overcrowded in Kentucky, a problem that has become even more consequential during the pandemic.

Elsewhere in Kentucky, local governments have enacted partial government shutdowns or cut into basic services such as waste management and law enforcement. Many places have failed to maintain and build infrastructure that’s necessary for an economic transition from coal, resulting in failing water systems, flooding and other crises.

“All of the water in the coalfield areas is impaired by mining,” said Mary Cromer, deputy director of the Appalachian Citizens Law Center. “It’s so pervasive, it’s hard to say exactly how it affects growth or development or the chance for anything else around here. It puts a strain on water treatment systems.”

Water isn’t the only problem. As broadband internet has become even more important for working during the pandemic, Kentucky lags the rest of the country in high-speed internet access, in part because a $1.5 billion initiative to wire the state is running behind schedule and over budget.

Infrastructure challenges make economic development more difficult in a region where rugged terrain and relative inaccessibility pose inherent obstacles. 

Cattle graze on a reclaimed portion of Peabody Energy’s Caballo mine in the Powder River Basin. (photo by Dustin Bleizeffer / WyoFile)

Mine reclamation: an opportunity and potential risk

Appalachian communities are struggling not just with the effects of coal’s decline on revenues, but also on the land. A 2016 Duke University study showed that extensive mountaintop mining, using techniques that blow the tops off ridges and deposit the debris in nearby valleys, has left parts of central Appalachia 40% flatter than before. Toxins from those mine sites are leaching into waterways.

Mine reclamation, required under the Surface Mining Control and Reclamation Act of 1977, has the potential to replace some lost coal jobs while preparing the land for new uses. But it also represents a massive liability with a history of misuse. More recently, reclamation has become a liability that the coal industry is deftly shirking through bankruptcy and the assistance of policymakers desperate to help mitigate the industry’s financial woes. 

Between 2012 and 2017, Alpha, Arch Coal, Patriot Coal and Peabody Energy shed nearly $5.2 billion owed for reclamation and miner benefits, in part by spinning them off to other companies, according to a Stanford Law Review study. 

Blackjewel, which held mining permits in Kentucky, Tennessee, Virginia, West Virginia and Wyoming, acquired more than 80% of its holdings from previous coal bankruptcies, including by Alpha Natural Resources and Arch Coal. In 2019, Blackjewel itself filed for bankruptcy, which played out in chaotic fashion and saw the company trying to jettison its own, largely secondhand, obligations. Its more productive mines and facilities were picked up by other companies, who simultaneously jockeyed to avoid its unreclaimed, unproductive mines. All this time, those unreclaimed mines have racked up reclamation violations.

“What we’re seeing is the inevitable end game of the industry here,” said Willie Dodson, central Appalachian field coordinator for Appalachian Voices. “What we’re seeing with the Blackjewel bankruptcy is this large number of permits that no reasonable person would expect to make money out of, different entities trying to shove them off on one another, and state regulators and insurance companies increasingly satisfied to just have any coal company on the hook, just to shield themselves from having the reclamation obligation.”

Wyoming strengthened its bonding and surety requirements for mine reclamation in 2019 in  response to coal company bankruptcies and moves to shed their cleanup liabilities. But taxpayers in the state could still get stuck with huge cleanup costs if a handful of companies forfeit bonds and walk away from their reclamation obligations.

Stacy Page, board member of the landowner advocacy group Powder River Basin Resource Council, said she worries that as profits shrink, coal companies will fall further behind on concurrent reclamation work, or lay off workers on reclamation crews. 

State regulators have been lenient in enforcing reclamation, looking for ways to let coal companies catch up on payments for violations instead of forfeiting the bonds set aside for reclamation should the company default, according to advocacy groups. The alternative is letting those costs fall on state taxpayers.

That’s because, critics say, most state systems for setting bonds are structurally flawed. In some cases, states allowed companies nearly $4 billion in “self bonds,” or guarantees that they had the money to reclaim mines. The majority of that amount was for companies that eventually went bankrupt. Many states no longer allow self-bonding. 

Kentucky, Virginia and West Virginia still all use bond pools, a collective fund paid into by coal operators. Bond pools work like insurance; if a mine operator goes under and can’t pay for reclamation, the difference is paid from the bond pool. 

However, all three central Appalachian states face situations where one operator’s bankruptcy threatens to completely destabilize their bond pools. In Kentucky, it’s Blackjewel. In Virginia, it’s companies that belong to the family of West Virginia Gov. Jim Justice. In West Virginia, it’s mines owned by Tom Clarke, who feuded with Justice before becoming a coal baron himself.

Their mines sit unreclaimed, scarring the landscape and leaking pollutants. They act as anchors slowing attempts by coal communities to build new economies. 

“If mines just sit unreclaimed because nobody is in a financial position to do that, the risk of flash floods and landslides and debris being washed off-site is just going to become worse,” Dodson said. “Any long-term treatment that is needed for water quality is not going to be happening. It’s pretty hard to keep your young people if places are dangerous and polluted. It’s certainly difficult to attract investment in that kind of place.”

Although surface coal mines in the Powder River Basin generally have a better environmental track record than historic and mountaintop removal mining in Appalachia, they still pose significant environmental and health risks if neglected.

Groundwater is a critical resource on the high arid plains, and in the past, mines have exceeded dust standards — a respiratory hazard. A surface mine in Wyoming, if left abandoned, could fill with toxic water, and leave hazardous highwalls and coal seams that could catch fire and burn underground for decades. Properly reclaiming disturbed surface in the Powder River Basin is essential to ongoing agricultural operations and the region’s wildlife.

The reclamation obligation for the thousands of square miles of surface mines in the Powder River Basin adds up to nearly $2 billion — which represents a financial and jobs opportunity that can help miners and service companies just as mines are closing. Coal Mine Cleanup Works, a July report by the Western Organization of Resource Councils, suggests reclamation at surface mines in five western states could create between 4,893 and 9,786 full-time jobs, mostly in Wyoming.

No coal community can afford to squander those reclamation opportunities, said Kate French, regional field organizer for the Western Organization of Resource Councils. She said there’s a tendency among policymakers to ease standards on the industry in the hopes and promise it will extend how long mines can operate, but it comes at a huge risk.

“That approach to helping the industry and, ostensibly, to help out the workers is rooted in something that is no longer the reality today,” French said. “It doesn’t matter how many regulations you cut or how many incentives you give the companies — the market doesn’t want  [coal]. It’s not going to change what’s happening in energy in the nation and around the globe.

“I think a lot of coal companies like to obscure where that [reclamation] money comes from,” French continued, adding that it comes from coal companies — a cornerstone to the deal they struck with the American people to mine coal in the first place. “They’ve been making money hand over fist for quite a while; why not give back to the communities that have really supported these coal companies and invest in them and invest in job creation?”